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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended May 25, 2002

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 333-33751

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ARCHIBALD CANDY CORPORATION(Exact name of registrant as specified in its charter)

Illinois(State of incorporation)

36-0743280(IRS Employer Identification No.)1137 West Jackson Boulevard
Chicago, Illinois(Address of principal executive offices)

60607(zip code)


(312) 243-2700(Registrant's telephone number, including area code)

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Indicate
by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past
90 days. Yes ý    No o

As
of July 15, 2002, the number of shares outstanding of the registrant's Common Stock was 4,210, all of which were held by Fannie May Holdings, Inc.

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ARCHIBALD CANDY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED MAY 25, 2002

INDEX

|                                                                               |  |                                                        |  | Page No.
|------------------------------------------------------------------------------ |  | ------------------------------------------------------ |  | --------
|PART IFINANCIAL INFORMATION:                                                  |  |                                                       
|ITEM 1FINANCIAL STATEMENTS (UNAUDITED)                                        |  |                                                       
|                                                                               |  | CONSOLIDATED BALANCE SHEETS                            |  | 1       
|                                                                               |  | CONSOLIDATED STATEMENTS OF OPERATIONS                  |  | 2       
|                                                                               |  | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |  | 3       
|                                                                               |  | CONSOLIDATED STATEMENTS OF CASH FLOWS                  |  | 4       
|                                                                               |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             |  | 5       
|ITEM 2MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS |  |                                                       
|                                                                               |  | OF OPERATIONS                                          |  | 18      
|ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS             |  | 23                                                    
|PART IIOTHER INFORMATION:                                                     |  |                                                       
|ITEM 3DEFAULTS UPON SENIOR SECURITIES                                         |  | 24                                                    
|ITEM 6EXHIBITS AND REPORTS ON FORM 8-K                                        |  | 25                                                    
|SIGNATURES                                                                     |  | 26                                                    

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PART IFINANCIAL INFORMATION:

ITEM 1FINANCIAL STATEMENTS

Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidated Balance Sheets  (In thousands, except per share data)

|                                                 |                                              | May 25,
2002                          |         | August 25,
2001 |  
|------------------------------------------------ | -------------------------------------------- | ------------------------------------- | ------- | --------------- | -
|
|ASSETS                                           |                                              |                                       |         |                 |  
|Current assets:                                  |                                              |                                       |         |                 |  
|                                                 | Cash and cash equivalents                    |                                       | $       | 3,396           |  
|                                                 | Accounts receivable, net                     |                                       |         | 1,241           |  
|                                                 | Inventories                                  |                                       |         | 28,209          |  
|                                                 | Prepaid expenses and other current assets    |                                       |         | 3,621           |  
|                                                 |                                              |                                       |         |                 |  
|Total current assets                             |                                              |                                       | 36,467  |                 |  
|Property, plant, and equipment, net              |                                              |                                       | 24,908  |                 |  
|Goodwill, net                                    |                                              |                                       | 57,159  |                 |  
|Noncompete agreements and other intangibles, net |                                              |                                       | 41      |                 |  
|Deferred financing fees, net                     |                                              |                                       | 5,298   |                 |  
|Investment in joint venture                      |                                              |                                       | 2,293   |                 |  
|Other assets                                     |                                              |                                       | 1,734   |                 |  
|                                                 |                                              |                                       |         |                 |  
|Total assets                                     |                                              | $                                     | 127,900 |                 | $
|                                                 |                                              |                                       |         |                 |  
|LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)   |                                              |                                       |         |                 |  
|Current liabilities:                             |                                              |                                       |         |                 |  
|                                                 | Revolving line of credit                     |                                       | $       | 10,364          |  
|                                                 | Senior secured notes                         |                                       |         | 170,000         |  
|                                                 | Accounts payable                             |                                       |         | 10,712          |  
|                                                 | Accrued liabilities                          |                                       |         | 2,933           |  
|                                                 | Payroll and related liabilities              |                                       |         | 2,678           |  
|                                                 | Accrued interest                             |                                       |         | 15,981          |  
|                                                 | Current portion of capital lease obligations |                                       |         | 82              |  
|                                                 |                                              |                                       |         |                 |  
|Total current liabilities                        |                                              |                                       | 212,750 |                 |  
|Due to affiliate                                 |                                              |                                       | 40      |                 |  
|Senior secured notes                             |                                              |                                       |        |                 |  
|Deferred rent                                    |                                              |                                       |        |                 |  
|Pension liability                                |                                              |                                       | 1,378   |                 |  
|Capital lease obligations, less current portion  |                                              |                                       | 115     |                 |  
|Shareholder's equity (deficit):                  |                                              |                                       |         |                 |  
|                                                 | Common stock, $0.01 par value:               |                                       |         |                 |  
|                                                 |                                              | Authorized  25,000 shares            |         |                 |  
|                                                 |                                              | Issued and outstanding  4,210 shares |         |                 | 
|                                                 | Additional paid-in-capital                   |                                       |         | 18,700          |  
|                                                 | Accumulated deficit                          |                                       |         | (105,237        | )
|                                                 | Other comprehensive income (loss)            |                                       |         | 154             |  
|                                                 |                                              |                                       |         |                 |  
|Total shareholder's deficit                      |                                              |                                       | (86,383 | )               |  
|                                                 |                                              |                                       |         |                 |  
|Total liabilities and shareholder's deficit      |                                              | $                                     | 127,900 |                 | $
|                                                 |                                              |                                       |         |                 |  

See accompanying notes.

1

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidated Statements of Operations (Unaudited)  (In thousands)

|                                                                                       |  | Three Months Ended |        | Nine Months Ended |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- | -
|
|Net sales                                                                              |  | $                  | 37,325 |                   | $
|Cost of sales, excluding depreciation                                                  |  |                    | 16,243 |                   |  
|Cost of sales, nonrecurring(1)                                                         |  |                    |       |                   |  
|                                                                                       |  |                    |        |                   |  
|Total cost of sales                                                                    |  |                    | 16,243 |                   |  
|                                                                                       |  |                    |        |                   |  
|Gross profit                                                                           |  |                    | 21,082 |                   |  
|Selling, general, and administrative expenses, excluding depreciation and amortization |  |                    | 20,701 |                   |  
|Depreciation and amortization expense                                                  |  |                    | 1,973  |                   |  
|Amortization of goodwill and other intangibles                                         |  |                    | 1,054  |                   |  
|Restructuring expense(2)                                                               |  |                    | 1,328  |                   |  
|Share of loss in joint venture                                                         |  |                    | 159    |                   |  
|Management fees and other fees                                                         |  |                    | 77     |                   |  
|                                                                                       |  |                    |        |                   |  
|Operating income (loss)                                                                |  |                    | (4,210 | )                 |  
|Other (income) and expense:                                                            |  |                    |        |                   |  
|Interest expense                                                                       |  |                    | 4,487  |                   |  
|Interest income                                                                        |  |                    |       |                   |  
|Other income and expense                                                               |  |                    | 28     |                   |  
|Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries(3)             |  |                    |       |                   |  
|                                                                                       |  |                    |        |                   |  
|Loss before income taxes                                                               |  |                    | (8,725 | )                 |  
|Provision for income taxes                                                             |  |                    | 30     |                   |  
|                                                                                       |  |                    |        |                   |  
|Net loss                                                                               |  | $                  | (8,755 | )                 | $
|                                                                                       |  |                    |        |                   |  

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See
accompanying notes.

2

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidated Statements of Comprehensive Income (Loss) (Unaudited)  (In thousands)

|                                        |  | Three Months Ended |        | Nine Months Ended |  
|--------------------------------------- |  | ------------------ | ------ | ----------------- | -
|
|Net loss                                |  | $                  | (8,755 | )                 | $
|Other comprehensive income (loss):      |  |                    |        |                   |  
|Foreign currency translation adjustment |  |                    | 312    |                   |  
|                                        |  |                    |        |                   |  
|Comprehensive income (loss)             |  | $                  | (8,443 | )                 | $
|                                        |  |                    |        |                   |  

See
accompanying notes.

3

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Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

|                                                                                |                                                                         | Nine Months Ended                         |        
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------- | -------
|
|OPERATING ACTIVITIES                                                            |                                                                         |                                           |        
|Net loss                                                                        |                                                                         | $                                         | (11,131
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                                         |                                           |        
|                                                                                | Depreciation and amortization                                           |                                           |        
|                                                                                | Share of loss in joint venture                                          |                                           |        
|                                                                                | Restructuring expense                                                   |                                           |        
|                                                                                | Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |                                           |        
|                                                                                | Changes in operating assets and liabilities:                            |                                           |        
|                                                                                |                                                                         | Accounts receivable, net                  |        
|                                                                                |                                                                         | Inventories                               |        
|                                                                                |                                                                         | Prepaid expenses and other current assets |        
|                                                                                |                                                                         | Other assets                              |        
|                                                                                |                                                                         | Accounts payable and accrued liabilities  |        
|                                                                                |                                                                         | Restructuring reserve                     |        
|                                                                                |                                                                         |                                           |        
|Net cash provided by operating activities                                       |                                                                         |                                           | 12,749 
|INVESTING ACTIVITIES                                                            |                                                                         |                                           |        
|Purchase of Property, Plant, and Equipment                                      |                                                                         |                                           | (1,987 
|Disposals of Property, Plant, and Equipment                                     |                                                                         |                                           | 319    
|Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries         |                                                                         |                                           | (336   
|                                                                                |                                                                         |                                           |        
|Net cash used in investing activities                                           |                                                                         |                                           | (2,004 
|FINANCING ACTIVITIES                                                            |                                                                         |                                           |        
|Net repayments under revolving line of credit                                   |                                                                         |                                           | (9,108 
|Principal payments of capital lease obligations                                 |                                                                         |                                           | (20    
|Costs related to financing                                                      |                                                                         |                                           | (919   
|                                                                                |                                                                         |                                           |        
|Net cash used in financing activities                                           |                                                                         |                                           | (10,047
|Effect of exchange rates on cash                                                |                                                                         |                                           | 352    
|                                                                                |                                                                         |                                           |        
|Net increase in cash and cash equivalents                                       |                                                                         |                                           | 1,050  
|Cash and cash equivalents beginning of period                                   |                                                                         |                                           | 2,346  
|                                                                                |                                                                         |                                           |        
|Cash and cash equivalents end of period                                         |                                                                         | $                                         | 3,396  
|                                                                                |                                                                         |                                           |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                               |                                                                         |                                           |        
|Cash paid during the period for:                                                |                                                                         |                                           |        
|                                                                                | Interest                                                                |                                           | $      
|                                                                                |                                                                         |                                           |        
|Non-cash investing and financing activities:                                    |                                                                         |                                           |        
|                                                                                | Capital lease obligations recorded                                      |                                           | $      
|                                                                                |                                                                         |                                           |        

See
accompanying notes.

4

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Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited)
May 25, 2002

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Archibald Candy Corporation ("Archibald") and its subsidiaries (collectively, the "Company") are manufacturers and retailers of boxed chocolates and other
confectionery items. The Company sells its Fannie May, Fanny Farmer and Laura Secord candies in over 440 Company-operated stores and in approximately 9,300 third-party retail outlets as well as
through quantity order, mail order and fundraising programs in the United States and Canada. The Company is a wholly owned subsidiary of Fannie May Holdings, Inc. ("Holdings").

The
accompanying consolidated financial statements include the accounts of Archibald and its subsidiary, Archibald Candy (Canada) Corporation. For the periods prior to
November 15, 2001, the consolidated financial statements also include the accounts of Sweet Factory Group, Inc. ("SFG") and its three subsidiaries: Sweet Factory, Inc., SF
Properties, Inc. and SF Candy Companysee Note 2 below. All significant intercompany balances and transactions have been eliminated in consolidation.

The
interim financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations,
although the Company believes these disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments necessary for fair presentation for the
periods presented have been reflected and are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended
August 25, 2001. Certain amounts in the 2001 financial statements have been reclassified to conform with the 2002 presentation.

Results
of operations for the period from August 25, 2001 to May 25, 2002 are not necessarily indicative of the results that may be achieved for the entire year.

NOTE 2.    SUBSEQUENT EVENTS

On June 12, 2002, Archibald and Holdings filed petitions in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") to
commence a consolidated voluntary bankruptcy proceeding under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). Archibald and Holdings also have filed a Joint Plan of
Reorganization (the "Archibald Plan"), with respect to which holders of approximately 83% in aggregate principal amount of Archibald's 101/4% senior secured notes have executed
lock-up agreements agreeing to vote in favor of the Archibald Plan. The Archibald Plan, which is subject to the approval of the Bankruptcy Court, contemplates a significant deleveraging of
Archibald's balance sheet and the elimination of approximately $17.5 million in annual interest payments. The Archibald Plan will require, among other things, the requisite votes under the
Bankruptcy Code and must satisfy the requirements set forth in Section 1129 of the Bankruptcy Code. During the Chapter 11 proceedings, the Company does not currently expect any significant
impact on its employees, customers or suppliers. Archibald Candy (Canada) Corporation, the wholly-owned subsidiary of Archibald that operates its Laura Secord business, has not filed a bankruptcy
proceeding.

In
connection with the Archibald bankruptcy proceeding, Archibald has entered into a Post-Petition Loan and Security Agreement and Guaranty dated as of June 12, 2002
(the "Archibald DIP Credit Facility") with Foothill Capital Corporation, as Arranger and Administrative Agent, the lenders party thereto and Holdings and Archibald Candy (Canada) Corporation as
Guarantors. Pursuant to the Archibald DIP Credit Facility, the lenders have agreed to make available to Archibald

5

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a $45.0 million term loan and revolving credit facility. The proceeds of the Archibald DIP Credit Facility were used, in part, to pay-off the indebtedness outstanding under
Archibald's revolving credit facility with The CIT Group/Business Credit, Inc. ("CIT"), and are being used to fund Archibald's working capital and capital expenditure needs during the
bankruptcy proceedings.

Archibald
and Holdings will continue to manage their properties and operate their business in accordance with the applicable provisions of the Bankruptcy Code. The proceeding has been
designated as case number 02-11719.

Archibald's
management has assessed the liquidity position of Archibald and Archibald Candy (Canada) Corporation in light of the Archibald and Holdings bankruptcy proceedings and the
funds
available under the Archibald DIP Credit Facility and believes that Archibald and Archibald Candy (Canada) Corporation will be able to fund their post-petition obligations until the
Archibald Plan is confirmed.

NOTE 3.    BANKRUPTCY FILINGSWEET FACTORY GROUP, INC. AND SUBSIDIARIES

On November 15, 2001, SFG and its three subsidiaries, Sweet Factory, Inc., SF Properties, Inc. and SF Candy Company, filed voluntary
petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. In connection with the Sweet Factory bankruptcy filings, Sweet Factory, Inc. entered into a Post-Petition
Credit, Security and Guaranty Agreement (the "SF DIP Credit Facility") with CIT and SFG, SF Properties, Inc. and SF Candy Company, as guarantors. The SF DIP Credit Facility is for one year and
provides for revolving loans at any time not to exceed the lesser of (1) $2.0 million and (2) a borrowing base comprised of a percentage of Sweet Factory, Inc.'s eligible
inventory plus a $1.0 million overadvance, subject to certain reserves. The SF DIP Credit Facility provides that borrowings thereunder accrue interest at a variable rate equal to the "prime
rate" announced from time to time by J.P. Morgan Chase & Co. plus 1.5%.

On
March 4, 2002, SFG and its subsidiaries filed a Plan of Reorganization with the Bankruptcy Court. On June 5, 2002, SFG and its subsidiaries entered into an Asset
Purchase Agreement with RDR Group, a California corporation ("RDR"), pursuant to which RDR has agreed to purchase from SFG and its subsidiaries substantially all of the assets used in connection with
their business for $4.5 million in cash, subject to the approval of the Bankruptcy Court. As a result of the overbidding procedure conducted by the Bankruptcy Court on June 17, 2002, RDR
increased the purchase price to $6.1 million in order to be the winning bidder. The Company's management expects that the sale of the Sweet Factory assets to RDR will be consummated on or about
July 30, 2002. Pursuant to SFG's Plan of Reorganization, Archibald expects to receive approximately $3.7 million in cash out of the proceeds of the sale. The remaining
$2.4 million in proceeds will be applied to pay-off the SF DIP Credit Facility, to make cure payments to the landlords of those store leases that are to be assumed by RDR, to pay
administrative expenses and to make a payment to the unsecured creditors' class. Following the consummation of the sale to RDR, SFG and its subsidiaries will be liquidated. SFG's Plan of
Reorganization was confirmed on July 11, 2002 by the Bankruptcy Court.

SFG
and its subsidiaries' financial results are included in the Company's consolidated results through November 15, 2001. Accounting principles generally accepted in the United
States generally require that any entity that files for protection under the U.S. Bankruptcy Code whose financial statements were previously consolidated with those of its parent must be prospectively
deconsolidated from the parent with the investment accounted for using the cost method. The effects on the Company's balance sheet of this deconsolidation and use of the cost method are that:
(i) the Company's investment in SFG is included as a single amount and (ii) the Company's receivable from SFG is no longer eliminated. The effect on the Company's income statement is
that beginning November 15, 2001, the SFG operating results are not included in the consolidated results. At November 15, 2001, the Company's investment in SFG was a negative
$17.1 million, and the receivable had a balance of $19.4 million. Because of SFG's and its subsidiaries' bankruptcies, it was determined that the receivable should be reserved for
financial reporting purposes. That write-off was first netted

6

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against the negative investment balance, with the remaining $2.3 million recorded as a non-operating expense.

Management
has assessed the liquidity position of SFG and its subsidiaries as a result of the bankruptcy filings and available debtor in possession financing and believes that SFG and
its subsidiaries will be able to fund their post-petition obligations until the sale to RDR is consummated and SFG and its subsidiaries are liquidated.

The
condensed consolidated financial information set forth below for SFG and its subsidiaries has been prepared on a going concern basis which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the ordinary course of business. As a result of the bankruptcy filings of SFG and its subsidiaries and related events, there is no assurance
that the carrying amounts of assets will be realized or that liabilities will be liquidated or settled for the amounts recorded. In addition, a plan of reorganization, or rejection thereof, could
change the amounts reported in the financial statements of SFG and its subsidiaries and cause a material decrease in the carrying amount of the net investment.

7

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Following are the condensed consolidated statements of operations and balance sheet data for SFG and its subsidiaries (in thousands):

|                         |  | For the quarter
ended
May 25, 2002 |        | For the quarter
ended
May 26, 2001 |   | For the period of
Aug. 26, 2001 thru
Nov. 15, 2001 |   | For the nine
months ended
May 25, 2002 |        | For the nine
months ended
May 26, 2001 |  
|------------------------ |  | ---------------------------------- | ------ | ---------------------------------- | - | -------------------------------------------------- | - | -------------------------------------- | ------ | -------------------------------------- | -
|Net sales                |  | $                                  | 7,718  |                                    | $ | 14,204                                             |   | $                                      | 8,867  |                                        | $
|Operating loss           |  |                                    | (1,196 | )                                  |   | (11,796                                            | ) |                                        | (3,172 | )                                      |  
|Loss before income taxes |  |                                    | (1,208 | )                                  |   | (11,782                                            | ) |                                        | (3,175 | )                                      |  
|Net loss                 |  |                                    | (1,211 | )                                  |   | (11,788                                            | ) |                                        | (3,178 | )                                      |  

Operating
loss includes restructuring expenses of $701 and $1,611 for the quarter and year-to-date periods ended May 25, 2002, respectively. Operating loss includes $8,100 of
restructuring expenses and $1,400 of cost of sales, nonrecurring for the quarter and year-to-date periods ended May 26, 2001.

|                                          |  | May 25, 2002 |         | Nov 15, 2001 |   | Aug. 25, 2001 |  
|----------------------------------------- |  | ------------ | ------- | ------------ | - | ------------- | -
|Current assets                            |  | $            | 3,103   |              | $ | 2,620         |  
|Property, plant and equipment             |  |              | 4,183   |              |   | 5,316         |  
|Other assets                              |  |              | 749     |              |   | 772           |  
|                                          |  |              |         |              |   |               |  
|Total assets                              |  | $            | 8,035   |              | $ | 8,708         |  
|                                          |  |              |         |              |   |               |  
|Current liabilities                       |  | $            | 7,107   |              | $ | 6,079         |  
|Payable to Archibald Candy Corporation    |  |              | 19,838  |              |   | 19,383        |  
|Other liabilities                         |  |              | 273     |              |   | 371           |  
|Total stockholder's deficit               |  |              | (19,183 | )            |   | (17,125       | )
|                                          |  |              |         |              |   |               |  
|Total liabilities & stockholder's deficit |  | $            | 8,035   |              | $ | 8,708         |  
|                                          |  |              |         |              |   |               |  

Following
are the condensed pro forma consolidated statement of operations and balance sheet data of the Company, assuming the deconsolidation of SFG and its subsidiaries (in thousands):

|                                  |  | For the quarter
ended May 26, 2001 |        | For the nine months
ended May 25, 2002 |   | For the nine months
ended May 26, 2001
|--------------------------------- |  | ---------------------------------- | ------ | -------------------------------------- | - | --------------------------------------
|Net sales                         |  | $                                  | 43,698 |                                        | $ | 152,046                               
|Operating income (loss)           |  |                                    | (2,384 | )                                      |   | 8,095                                 
|Income (loss) before income taxes |  |                                    | (7,097 | )                                      |   | (7,867                                
|Net income (loss)                 |  |                                    | (7,095 | )                                      |   | (7,953                                

August 25,
2001Current assets

$
34,598Property, plant and equipment


28,699Investment in and amounts due from SFG


5,811Other assets


68,050Total assets

$
137,158Current liabilities

$
41,553Other liabilities


171,209Total stockholder's deficit


(75,604
)Total liabilities & stockholder's deficit

$
137,158


8

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NOTE 4. INVENTORIES

Inventories are stated at the lower of cost or market. Inventories are valued primarily at first in, first out (FIFO).

Inventories
at May 25, 2002 and August 25, 2001 are comprised of the following:

May 25,
2002

August 25,
2001Raw materials

$
12,703

$
12,901Work in process


267


225Finished goods


15,239


18,714$
28,209

$
31,840


NOTE 5. INCOME TAXES

The provision for income taxes differs from the amount of income tax benefit computed by applying the United States federal income tax rate due to the benefit of
the net operating losses that were not recognized.

NOTE 6. CONTINGENT LIABILITY

On January 15, 2002, the Company retained an investment banking firm to assist in the development of a plan to restructure its debt. As part of the
Chapter 11 bankruptcy filing, a $2.0 million claim relating to the investment banking firm has been classified as disputed and unsecured. The Company has not recorded a liability
associated with this claim.

NOTE 7. GUARANTOR SUBSIDIARIES

The Company's obligations under the Senior Notes are fully and unconditionally guaranteed on a senior secured, joint and several basis by each of the Company's
subsidiaries (collectively, the "Guarantor Subsidiaries"). The Company, directly or indirectly, wholly owns each of the Guarantor Subsidiaries. None of Archibald's subsidiaries is subject to any
restriction on its ability to pay dividends or make distributions to Archibald. The following consolidating financial information illustrates the composition of Archibald and the Guarantor
Subsidiaries as of and for certain dates and periods.
Separate financial statements of the respective Guarantor Subsidiaries have not been provided because Archibald's management has determined that such additional information would not be useful in
assessing the financial composition of the Guarantor Subsidiaries.

9

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Balance Sheet  As of May 25, 2002  (Unaudited)  (In thousands)

|                                               |                                   | Archibald Candy
Corporation |         | Guarantor
Subsidiaries(a) |   | Eliminations |       | Consolidated |        
|---------------------------------------------- | --------------------------------- | --------------------------- | ------- | ------------------------- | - | ------------ | ----- | ------------ | -------
|Assets                                         |                                   |                             |         |                           |   |              |       |              |        
|Current assets:                                |                                   |                             |         |                           |   |              |       |              |        
|                                               | Cash and cash equivalents         |                             | $       | 3,033                     |   | $            | 363   |              | $      
|                                               | Accounts receivables, net         |                             |         | 1,088                     |   |              | 153   |              |        
|                                               | Inventories                       |                             |         | 25,047                    |   |              | 3,162 |              |        
|                                               | Prepaids and other current assets |                             |         | 2,781                     |   |              | 840   |              |        
|                                               |                                   |                             |         |                           |   |              |       |              |        
|Total current assets                           |                                   |                             | 31,949  |                           |   | 4,518        |       |              |       
|Property, plant, and equipment, net            |                                   |                             | 16,115  |                           |   | 8,793        |       |              |       
|Intercompany                                   |                                   |                             | 26,101  |                           |   | 782          |       |              | (9,303 
|Investment in subsidiaries                     |                                   |                             | (13,771 | )                         |   |             |       |              | (3,354 
|Other assets                                   |                                   |                             | 63,763  |                           |   | 2,307        |       |              |       
|                                               |                                   |                             |         |                           |   |              |       |              |        
|Total assets                                   |                                   | $                           | 124,157 |                           | $ | 16,400       |       | $            | (12,657
|                                               |                                   |                             |         |                           |   |              |       |              |        
|Liabilities and shareholder's equity (deficit) |                                   |                             |         |                           |   |              |       |              |        
|Current liabilities:                           |                                   |                             |         |                           |   |              |       |              |        
|                                               | Revolving line of credit          |                             | $       | 10,364                    |   | $            |      |              | $      
|                                               | Senior secured notes              |                             |         | 170,000                   |   |              |      |              |        
|                                               | Accounts payable                  |                             |         | 8,927                     |   |              | 1,785 |              |        
|                                               | Other current liabilities         |                             |         | 20,289                    |   |              | 1,385 |              |        
|                                               |                                   |                             |         |                           |   |              |       |              |        
|Total current liabilities                      |                                   |                             | 209,580 |                           |   | 3,170        |       |              |       
|Other noncurrent liabilities                   |                                   |                             | 1,533   |                           |   | 9,303        |       |              | (9,303 
|Total shareholder's equity (deficit)           |                                   |                             | (86,956 | )                         |   | 3,927        |       |              | (3,354 
|                                               |                                   |                             |         |                           |   |              |       |              |        
|Total liabilities and shareholder's equity     |                                   | $                           | 124,157 |                           | $ | 16,400       |       | $            | (12,657
|                                               |                                   |                             |         |                           |   |              |       |              |        

---

10

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Balance Sheet  As of August 25, 2001  (In thousands)

|                                               |                                   | Archibald Candy
Corporation |         | Guarantor
Subsidiaries |   | Eliminations |       | Consolidated |       
|---------------------------------------------- | --------------------------------- | --------------------------- | ------- | ---------------------- | - | ------------ | ----- | ------------ | ------
|Assets                                         |                                   |                             |         |                        |   |              |       |              |       
|Current assets:                                |                                   |                             |         |                        |   |              |       |              |       
|                                               | Cash and cash equivalents         |                             | $       | 1,116                  |   | $            | 1,230 |              | $     
|                                               | Accounts receivables, net         |                             |         | 1,350                  |   |              | 102   |              |       
|                                               | Inventories                       |                             |         | 26,415                 |   |              | 5,425 |              |       
|                                               | Prepaids and other current assets |                             |         | 2,213                  |   |              | 920   |              |       
|                                               |                                   |                             |         |                        |   |              |       |              |       
|Total current assets                           |                                   |                             | 31,094  |                        |   | 7,677        |       |              |      
|Property, plant, and equipment, net            |                                   |                             | 19,551  |                        |   | 14,847       |       |              |      
|Intercompany                                   |                                   |                             | 19,031  |                        |   | (19,031      | )     |              |      
|Investment in subsidiaries                     |                                   |                             | (2,008  | )                      |   |             |       |              | 2,008 
|Other assets                                   |                                   |                             | 66,049  |                        |   | 2,893        |       |              |      
|                                               |                                   |                             |         |                        |   |              |       |              |       
|Total assets                                   |                                   | $                           | 133,717 |                        | $ | 6,386        |       | $            | 2,008 
|                                               |                                   |                             |         |                        |   |              |       |              |       
|Liabilities and shareholder's equity (deficit) |                                   |                             |         |                        |   |              |       |              |       
|Current liabilities:                           |                                   |                             |         |                        |   |              |       |              |       
|                                               | Revolving line of credit          |                             | $       | 19,472                 |   | $            |      |              | $     
|                                               | Accounts payable                  |                             |         | 11,469                 |   |              | 5,352 |              |       
|                                               | Other current liabilities         |                             |         | 7,392                  |   |              | 1,937 |              |       
|                                               |                                   |                             |         |                        |   |              |       |              |       
|Total current liabilities                      |                                   |                             | 38,333  |                        |   | 7,289        |       |              |      
|Long-term debt, less current portion           |                                   |                             | 170,130 |                        |   | 9,303        |       |              | (9,303
|Other noncurrent liabilities                   |                                   |                             | 1,078   |                        |   | 885          |       |              |      
|Total shareholder's equity (deficit)           |                                   |                             | (75,824 | )                      |   | (11,091      | )     |              | 11,311
|                                               |                                   |                             |         |                        |   |              |       |              |       
|Total liabilities and shareholder's equity     |                                   | $                           | 133,717 |                        | $ | 6,386        |       | $            | 2,008 
|                                               |                                   |                             |         |                        |   |              |       |              |       

11

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Three Months Ended May 25, 2002  (Unaudited)  (In thousands)

|                                                                                      |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries(a) |   | Eliminations |     | Consolidated |     
|------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------ | ------------------------- | - | ------------ | --- | ------------ | ----
|Net sales                                                                             |                           | $                           | 24,571 |                           | $ | 12,754       |     | $            |    
|Cost of sales, excluding depreciation                                                 |                           |                             | 9,956  |                           |   | 6,287        |     |              |    
|                                                                                      |                           |                             |        |                           |   |              |     |              |     
|Gross profit                                                                          |                           |                             | 14,615 |                           |   | 6,467        |     |              |    
|Selling, general, and administrative expenses excluding depreciation and amortization |                           |                             | 14,685 |                           |   | 6,016        |     |              |    
|Depreciation and amortization expense                                                 |                           |                             | 1,611  |                           |   | 362          |     |              |    
|Amortization of goodwill and other intangibles                                        |                           |                             | 1,054  |                           |   |             |     |              |    
|Share of loss in joint venture                                                        |                           |                             |       |                           |   | 159          |     |              |    
|Restructuring Expense                                                                 |                           |                             | 1,328  |                           |   |             |     |              |    
|Management fees and other fees                                                        |                           |                             | 77     |                           |   |             |     |              |    
|                                                                                      |                           |                             |        |                           |   |              |     |              |     
|Operating income                                                                      |                           |                             | (4,140 | )                         |   | (70          | )   |              |    
|Other (income) expense:                                                               |                           |                             |        |                           |   |              |     |              |     
|                                                                                      | Interest expense          |                             |        | 4,487                     |   |              | 195 |              |     
|                                                                                      | Interest income           |                             |        | (195                      | ) |              |    |              |     
|                                                                                      | Other income and expenses |                             |        | (64                       | ) |              | 92  |              |     
|Equity in earnings of subsidiaries                                                    |                           |                             | 357    |                           |   |             |     |              | (357
|                                                                                      |                           |                             |        |                           |   |              |     |              |     
|Loss before income taxes                                                              |                           |                             | (8,725 | )                         |   | (357         | )   |              | 357 
|Provision for income taxes                                                            |                           |                             | 30     |                           |   |             |     |              |    
|                                                                                      |                           |                             |        |                           |   |              |     |              |     
|Net loss                                                                              |                           | $                           | (8,755 | )                         | $ | (357         | )   | $            | 357 
|                                                                                      |                           |                             |        |                           |   |              |     |              |     

---

12

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Nine Months Ended May 25, 2002  (Unaudited)  (In thousands)

|                                                                                      |                                                                         | Archibald Candy
Corporation |         | Guarantor
Subsidiaries(a) |   | Eliminations |     | Consolidated |       
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------- | ------- | ------------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                             |                                                                         | $                           | 110,766 |                           | $ | 50,147       |     | $            |      
|Cost of sales, excluding depreciation                                                 |                                                                         |                             | 43,680  |                           |   | 22,876       |     |              |      
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Gross profit                                                                          |                                                                         |                             | 67,086  |                           |   | 27,271       |     |              |      
|Selling, general, and administrative expenses excluding depreciation and amortization |                                                                         |                             | 51,023  |                           |   | 27,106       |     |              |      
|Depreciation and amortization expense                                                 |                                                                         |                             | 4,832   |                           |   | 1,514        |     |              |      
|Amortization of goodwill and other intangibles                                        |                                                                         |                             | 3,163   |                           |   | 17           |     |              |      
|Share of loss in joint venture                                                        |                                                                         |                             |        |                           |   | 337          |     |              |      
|Restructuring Expense                                                                 |                                                                         |                             | 1,328   |                           |   |             |     |              |      
|Management fees and other fees                                                        |                                                                         |                             | 114     |                           |   |             |     |              |      
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Operating income (loss)                                                               |                                                                         |                             | 6,626   |                           |   | (1,703       | )   |              |      
|Other (income) expense:                                                               |                                                                         |                             |         |                           |   |              |     |              |       
|                                                                                      | Interest expense                                                        |                             |         | 13,767                    |   |              | 588 |              |       
|                                                                                      | Interest income                                                         |                             |         | (585                      | ) |              |    |              |       
|                                                                                      | Other income and expenses                                               |                             |         | (179                      | ) |              | 116 |              |       
|                                                                                      | Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |                             |         | 2,258                     |   |              |    |              |       
|Equity in loss of subsidiaries                                                        |                                                                         |                             | 2,462   |                           |   |             |     |              | (2,462
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Loss before income taxes                                                              |                                                                         |                             | (11,097 | )                         |   | (2,407       | )   |              | 2,462 
|Provision for income taxes                                                            |                                                                         |                             | 34      |                           |   | 55           |     |              |      
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Net loss                                                                              |                                                                         | $                           | (11,131 | )                         | $ | (2,462       | )   | $            | 2,462 
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       

---

13

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Three Months Ended May 26, 2001  (Unaudited)  (In thousands)

|                                                                                      |                           | Archibald Candy
Corporation |         | Guarantor
Subsidiaries |   | Eliminations |     | Consolidated |        
|------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------- | ---------------------- | - | ------------ | --- | ------------ | -------
|Net sales                                                                             |                           | $                           | 29,912  |                        | $ | 27,990       |     | $            |       
|Cost of sales, excluding depreciation                                                 |                           |                             | 14,109  |                        |   | 11,597       |     |              |       
|Cost of sales, nonrecurring                                                           |                           |                             | (146    | )                      |   | 2,205        |     |              |       
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Total cost of sales                                                                   |                           |                             | 13,963  |                        |   | 13,802       |     |              |       
|Gross profit                                                                          |                           |                             | 15,949  |                        |   | 14,188       |     |              |       
|Selling, general, and administrative expenses excluding depreciation and amortization |                           |                             | 15,183  |                        |   | 16,325       |     |              |       
|Depreciation and amortization expense                                                 |                           |                             | 1,779   |                        |   | 1,514        |     |              |       
|Amortization of goodwill and other intangibles                                        |                           |                             | 1,113   |                        |   | 89           |     |              |       
|Restructuring expense                                                                 |                           |                             |        |                        |   | 8,100        |     |              |       
|Share of loss in joint venture                                                        |                           |                             |        |                        |   | 82           |     |              |       
|Management fees and other fees                                                        |                           |                             | 10      |                        |   | 122          |     |              |       
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Operating loss                                                                        |                           |                             | (2,136  | )                      |   | (12,044      | )   |              |       
|Other (income) expense:                                                               |                           |                             |         |                        |   |              |     |              |        
|                                                                                      | Interest expense          |                             |         | 4,686                  |   |              | 195 |              |        
|                                                                                      | Interest income           |                             |         | (195                   | ) |              |    |              |        
|                                                                                      | Other income and expenses |                             |         | (35                    | ) |              | 48  |              |        
|Equity in income of subsidiaries                                                      |                           |                             | 12,293  |                        |   |             |     |              | (12,293
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Income (loss) before income taxes                                                     |                           |                             | (18,885 | )                      |   | (12,287      | )   |              | 12,293 
|Provision for income taxes                                                            |                           |                             | (2      | )                      |   | 6            |     |              |       
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Net income (loss)                                                                     |                           | $                           | (18,883 | )                      | $ | (12,293      | )   | $            | 12,293 
|                                                                                      |                           |                             |         |                        |   |              |     |              |        

14

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Nine Months Ended May 26, 2001  (Unaudited)  (In thousands)

|                                                                                      |                           | Archibald Candy
Corporation |         | Guarantor
Subsidiaries |   | Eliminations |     | Consolidated |        
|------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------- | ---------------------- | - | ------------ | --- | ------------ | -------
|Net sales                                                                             |                           | $                           | 121,438 |                        | $ | 91,505       |     | $            |       
|Cost of sales, excluding depreciation                                                 |                           |                             | 46,985  |                        |   | 38,263       |     |              |       
|Cost of sales, nonrecurring                                                           |                           |                             | 2,293   |                        |   | 2,205        |     |              |       
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Total cost of sales                                                                   |                           |                             | 49,278  |                        |   | 40,468       |     |              |       
|Gross profit                                                                          |                           |                             | 72,160  |                        |   | 51,037       |     |              |       
|Selling, general, and administrative expenses excluding depreciation and amortization |                           |                             | 50,294  |                        |   | 50,508       |     |              |       
|Depreciation and amortization expense                                                 |                           |                             | 5,339   |                        |   | 4,537        |     |              |       
|Amortization of goodwill and other intangibles                                        |                           |                             | 3,039   |                        |   | 267          |     |              |       
|Restructuring expense                                                                 |                           |                             |        |                        |   | 8,100        |     |              |       
|Share of loss in joint venture                                                        |                           |                             |        |                        |   | 187          |     |              |       
|Management fees and other fees                                                        |                           |                             | 19      |                        |   | 408          |     |              |       
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Operating income (loss)                                                               |                           |                             | 13,469  |                        |   | (12,970      | )   |              |       
|Other (income) expense:                                                               |                           |                             |         |                        |   |              |     |              |        
|                                                                                      | Interest expense          |                             |         | 14,613                 |   |              | 605 |              |        
|                                                                                      | Interest income           |                             |         | (602                   | ) |              | (1  | )            |        
|                                                                                      | Other income and expenses |                             |         | (147                   | ) |              | 47  |              |        
|Equity in loss of subsidiaries                                                        |                           |                             | 13,636  |                        |   |             |     |              | (13,636
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Income (loss) before income taxes                                                     |                           |                             | (14,031 | )                      |   | (13,621      | )   |              | 13,636 
|Provision for income taxes                                                            |                           |                             | 63      |                        |   | 15           |     |              |       
|                                                                                      |                           |                             |         |                        |   |              |     |              |        
|Net income (loss)                                                                     |                           | $                           | (14,094 | )                      | $ | (13,636      | )   | $            | 13,636 
|                                                                                      |                           |                             |         |                        |   |              |     |              |        

15

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Cash Flows for the Nine Months Ended May 25, 2002  (Unaudited)  (In thousands)

|                                                                                          |                                                                         | Archibald Candy
Corporation |         | Guarantor
Subsidiaries(a) |   | Eliminations |       | Consolidated |      
|----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------- | ------- | ------------------------- | - | ------------ | ----- | ------------ | -----
|OPERATING ACTIVITIES                                                                      |                                                                         |                             |         |                           |   |              |       |              |      
|Net loss                                                                                  |                                                                         | $                           | (11,131 | )                         | $ | (2,462       | )     | $            | 2,462
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                                         |                             |         |                           |   |              |       |              |      
|                                                                                          | Depreciation and amortization                                           |                             |         | 7,995                     |   |              | 1,531 |              |      
|                                                                                          | Share of loss in joint venture                                          |                             |         |                          |   |              | 337   |              |      
|                                                                                          | Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |                             |         | 2,258                     |   |              |      |              |      
|Changes in operating assets and liabilities:                                              |                                                                         |                             |         |                           |   |              |       |              |      
|                                                                                          | Accounts receivables, net                                               |                             |         | 262                       |   |              | (51   | )            |      
|                                                                                          | Inventories                                                             |                             |         | 1,368                     |   |              | 76    |              |      
|                                                                                          | Prepaid expenses and other current assets                               |                             |         | (972                      | ) |              | (75   | )            |      
|                                                                                          | Intercompany                                                            |                             |         | 2,462                     |   |              |      |              |      
|                                                                                          | Other assets                                                            |                             |         | 15                        |   |              | (327  | )            |      
|                                                                                          | Accounts payable and accrued liabilities                                |                             |         | 10,658                    |   |              | 805   |              |      
|                                                                                          |                                                                         |                             |         |                           |   |              |       |              |      
|Net cash provided by operating activities                                                 |                                                                         |                             | 12,915  |                           |   | (166         | )     |              |     
|INVESTING ACTIVITIES                                                                      |                                                                         |                             |         |                           |   |              |       |              |      
|Purchase of Property, Plant, and Equipment                                                |                                                                         |                             | (1,223  | )                         |   | (764         | )     |              |     
|Disposals of Property, Plant, and Equipment                                               |                                                                         |                             | 272     |                           |   | 47           |       |              |     
|Impact of deconsolidation of Sweet Factory Group, Inc. and subsidiaries                   |                                                                         |                             |        |                           |   | (336         | )     |              |     
|                                                                                          |                                                                         |                             |         |                           |   |              |       |              |      
|Net cash used in investing activities                                                     |                                                                         |                             | (951    | )                         |   | (1,053       | )     |              |     
|FINANCING ACTIVITIES                                                                      |                                                                         |                             |         |                           |   |              |       |              |      
|Net repayments under revolving line of credit                                             |                                                                         |                             | (9,108  | )                         |   |             |       |              |     
|Principal payments of capital lease obligations                                           |                                                                         |                             | (20     | )                         |   |             |       |              |     
|Costs related to refinancing                                                              |                                                                         |                             | (919    | )                         |   |             |       |              |     
|                                                                                          |                                                                         |                             |         |                           |   |              |       |              |      
|Net cash provided by financing activities                                                 |                                                                         |                             | (10,047 | )                         |   |             |       |              |     
|Effect of exchange rates on cash                                                          |                                                                         |                             |        |                           |   | 352          |       |              |     
|                                                                                          |                                                                         |                             |         |                           |   |              |       |              |      
|Net increase (decrease) in cash and cash equivalents                                      |                                                                         |                             | 1,917   |                           |   | (867         | )     |              |     
|Cash and cash equivalents beginning of period                                             |                                                                         |                             | 1,116   |                           |   | 1,230        |       |              |     
|                                                                                          |                                                                         |                             |         |                           |   |              |       |              |      
|Cash and cash equivalents end of period                                                   |                                                                         | $                           | 3,033   |                           | $ | 363          |       | $            |     
|                                                                                          |                                                                         |                             |         |                           |   |              |       |              |      

---

16

---



Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Cash Flows for the Nine Months Ended May 26, 2001  (Unaudited)  (In thousands)

|                                                                                         |                                           | Archibald Candy
Corporation |         | Guarantor
Subsidiaries |   | Eliminations |        | Consolidated |       
|---------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------- | ------- | ---------------------- | - | ------------ | ------ | ------------ | ------
|OPERATING ACTIVITIES                                                                     |                                           |                             |         |                        |   |              |        |              |       
|Net income (loss)                                                                        |                                           | $                           | (14,094 | )                      | $ | (13,636      | )      | $            | 13,636
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                           |                             |         |                        |   |              |        |              |       
|                                                                                         | Depreciation and amortization             |                             |         | 8,378                  |   |              | 4,804  |              |       
|                                                                                         | Restructuring expense                     |                             |         |                       |   |              | 9,500  |              |       
|                                                                                         | Equity in loss of subsidiaries            |                             |         | 13,636                 |   |              |       |              |       
|                                                                                         | Share of loss in joint venture            |                             |         |                       |   |              | 187    |              |       
|Changes in operating assets and liabilities:                                             |                                           |                             |         |                        |   |              |        |              |       
|                                                                                         | Accounts receivables, net                 |                             |         | (1,064                 | ) |              | (478   | )            |       
|                                                                                         | Inventories                               |                             |         | 8,758                  |   |              | (594   | )            |       
|                                                                                         | Prepaid expenses and other current assets |                             |         | (21                    | ) |              | 353    |              |       
|                                                                                         | Intercompany                              |                             |         | (3,513                 | ) |              | 3,513  |              |       
|                                                                                         | Other assets                              |                             |         | (670                   | ) |              |       |              |       
|                                                                                         | Accounts payable and accrued liabilities  |                             |         | (19                    | ) |              | 347    |              |       
|                                                                                         | Restructuring reserve                     |                             |         |                       |   |              | (1,328 | )            |       
|                                                                                         |                                           |                             |         |                        |   |              |        |              |       
|Net cash provided by operating activities                                                |                                           |                             | 11,391  |                        |   | 2,668        |        |              |      
|INVESTING ACTIVITIES                                                                     |                                           |                             |         |                        |   |              |        |              |       
|Purchase of property, plant, and equipment                                               |                                           |                             | (2,878  | )                      |   | (1,209       | )      |              |      
|                                                                                         |                                           |                             |         |                        |   |              |        |              |       
|Net cash used in investing activities                                                    |                                           |                             | (2,878  | )                      |   | (1,209       | )      |              |      
|FINANCING ACTIVITIES                                                                     |                                           |                             |         |                        |   |              |        |              |       
|Net borrowings under revolving line of credit                                            |                                           |                             | (7,200  | )                      |   |             |        |              |      
|Principal payments of capital lease obligations                                          |                                           |                             | (22     | )                      |   | (13          | )      |              |      
|Costs related to refinancing                                                             |                                           |                             | (163    | )                      |   |             |        |              |      
|                                                                                         |                                           |                             |         |                        |   |              |        |              |       
|Net cash used in financing activities                                                    |                                           |                             | (7,385  | )                      |   | (13          | )      |              |      
|Effect of exchange rates on cash                                                         |                                           |                             |        |                        |   | (485         | )      |              |      
|                                                                                         |                                           |                             |         |                        |   |              |        |              |       
|Net increase in cash and cash equivalents                                                |                                           |                             | 1,128   |                        |   | 961          |        |              |      
|Cash and cash equivalents beginning of period                                            |                                           |                             | 800     |                        |   | 2,320        |        |              |      
|                                                                                         |                                           |                             |         |                        |   |              |        |              |       
|Cash and cash equivalents end of period                                                  |                                           | $                           | 1,928   |                        | $ | 3,281        |        | $            |      
|                                                                                         |                                           |                             |         |                        |   |              |        |              |       

NOTE 8.    NEW ACCOUNTING PRONOUNCEMENT

In July 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets," effective for fiscal years beginning after
December 15, 2001. SFAS No. 142 requires the use of non-amortization approach to account for purchased goodwill and for separately recognized (non-goodwill)
intangible assets that have an indefinite useful life. Under this approach, goodwill and intangibles will not be amortized, but will periodically be reviewed for impairment and expensed against
earnings only in periods in which the recorded value exceeds the fair value. The Company is currently evaluating the potential effects of the implementation of this new standard.

17

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ITEM 2MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Some information included in the report may constitute forward-looking statements that involve a number of risks and uncertainties. From time to time, information
provided by the Company or statements made by its employees may contain other forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking
statements include, but are not limited to: general economic conditions, including inflation, interest rate fluctuations, trade restrictions, and general debt levels; competitive factors, including
price pressures, technological development, and products offered by competitors; inventory risks due to changes in market demand or business strategies; and changes in effective tax rates. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.

THREE MONTHS ENDED MAY 25, 2002 COMPARED TO THE THREE MONTHS ENDED MAY 26, 2001.

NET SALES.    Consolidated sales for the three months ended May 25, 2002 were $37.3 million, a decrease of $20.6 million from
$57.9 million for the three months ended May 26, 2001. The bankruptcy filing and subsequent deconsolidation of the Company's Sweet Factory subsidiaries accounted for $14.2 million
of the decline. Company-operated retail sales, excluding Sweet Factory, for the three months ended May 25, 2002 were $31.9 million, a decrease of $2.4 million, or 7.0% from
$34.3 million for the three months ended May 26, 2001. Same store sales decreased 4.5% for Fannie May/Fanny Farmer and 5.6% (2.5% decrease in Canadian Dollars) for Laura Secord primarily
due to a weak retail environment during the Easter holiday period. In addition, the Company had 14 fewer stores as of May 25, 2002 as compared to May 26, 2001. Sales through the
Company's third-party retail outlets and non-retail distribution channels decreased $4.0 million to $5.4 million for the three months ended May 25, 2002 from
$9.4 million for the three months ended May 26, 2001. The decrease was due primarily to a promotion offered to the Company's card and gift business customers, which was not repeated
during the current year.

GROSS
PROFIT.    Gross profit for the three months ended May 25, 2002 was $21.1 million, a decrease of $9.0 million from $30.1 million for the three
months ended May 26, 2001. Gross profit in the prior year included $9.1 million related to Sweet Factory and a reduction of $2.1 million associated with costs related to the
closing of unprofitable Sweet Factory stores and the manufacturing start-up of the Laura Secord products beginning in September 2000. After giving effect to these items, gross
profit dollars decreased $2.0 million versus the prior year, which was primarily due to lower sales. Gross profit as a percentage of net sales, after giving effect to these items, was 56.6% for
the three months ended May 25, 2002 versus 52.9% for the three months ended May 26, 2001. This increase was primarily due to retail sales, which have a higher gross profit rate than
other distribution channels in general, being a higher proportion of total sales this year versus the prior year, as well as lower manufacturing costs.

SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES.    SG&A expenses were $20.7 million for the three months ended May 25, 2002, a decrease of $10.8 million from
$31.5 million for the three months ended May 26, 2001. SG&A expenses, excluding Sweet Factory, were $20.7 million for the three months ended May 25, 2002, a decrease of
$0.7 million or 3.3%, from $21.4 million for the three months ended May 26, 2001.

RESTURCTURING
EXPENSE.    Restructuring expense of $1.3 million for the three months ended May 25, 2002 relates to professional fees associated with the
restructuring of the Company's

18

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balance sheet. See "Effect of Bankruptcy Filings" below. Restructuring expense of $8.1 million for the three months ended May 26, 2001 relates to the closing of unprofitable Sweet
Factory stores.

EBITDA.    Earnings
before interest, income taxes, depreciation and amortization (EBITDA) was $(1.2) million for the three months ended May 25, 2001 as compared to
$(9.7) million for the three months ended May 26, 2001. EBITDA, excluding the effect of the deconsolidation of Sweet Factory and restructuring expense was $0.1 million for the three
months ended May 25, 2002, as compared to $1.5 million for the three months ended May 26, 2001, excluding the manufacturing start-up costs and the closing of
unprofitable Sweet Factory stores of $2.1 million, restructuring expense of $8.1 million and the effect of the deconsolidation of Sweet Factory of $2.3 million. This decrease is
primarily due to lower sales, offset by an improved gross profit rate.

OPERATING
LOSS.    Operating loss was $4.2 million for the three months ended May 25, 2002, a decrease of $10.0 million from a loss of $14.2 million
for the three months ended May 26, 2001. The decrease in operating loss was due primarily to the deconsolidation of Sweet Factory, which had an operating loss of $11.8 million in the
prior year, offset by restructuring expense of $1.3 million in the current year.

NET
LOSS.    Net loss for the three months ended May 25, 2002 was $8.8 million, a decrease of $10.1 million from $18.9 million for the three months
ended May 26, 2001.

NINE MONTHS ENDED MAY 25, 2002 COMPARED TO THE NINE MONTHS ENDED MAY 26, 2001

NET SALES.    Consolidated sales for the nine months ended May 25, 2002 were $160.9 million, a decrease of $52.0 million from
$212.9 million for the nine months ended May 26, 2001. The bankruptcy filing and subsequent deconsolidation of the Company's Sweet Factory subsidiaries accounted for $38.8 million
of the decline. Company-operated retail sales, excluding Sweet Factory, for the nine months ended May 25, 2002 were $113.6 million a decrease of $7.0 million, or 5.8% from
$120.6 million for the nine months ended May 26, 2001. Same store sales decreased 3.3% for Fannie May/Fanny Farmer and 4.5% (1.1% decrease in Canadian Dollars) for Laura Secord,
primarily due to a weak retail environment. In addition, the Company had 14 fewer stores as of May 25, 2002 as compared to May 26, 2001. Sales through the Company's third-party retail
outlets and non-retail distribution channels decreased $6.2 million to $38.4 million for the nine months ended May 25, 2002, from $44.6 million for the nine
months ended May 26, 2001. The decrease was primarily due to lower fundraising sales and an offered promotion to the Company's card and gift business customers, which was not repeated during
the current year.

GROSS
PROFIT.    Gross profit for the nine months ended May 25, 2002 was $94.4 million, a decrease of $28.8 million from $123.2 million for the nine
months ended May 26, 2001. Gross profit, excluding Sweet Factory and $4.5 million in the prior year associated with costs related to the manufacturing start-up of the Laura
Secord products beginning in September 2000 and the closing of unprofitable Sweet Factory stores, for the nine months ended May 25, 2002 was $88.8 million, a decrease of
$8.9 million or 9.1%, from $97.7 million. The decrease in gross profit dollars was primarily due to lower sales.

SELLING,
GENERAL AND ADMINISTRATIVE EXPENSE.    SG&A expenses were $78.1 million for the nine months ended May 25, 2002, a decrease of $22.7 million from
$100.8 million for the nine months ended May 26, 2001. SG&A expenses, excluding Sweet Factory, were $69.9 million for the nine months ended May 25, 2002, an increase of
$0.5 million, or 1.0%, from $69.4 million for the nine months ended May 26, 2001. The increase was primarily due to higher healthcare costs.

RESTURCTURING
EXPENSE.    Restructuring expense of $1.3 million for the three months ended May 25, 2002 relates to professional fees associated with the
restructuring of the Company's

19

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balance sheet. See "Effect of Bankruptcy Filings" below. Restructuring expense of $8.1 million for the three months ended May 26, 2001 relates to the closing of unprofitable Sweet
Factory stores.

OTHER
(INCOME) AND EXPENSE.    Included in other expenses is a charge of $2.3 million associated with the net write-off (for financial reporting purposes)
due to the Sweet Factory bankruptcy of a $19.4 million receivable due from the Sweet Factory subsidiaries, after first offsetting $17.1 million of that write-off against the
Company's negative investment balance in Sweet Factory Group, Inc. ("SFG").

EBITDA.    Earnings
before interest, income taxes, depreciation, and amortization (EBITDA), was $12.3 million for the nine months ended May 25, 2002 as compared
to $13.8 million for the nine months ended May 26, 2001. EBITDA, excluding the effect of deconsolidation of Sweet Factory of $2.3 million, the Sweet Factory EBITDA loss of
$2.7 million and restructuring expense of $1.3 million, was $18.7 million for the nine months ended May 25, 2002, as compared to $27.9 million for the nine months
ended May 26, 2001, excluding restructuring expense of $8.1 million, manufacturing start-up costs and the closing of unprofitable Sweet Factory stores of $4.5 million
and the Sweet Factory EBITDA loss of $1.4 million. This decrease is primarily due to lower sales.

OPERATING
INCOME (LOSS).    Operating income was $4.9 million for the nine months ended May 25, 2002, an increase of $4.4 million from income of
$0.5 million for the nine months ended May 26, 2001. Operating income was $9.4 million for the nine months ended May 25, 2002, excluding Sweet Factory and restructuring
expense which is a decrease of $8.8 million from operating income of $18.2 million for the nine months ended May 26, 2001, excluding restructuring expense, manufacturing
start-up costs and Sweet Factory. The decrease was primarily due to the decline in sales and increase in healthcare costs described above.

NET
INCOME (LOSS).    Net loss for the nine months ended May 25, 2002 was $11.1 million, a decrease of $3.0 million from net income of $14.1 million
for the nine months ended May 26, 2001. The net loss for the nine months ended May 25, 2002 includes the effect of the deconsolidation of Sweet Factory of $2.3 million.

EFFECT OF BANKRUPTCY FILINGS

On June 12, 2002, Archibald Candy Corporation ("Archibald") and Fannie May Holdings, Inc. ("Holdings"), its sole shareholder, filed petitions in the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") to commence a consolidated voluntary bankruptcy proceeding under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"). Archibald and Holdings also have filed a Joint Plan of Reorganization (the "Archibald Plan"), with respect to which holders of approximately 83% in aggregate principal
amount of Archibald's 101/4% senior secured notes have executed lock-up agreements agreeing to vote in favor of the Archibald Plan. The Archibald Plan, which is subject to
the approval of the Bankruptcy Court, contemplates a significant deleveraging of Archibald's balance sheet and the elimination of approximately $17.5 million in annual interest payments. The
Archibald Plan will require, among other things, the requisite votes under the Bankruptcy Code and must satisfy the requirements set forth in Section 1129 of the Bankruptcy Code. During the
Chapter 11 proceeding, Archibald does not currently expect any significant impact on its employees, customers or suppliers. Archibald Candy (Canada) Corporation, the wholly-owned subsidiary of
Archibald that operates its Laura Secord business, has not filed a bankruptcy proceeding.

In
connection with the Archibald bankruptcy proceeding, Archibald has entered into a Post-Petition Loan and Security Agreement and Guaranty dated as of June 12, 2002
(the "Archibald DIP Credit Facility") with Foothill Capital Corporation, as Arranger and Administrative Agent, the lenders party
thereto and Holdings and Archibald Candy (Canada) Corporation, as Guarantors. Pursuant to the Archibald DIP Credit Facility, the lenders have agreed to make available to Archibald a
$45.0 million term loan and revolving credit facility. The proceeds of the Archibald DIP Credit

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Facility were used in part, to pay-off the indebtedness outstanding under Archibald's revolving credit facility (the "CIT Facility") with The CIT Group/Business Credit, Inc.
("CIT"), and are being used to fund Archibald's working capital and capital expenditure needs during the bankruptcy proceedings.

Archibald
and Holdings will continue to manage their properties and operate their business in accordance with the applicable provisions of the Bankruptcy Code. The proceeding has been
designated as case number 02-11719.

Archibald's
management has assessed the liquidity position of Archibald and Archibald Candy (Canada) Corporation in light of the Archibald and Holdings bankruptcy proceedings and the
funds available under the Archibald DIP Credit Facility and believes that Archibald and Archibald Candy (Canada) Corporation will be able to fund their post-petition obligations until the
Archibald Plan is confirmed.

On
November 15, 2001, SFG and its three subsidiaries, Sweet Factory, Inc., SF Properties, Inc. and SF Candy Company, filed voluntary petitions in the Bankruptcy
Court under Chapter 11 of the Bankruptcy Code. In connection with the Sweet Factory bankruptcy filings, Sweet Factory, Inc. entered into a Post-Petition Credit, Security and
Guaranty Agreement (the "SF DIP Credit Facility") with CIT and SFG, SF Properties, Inc. and SF Candy Company, as guarantors. The SF DIP Credit Facility is for one year and provides for
revolving loans at any time not to exceed the lesser of (1) $2.0 million and (2) a borrowing base comprised of a percentage of Sweet Factory, Inc.'s eligible inventory plus
a $1.0 million overadvance, subject to certain reserves.

On
March 4, 2002, SFG and its subsidiaries filed a Plan of Reorganization with the Bankruptcy Court. On June 5, 2002, SFG and its subsidiaries entered into an Asset
Purchase Agreement with RDR Group, a California corporation ("RDR"), pursuant to which RDR has agreed to purchase from SFG and its subsidiaries substantially all of the assets used in connection with
their business for $4.5 million in cash, subject to the approval of the Bankruptcy Court. As a result of the overbidding procedure conducted by the Bankruptcy Court on June 17, 2002, RDR
increased the purchase price to $6.1 million in order to be the winning bidder. The Company's management expects that the sale of the Sweet Factory assets to RDR will be consummated on or about
July 30, 2002. Pursuant to SFG's Plan of Reorganization, Archibald expects to receive approximately $3.7 million in cash out of the proceeds of the sale. The remaining
$2.4 million in proceeds will be applied to pay-off the SF DIP Credit Facility, to make cure payments to the landlords of those store leases that are to be assumed by RDR, to pay
administrative expenses and to make a payment to the unsecured creditors' class. Following the consummation of the sale to RDR, SFG and its subsidiaries will be liquidated. SFG's Plan of
Reorganization was confirmed on July 11, 2002 by the Bankruptcy Court.

SFG
and its subsidiaries' financial results are included in the Company's consolidated results through November 15, 2001. Accounting principles generally accepted in the United
States generally require that any entity that files for protection under the U.S. Bankruptcy Code whose financial statements were previously consolidated with those of its parent must be prospectively
deconsolidated from the parent with the investment accounted for using the cost method. The effects on the Company's balance sheet of this deconsolidation and use of the cost method are that:
(i) the Company's investment in SFG is included as a single amount and (ii) the Company's receivable from SFG is no longer eliminated. The effect on the Company's income statement is
that beginning November 15, 2001, the SFG operating results are not included in the consolidated results. At November 15, 2001, the Company's investment in SFG was a negative
$17.1 million, and the receivable had a balance of $19.4 million. Because of SFG's and its subsidiaries' bankruptcies, it was determined that the receivable should be reserved for
financial reporting purposes. That write-off was first netted against the negative investment balance, with the remaining $2.3 million recorded as a non-operating
expense.

21

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Management
has assessed the liquidity position of SFG and its subsidiaries as a result of the bankruptcy filings and available debtor in possession financing and believes that SFG and
its subsidiaries will be able to fund their post-petition obligations until the sale to RDR is consummated and SFG and its subsidiaries are liquidated.

See
Note 3 to the Financial Statements for financial information for SFG and subsidiaries and pro forma financial information for the Company, assuming the deconsolidation of SFG
and its subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $12.7 million for the nine months ended May 25, 2002 compared to $14.1 million for the nine
months ended May 26, 2001. The decrease in net cash provided by operating activities was due primarily to the decrease in operating income and the significant decline in inventories in the
prior year, offset by the non-payment of interest on the senior secured notes. Net loss was $11.1 million for the nine months ended May 25, 2002 compared to net loss of
$14.1 million for the nine months ended May 26, 2001. Net loss included non-cash depreciation and amortization charges of $9.5 million for the nine months ended
May 25, 2002 and $13.2 million for the nine months ended May 26, 2001. Net loss also included a $2.3 million non-cash charge associated with the deconsolidation
of Sweet Factory due to the Sweet Factory bankruptcy filing.

Net
cash used in investing activities decreased to $2.0 million for the nine months ended May 25, 2002 from $4.1 million for the nine months ended May 26,
2001 due to lower capital expenditures.

Net
cash used in financing activities was $10.0 million for the nine months ended May 25, 2002 compared to $7.4 million for the nine months ended May 26, 2001
due to the repayment of borrowings under the CIT facility and increased debt financing costs.

In
connection with Archibald's and Holdings' bankruptcy case, Archibald entered into the Post-Petition Loan and Security Agreement and Guaranty (the "Archibald DIP Credit
Facility") with Foothill Capital Corporation, as the Arranger and Administrative Agent, the lenders party thereto and Holdings and Archibald Candy (Canada) Corporation, as Guarantors. Under the
Archibald DIP Credit Facility, the lenders have agreed to make available to Archibald (a) a $25.0 million revolving credit facility, pursuant to which Archibald may borrow up to the
lesser of (i) $25.0 million and (ii) a borrowing base comprised of certain percentages of eligible accounts receivable and inventory, subject to certain reserves, and
(b) two $10.0 million term loans ("Term Loan A" and "Term Loan B") for an aggregate of $20.0 million. Funds borrowed on June 14, 2002 under the Archibald DIP
Credit Facility were used to pay-off in full the CIT Facility. Term Loan B and the revolving credit facility under the Archibald DIP Credit Facility mature on the earliest of
(i) June 12, 2003, (ii) emergence through a confirmed plan of reorganization approved by the Bankruptcy Court and (iii) other events set forth in the Archibald DIP Credit
Facility. Term Loan A under the Archibald DIP Credit Facility matures on the earliest of (A) December 31, 2002, (B) emergence through a confirmed plan of reorganization
approved by the Bankruptcy Court and (C) other events set forth in the Archibald DIP Credit Facility.

The
Archibald DIP Credit Facility provides that borrowings under the revolver accrue interest at a rate equal to the "prime rate" announced from time to time by Wells Fargo plus 0.75%:
that borrowings under Term Loan A accrue interest at a rate equal to the greater of (i) 8.25% and the (ii) "prime rate" announced from time to time by Wells Fargo plus 3.50%; and
the borrowings under Term Loan B accrue interest at a rate equal to the greater of (A) 9.0% and (B) the "prime rate" announced from time to time by Wells Fargo plus 4.25%. The
Company is required to pay fees in connection with the Archibald DIP Credit Facility.

In
connection with the Sweet Factory bankruptcy case, CIT and Sweet Factory, Inc. entered into the Post-Petition Credit, Security and Guaranty Agreement (the "SF DIP
Credit Facility"). The Company, Holdings and Archibald Candy (Canada) Corporation have guaranteed all obligations of

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Sweet Factory, Inc. under the SF DIP Credit Facility. The guaranty by Archibald Candy Corporation is secured by a $1.0 million cash collateral account held by CIT. The SF DIP Credit
Facility provides that borrowings thereunder accrue interest at a variable rate equal to the "prime rate" announced from time to time by J.P. Morgan Chase & Co. plus 1.5%.

Upon
the consummation of the sale of substantially all of the assets of the Sweet Factory business to RDR Group, Archibald expects to receive approximately $3.7 million in cash
and the SF DIP Credit Facility will be paid in full out of the proceeds of the sale. Also, Archibald's guaranty of the SF DIP Credit Facility will be terminated upon the repayment of the SF DIP Credit
Facility and the $1.0 million cash collateral account held by CIT as security for the Archibald guaranty will be released to Archibald.

Archibald
has not made the approximately $8.7 million interest payment that was due on January 2, 2002 on its outstanding $170 million of 101/4%
senior secured notes due 2004 (the "Senior Notes"), however, holders of approximately 83% in aggregate principal amount of such notes have executed lock-up agreements agreeing to vote in
favor of the joint plan or reorganization that Archibald and Holdings have filed in connection with the Archibald bankruptcy. The Senior Notes have been classified as current on Archibald's balance
sheet.

ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's operations are not currently subject to market risks of a material nature for interest rates, foreign currency rates, commodity prices or other
market price risks.

The
following is the cash contractual obligations of the Company (in millions) as of May 25, 2002.

|                                   |  | Payments Due by Period
|---------------------------------- |  | ----------------------
|
|
|
|Senior Secured Notes               |  | $                     
|Revolving Line of Credit           |  |                       
|Capital Lease Obligations          |  |                       
|Operating Leases                   |  |                       
|Total Contractual Cash Obligations |  |                       

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PART IIOTHER INFORMATION:

ITEM 1LEGAL PROCEEDINGS

On June 12, 2002, Archibald and Holdings filed voluntary petitions in the Bankruptcy Court for protection under Chapter 11 of the Bankruptcy Code (See Part
I, Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations). Archibald and Holdings are operating their business as debtors and debtors in possession.
All civil litigation commenced against the Company and Holdings prior to that date has been stayed by operation of law.

On
November 15, 2001, Sweet Factory Group, Inc. and its subsidiaries, all of which are wholly owned subsidiaries of Archibald, filed voluntary petitions in the Bankruptcy Court
for protection under Chapter 11 of the Bankruptcy Code (See Part I, Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations).
Sweet Factory Group and its subsidiaries are operating their business as debtors and debtors in possession. All civil litigation commenced against Sweet Factory Group and its subsidiaries prior to
that date has been stayed by operation of law.

ITEM 3DEFAULTS UPON SENIOR SECURITIES

Archibald is in default under the Indenture pursuant to which it has issued its 101/4% senior secured notes as a result of the Archibald Bankruptcy
and Archibald's failure to pay the $8.7 million in interest due on such notes on January 1, 2002. Archibald also has failed to make the $8.7 million interest payment due on the notes on
July 1, 2002. As of July 15, 2002, the total amount of past due interest on the notes is approximately $18.4 million.

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ITEM 6EXHIBITS AND REPORTS ON FORM 8-K

|Exhibit 4.1  | Amendment No. 1 to Forbearance Agreement dated as of April 30, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.                                                                                                                                                
|------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 4.2  | Amendment No. 2 to Forbearance Agreement dated as of May 30, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.                                                                                                                                                  
|Exhibit 4.3  | Lock-Up Agreement dated as of June 12, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.                                                                                                                                                                        
|Exhibit 10.1 | Amendment No. 3 to Forbearance Agreement dated as of April 30, 2002 among Archibald Candy Corporation, Fannie May Holdings, Inc., Archibald Candy (Canada) Corporation, and The CIT Group/Business Credit,
 Inc., as agent and sole lender.                                                             
|Exhibit 10.2 | Amendment No. 4 to Forbearance Agreement dated as of May 30, 2002 between Archibald Candy Corporation, Fannie May Holdings, Inc., Archibald Candy (Canada) Corporation and The CIT Group/Business Credit,
 Inc., as agent and sole lender.                                                              
|Exhibit 10.3 | Post-Petition Loan and Security Agreement and Guaranty dated as of June 12, 2002 among Archibald Candy Corporation, Foothill Capital Corporation, as Arranger and Administrative Agent, the lenders party thereto and
Fannie May Holdings, Inc. and Archibald Candy (Canada) Corporation, as Guarantors.
|Exhibit 10.4 | Joint Plan of Reorganization of Archibald Candy Corporation and Fannie May Holdings, Inc.                                                                                                                                                                                                               
|Exhibit 10.5 | Asset Purchase Agreement dated as of June 5, 2002 between RDR Group and Sweet Factory Group, Inc. Sweet Factory, Inc., SF Candy Company and SF Properties, Inc.                                                                                                                                         
|Exhibit 10.6 | Second Amended Plan of Liquidation of Sweet Factory Group, Inc., et al., as modified pursuant to Support Agreement dated May 23, 2002.                                                                                                                                                                  
|Exhibit 10.7 | Certificate of Amendment to Certificate of Designation of Junior Class A PIK Preferred Stock of Fannie May Holdings, Inc., as filed on December 18, 2001                                                                                                                                                
|Exhibit 10.8 | Certificate of Amendment to Certificate of Designation of Junior Class B PIK Preferred Stock of Fannie May Holdings, Inc., as filed on December 18, 2001.                                                                                                                                               

On March 5, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item
5 Other Events disclosing that Archibald has entered into a forbearance agreement with holders of its senior secured notes and had entered into an extension of its forbearance agreement
with The CIT Group/Business Credit, Inc. The Form 8-K also disclosed that Fannie May Holdings, Inc. had entered into a forbearance agreement with the holders of its senior
preferred stock.

On
May 8, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5 Other Events
disclosing that Archibald had entered into extensions from April 30, 2002 until May 30, 2002 of the forbearance periods under its forbearance agreements with The CIT Group/Business
Credit, Inc. and holders of Archibald's senior secured notes.

On
June 19, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that disclosed the Chapter 11 bankruptcy filings by Archibald and Fannie
May Holdings, Inc. and Archibald's entering into the debtor-in-possession financing with Foothill Capital Corporation, as Arranger and Administrative Agent, and the lenders party
thereto.

25

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SIGNATURE

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED.

|                    |  | ARCHIBALD CANDY CORPORATION
|------------------- |  | ---------------------------
|DATE: July 15, 2002 |  | By:                        

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