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

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FORM 10-Q

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. 
|--- | -----------------------------------------------------------------------------------------
|    | For the Quarterly Period Ended February 24, 2001
                          OR            
|    | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number333-33751

ARCHIBALD CANDY CORPORATION

Incorporated in the

IRS Employer IdentificationState ofIllinois

No.36-0743280


1137 West Jackson Boulevard
Chicago, Illinois 60607
(312) 243-2700

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 /x/  No / /

As
of April 10, 2001, the number of shares outstanding of the registrant's Common Stock was 19,200, all of which were held by Fannie May Holdings, Inc.

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ARCHIBALD CANDY CORPORATION    FORM 10-Q    FOR THE QUARTER ENDED FEBRUARY 24, 2001    INDEX

PART IFINANCIAL INFORMATION:

|                           |                                                                                       |  | Page No.
|-------------------------- | ------------------------------------------------------------------------------------- |  | --------
|ITEM 1                    | FINANCIAL STATEMENTS (UNAUDITED)                                                      |  |         
|                           | CONSOLIDATED BALANCE SHEETS                                                           |  | 1       
|                           | CONSOLIDATED STATEMENTS OF OPERATIONS                                                 |  | 2       
|                           | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                       |  | 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 |  | 15      
|ITEM 3                    | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                           |  | 19      
|PART IIOTHER INFORMATION:
|ITEM 6                    | EXHIBITS AND REPORTS ON FORM 8-K                                                      |  | 20      
|                           | SIGNATURES                                                                            |  | 21      

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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  As of February 24, 2001 and August 26, 2000  (In thousands, except per share
data)

|                                                     |                                              | February 24,
2001                    |         | August 26,
2000 |  
|---------------------------------------------------- | -------------------------------------------- | ------------------------------------ | ------- | --------------- | -
|
|ASSETS                                               |                                              |                                      |         |                 |  
|Current assets:                                      |                                              |                                      |         |                 |  
|                                                     | Cash and cash equivalents                    |                                      | $       | 4,215           |  
|                                                     | Accounts receivable, net                     |                                      |         | 7,929           |  
|                                                     | Inventories                                  |                                      |         | 43,702          |  
|                                                     | Prepaid expenses and other current assets    |                                      |         | 2,851           |  
|                                                     |                                              |                                      |         |                 |  
|Total current assets                                 |                                              |                                      | 58,697  |                 |  
|Property, plant, and equipment, net                  |                                              |                                      | 49,125  |                 |  
|Goodwill, net                                        |                                              |                                      | 69,930  |                 |  
|Noncompete agreements and other intangibles, net     |                                              |                                      | 732     |                 |  
|Deferred financing fees, net                         |                                              |                                      | 6,365   |                 |  
|Investment in joint venture                          |                                              |                                      | 1,911   |                 |  
|Other assets                                         |                                              |                                      | 1,170   |                 |  
|                                                     |                                              |                                      |         |                 |  
|Total assets                                         |                                              | $                                    | 187,930 |                 | $
|                                                     |                                              |                                      |         |                 |  
|LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)       |                                              |                                      |         |                 |  
|Current liabilities:                                 |                                              |                                      |         |                 |  
|                                                     | Revolving line of credit                     |                                      | $       | 12,000          |  
|                                                     | Accounts payable                             |                                      |         | 21,555          |  
|                                                     | Accrued liabilities                          |                                      |         | 5,287           |  
|                                                     | Payroll and related liabilities              |                                      |         | 3,394           |  
|                                                     | Accrued interest                             |                                      |         | 3,239           |  
|                                                     | Current portion of capital lease obligations |                                      |         | 30              |  
|                                                     |                                              |                                      |         |                 |  
|Total current liabilities                            |                                              |                                      | 45,505  |                 |  
|Due to affiliate                                     |                                              |                                      | 40      |                 |  
|Long-term debt                                       |                                              |                                      | 170,000 |                 |  
|Deferred rent                                        |                                              |                                      | 1,244   |                 |  
|Capital lease obligations, less current portion      |                                              |                                      | 135     |                 |  
|Shareholder's equity (deficit):                      |                                              |                                      |         |                 |  
|                                                     | Common stock, $0.01 par value:               |                                      |         |                 |  
|                                                     |                                              | Authorized25,000 shares             |         |                 |  
|                                                     |                                              | Issued and outstanding19,200 shares |         |                 |  
|                                                     | Additional paid-in-capital                   |                                      |         | 18,700          |  
|                                                     | Accumulated deficit                          |                                      |         | (47,798         | )
|                                                     | Other comprehensive income                   |                                      |         | 104             |  
|                                                     |                                              |                                      |         |                 |  
|Total shareholder's equity (deficit)                 |                                              |                                      | (28,994 | )               |  
|                                                     |                                              |                                      |         |                 |  
|Total liabilities and shareholder's equity (deficit) |                                              | $                                    | 187,930 |                 | $
|                                                     |                                              |                                      |         |                 |  

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)  For the Three Months and Six Months Ended February 24, 2001 and
February 26, 2000  (In thousands)

|                                                                                       |  | Three Months Ended |         | Six Months Ended |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Net sales                                                                              |  | $                  | 101,061 |                  | $
|Cost of sales, excluding depreciation                                                  |  |                    | 37,017  |                  |  
|Selling, general, and administrative expenses, excluding depreciation and amortization |  |                    | 38,157  |                  |  
|Depreciation and amortization expense                                                  |  |                    | 3,296   |                  |  
|Amortization of goodwill and other intangibles                                         |  |                    | 1,052   |                  |  
|Share of loss in joint venture                                                         |  |                    | 16      |                  |  
|Management fees and other fees                                                         |  |                    | 164     |                  |  
|Manufacturing start-up costs(1)                                                        |  |                    | 2,439   |                  |  
|                                                                                       |  |                    |         |                  |  
|Operating income                                                                       |  |                    | 18,920  |                  |  
|Other (income) and expense:                                                            |  |                    |         |                  |  
|Interest expense                                                                       |  |                    | 4,874   |                  |  
|Interest income                                                                        |  |                    | (3      | )                |  
|Other income and expense                                                               |  |                    | (67     | )                |  
|                                                                                       |  |                    |         |                  |  
|Income before income taxes                                                             |  |                    | 14,116  |                  |  
|Provision for income taxes                                                             |  |                    | 49      |                  |  
|                                                                                       |  |                    |         |                  |  
|Net income                                                                             |  | $                  | 14,067  |                  | $
|                                                                                       |  |                    |         |                  |  

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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 (Unaudited)  For the Three Months and Six Months Ended February 24,
 2001 and February 26, 2000  (In thousands)

|                                        |  | Three Months Ended |        | Six Months Ended
|--------------------------------------- |  | ------------------ | ------ | ----------------
|
|Net income                              |  | $                  | 14,067 |                 
|Other comprehensive income (loss):      |  |                    |        |                 
|Foreign currency translation adjustment |  |                    | 200    |                 
|                                        |  |                    |        |                 
|Comprehensive income                    |  | $                  | 14,267 |                 
|                                        |  |                    |        |                 

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)  For the Six Months Ended February 24, 2001 and February 26,
 2000  (In thousands)

|                                                            |                                              | Six Months Ended                          |       
|----------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ------
|
|OPERATING ACTIVITIES                                        |                                              |                                           |       
|Net income                                                  |                                              | $                                         | 4,789 
|Adjustments to reconcile net income to net cash provided by |                                              |                                           |       
|operating activities:                                       |                                              |                                           |       
|                                                            | Depreciation and amortization                |                                           |       
|                                                            | Share of loss in joint venture               |                                           |       
|                                                            | Changes in operating assets and liabilities: |                                           |       
|                                                            |                                              | Accounts receivable, net                  |       
|                                                            |                                              | Inventories                               |       
|                                                            |                                              | Prepaid expenses and other current assets |       
|                                                            |                                              | Other assets                              |       
|                                                            |                                              | Accounts payable and accrued liabilities  |       
|                                                            |                                              |                                           |       
|Net cash provided by operating activities                   |                                              |                                           | 10,862
|INVESTING ACTIVITIES                                        |                                              |                                           |       
|Purchase of plant and equipment                             |                                              |                                           | (3,028
|                                                            |                                              |                                           |       
|Net cash used in investing activities                       |                                              |                                           | (3,028
|FINANCING ACTIVITIES                                        |                                              |                                           |       
|Net borrowings under revolving line of credit               |                                              |                                           | (6,500
|Principal payments of capital lease obligations             |                                              |                                           | (27   
|Costs related to financing                                  |                                              |                                           | (163  
|                                                            |                                              |                                           |       
|Net cash used in financing activities                       |                                              |                                           | (6,690
|Effect of exchange rates on cash                            |                                              |                                           | (49   
|                                                            |                                              |                                           |       
|Net increase (decrease) in cash and cash equivalents        |                                              |                                           | 1,095 
|Cash and cash equivalents beginning of period               |                                              |                                           | 3,120 
|                                                            |                                              |                                           |       
|Cash and cash equivalents end of period                     |                                              | $                                         | 4,215 
|                                                            |                                              |                                           |       
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION           |                                              |                                           |       
|Cash paid during the year 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)  February 24, 2001

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, Sweet Factory and Laura Secord candies in over 700 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.

The
accompanying consolidated financial statements include the accounts of Archibald and its subsidiaries, Sweet Factory Group, Inc. and its three wholly-owned subsidiaries and
Archibald Candy (Canada) Corporation. All significant intercompany balances and transactions have been eliminated.

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 accounting principles generally accepted in the United States 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 26, 2000. Certain amounts in the 2000 financial statements have been reclassified to conform with the 2001 presentation.

Results
of operations for the period from August 27, 2000 to February 24, 2001 are not necessarily indicative of the results that may be achieved for the entire year.

Note 2.  INVENTORIES

Inventories are comprised of the following (in thousands):

February 24,
2001

August 26,
2000Raw materials

$
17,658

$
14,492Work in process


525


304Finished goods


25,519


27,991$
43,702

$
42,787


Note 3.  LONG-TERM DEBT

Long-term debt at February 24, 2001 and August 26, 2000 is comprised of $170 million of 10.25% senior secured notes due
July 1, 2004.

Note 4.  MANUFACTURING START-UP COSTS

On June 8, 1999, the Company acquired the Laura Secord retail business from Nestlè Canada, Inc. At that time the Company also
entered into an agreement with Nestlè, pursuant to which Nestlè agreed to continue to produce for a one-year period substantially all the boxed chocolates and
other chocolate confectionery items that are sold in Laura Secord stores. In September 2001, the Company transitioned

5

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the Laura Secord chocolate production to its manufacturing facility in Chicago, Illinois. Below is a summary of the initial costs associated with this transition (in thousands):

Production start-up for cooking and enrobing

$
887Packaging start-up


563Warehouse and distribution start-up


727Product development


155Other


107Total

$
2,439


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 in prior periods.

Note 6.  GUARANTOR SUBSIDIARIES

The Company's obligations under its senior secured notes due 2004 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 the Company's subsidiaries is
subject to any restriction on its ability to pay dividends or make distributions to the Company. The following consolidating financial information illustrates the composition of the Company 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 the Company's management has
determined that such additional information would not be useful in assessing the financial composition of the Guarantor Subsidiaries.

6

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Balance Sheet  As of February 24, 2001  (Unaudited)  (In thousands)

|                                                     |                                      | Archibald Candy
Corporation               |         | Guarantor
Subsidiaries |        | Eliminations |         | Consolidated |        
|---------------------------------------------------- | ------------------------------------ | ----------------------------------------- | ------- | ---------------------- | ------ | ------------ | ------- | ------------ | -------
|ASSETS                                               |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Current assets:                      |                                           |         |                        |        |              |         |              |        
|                                                     |                                      | Cash and cash equivalents                 |         | $                      | 2,381  |              | $       | 1,834        |        
|                                                     |                                      | Accounts receivable, net                  |         |                        | 6,794  |              |         | 1,135        |        
|                                                     |                                      | Inventories                               |         |                        | 34,332 |              |         | 9,370        |        
|                                                     |                                      | Prepaid expenses and other current assets |         |                        | 2,251  |              |         | 600          |        
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Total current assets                 |                                           |         | 45,758                 |        |              | 12,939  |              |        
|                                                     | Property, plant and equipment, net   |                                           |         | 24,895                 |        |              | 24,230  |              |        
|                                                     | Intercompany                         |                                           |         | 31,702                 |        |              | (31,702 | )            |        
|                                                     | Investment in subsidiaries           |                                           |         | 13,317                 |        |              |        |              |        
|                                                     | Other assets                         |                                           |         | 66,631                 |        |              | 13,477  |              |        
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|Total assets                                         |                                      | $                                         | 182,303 |                        | $      | 18,944       |         | $            | (13,317
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)       |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Current liabilities:                 |                                           |         |                        |        |              |         |              |        
|                                                     |                                      | Revolving line of credit                  |         | $                      | 12,000 |              | $       |             |        
|                                                     |                                      | Accounts payable                          |         |                        | 20,335 |              |         | 1,220        |        
|                                                     |                                      | Other current liabilities                 |         |                        | 8,894  |              |         | 3,056        |        
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Total current liabilities            |                                           |         | 41,229                 |        |              | 4,276   |              |        
|                                                     | Long-term debt, less current portion |                                           |         | 170,132                |        |              | 3       |              |        
|                                                     | Other noncurrent liabilities         |                                           |         | 40                     |        |              | 1,244   |              |        
|Total shareholder's equity (deficit)                 |                                      |                                           | (29,098 | )                      |        | 13,421       |         |              | (13,317
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|Total liabilities and shareholder's equity (deficit) |                                      | $                                         | 182,303 |                        | $      | 18,944       |         | $            | (13,317
|                                                     |                                      |                                           |         |                        |        |              |         |              |        

7

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Balance Sheet  As of August 26, 2000  (In thousands)

|                                                     |                                      | Archibald Candy
Corporation               |         | Guarantor
Subsidiaries |        | Eliminations |         | Consolidated |        
|---------------------------------------------------- | ------------------------------------ | ----------------------------------------- | ------- | ---------------------- | ------ | ------------ | ------- | ------------ | -------
|ASSETS                                               |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Current assets:                      |                                           |         |                        |        |              |         |              |        
|                                                     |                                      | Cash and cash equivalents                 |         | $                      | 800    |              | $       | 2,320        |        
|                                                     |                                      | Accounts receivable, net                  |         |                        | 1,114  |              |         | 319          |        
|                                                     |                                      | Inventories                               |         |                        | 35,925 |              |         | 6,862        |        
|                                                     |                                      | Prepaid expenses and other current assets |         |                        | 2,194  |              |         | 1,161        |        
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Total current assets                 |                                           |         | 40,033                 |        |              | 10,662  |              |        
|                                                     | Property, plant and equipment, net   |                                           |         | 25,492                 |        |              | 26,657  |              |        
|                                                     | Intercompany                         |                                           |         | 29,110                 |        |              | (29,110 | )            |        
|                                                     | Investment in subsidiaries           |                                           |         | 14,660                 |        |              |        |              |        
|                                                     | Other assets                         |                                           |         | 68,538                 |        |              | 13,481  |              |        
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|Total assets                                         |                                      | $                                         | 177,833 |                        | $      | 21,690       |         | $            | (14,660
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)       |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Current liabilities:                 |                                           |         |                        |        |              |         |              |        
|                                                     |                                      | Revolving line of credit                  |         | $                      | 18,500 |              | $       |             |        
|                                                     |                                      | Accounts payable                          |         |                        | 14,589 |              |         | 2,541        |        
|                                                     |                                      | Other current liabilities                 |         |                        | 8,591  |              |         | 2,851        |        
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|                                                     | Total current liabilities            |                                           |         | 41,680                 |        |              | 5,392   |              |        
|                                                     | Long-term debt, less current portion |                                           |         | 170,000                |        |              | 11      |              |        
|                                                     | Other noncurrent liabilities         |                                           |         | 40                     |        |              | 1,474   |              |        
|                                                     | Total shareholder's equity (deficit) |                                           |         | (33,887                | )      |              | 14,813  |              |        
|                                                     |                                      |                                           |         |                        |        |              |         |              |        
|Total liabilities and shareholder's equity (deficit) |                                      | $                                         | 177,833 |                        | $      | 21,690       |         | $            | (14,660
|                                                     |                                      |                                           |         |                        |        |              |         |              |        

8

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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 February 24, 2001  (Unaudited)  (In thousands)

|                                                                                       |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries |   | Eliminations |     | Consolidated |       
|-------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------ | ---------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                              |                           | $                           | 60,786 |                        | $ | 40,275       |     | $            |      
|Cost of sales, excluding depreciation                                                  |                           |                             | 18,867 |                        |   | 18,150       |     |              |      
|Selling, general, and administrative expenses, excluding depreciation and amortization |                           |                             | 20,016 |                        |   | 18,141       |     |              |      
|Depreciation and amortization expense                                                  |                           |                             | 1,780  |                        |   | 1,516        |     |              |      
|Amortization of goodwill and other intangibles                                         |                           |                             | 963    |                        |   | 89           |     |              |      
|Share of loss in joint venture                                                         |                           |                             |       |                        |   | 16           |     |              |      
|Management fees and other fees                                                         |                           |                             | (31    | )                      |   | 195          |     |              |      
|Manufacturing start-up costs                                                           |                           |                             | 2,439  |                        |   |             |     |              |      
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Operating income                                                                       |                           |                             | 16,752 |                        |   | 2,168        |     |              |      
|Other (income) expense:                                                                |                           |                             |        |                        |   |              |     |              |       
|                                                                                       | Interest expense          |                             |        | 4,872                  |   |              | 197 |              |       
|                                                                                       | Interest income           |                             |        | (197                   | ) |              | (1  | )            |       
|                                                                                       | Other income and expenses |                             |        | (67                    | ) |              |    |              |       
|Equity in income of subsidiaries                                                       |                           |                             | (1,965 | )                      |   |             |     |              | 1,965 
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Income (loss) before income taxes                                                      |                           |                             | 14,109 |                        |   | 1,972        |     |              | (1,965
|Provision for income taxes                                                             |                           |                             | 42     |                        |   | 7            |     |              |      
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Net income (loss)                                                                      |                           | $                           | 14,067 |                        | $ | 1,965        |     | $            | (1,965
|                                                                                       |                           |                             |        |                        |   |              |     |              |       

9

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Six Months Ended February 24, 2001  (Unaudited)  (In thousands)

|                                                                                       |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries |   | Eliminations |     | Consolidated |       
|-------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------ | ---------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                              |                           | $                           | 89,819 |                        | $ | 63,515       |     | $            |      
|Cost of sales, excluding depreciation                                                  |                           |                             | 30,302 |                        |   | 26,666       |     |              |      
|Selling, general, and administrative expenses, excluding depreciation and amortization |                           |                             | 35,978 |                        |   | 34,183       |     |              |      
|Depreciation and amortization expense                                                  |                           |                             | 3,560  |                        |   | 3,023        |     |              |      
|Amortization of goodwill and other intangibles                                         |                           |                             | 1,926  |                        |   | 178          |     |              |      
|Share of loss in joint venture                                                         |                           |                             |       |                        |   | 105          |     |              |      
|Management fees and other fees                                                         |                           |                             | 9      |                        |   | 286          |     |              |      
|Manufacturing start-up costs                                                           |                           |                             | 2,439  |                        |   |             |     |              |      
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Operating income (loss)                                                                |                           |                             | 15,605 |                        |   | (926         | )   |              |      
|Other (income) expense:                                                                |                           |                             |        |                        |   |              |     |              |       
|                                                                                       | Interest expense          |                             |        | 9,927                  |   |              | 410 |              |       
|                                                                                       | Interest income           |                             |        | (407                   | ) |              | (1  | )            |       
|                                                                                       | Other income and expenses |                             |        | (112                   | ) |              | (1  | )            |       
|Equity in loss of subsidiaries                                                         |                           |                             | 1,343  |                        |   |             |     |              | (1,343
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Income (loss) before income taxes                                                      |                           |                             | 4,854  |                        |   | (1,334       | )   |              | 1,343 
|Provision for income taxes                                                             |                           |                             | 65     |                        |   | 9            |     |              |      
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Net income (loss)                                                                      |                           | $                           | 4,789  |                        | $ | (1,343       | )   | $            | 1,343 
|                                                                                       |                           |                             |        |                        |   |              |     |              |       

10

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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 February 26, 2000  (Unaudited)  (In thousands)

|                                                                                       |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries |   | Eliminations |     | Consolidated |       
|-------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------ | ---------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                              |                           | $                           | 59,523 |                        | $ | 41,420       |     | $            |      
|Cost of sales, excluding depreciation                                                  |                           |                             | 19,964 |                        |   | 15,332       |     |              | (191  
|Selling, general, and administrative expenses, excluding depreciation and amortization |                           |                             | 20,725 |                        |   | 19,419       |     |              |      
|Depreciation and amortization expense                                                  |                           |                             | 1,419  |                        |   | 1,961        |     |              |      
|Amortization of goodwill and other intangibles                                         |                           |                             | 1,332  |                        |   | 391          |     |              |      
|Share of loss in joint venture                                                         |                           |                             |       |                        |   | 10           |     |              |      
|Management fees and other fees                                                         |                           |                             | 128    |                        |   |             |     |              |      
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Operating income                                                                       |                           |                             | 15,955 |                        |   | 4,307        |     |              | 191   
|Other (income) expense:                                                                |                           |                             |        |                        |   |              |     |              |       
|                                                                                       | Interest expense          |                             |        | 4,635                  |   |              | 222 |              |       
|                                                                                       | Interest income           |                             |        | (231                   | ) |              |    |              |       
|                                                                                       | Other income and expenses |                             |        | (257                   | ) |              | 3   |              |       
|Equity in income of subsidiaries                                                       |                           |                             | (4,082 | )                      |   |             |     |              | 4,082 
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Income (loss) before income taxes                                                      |                           |                             | 15,890 |                        |   | 4,082        |     |              | (4,082
|Provision for income taxes                                                             |                           |                             | 37     |                        |   |             |     |              |      
|                                                                                       |                           |                             |        |                        |   |              |     |              |       
|Net income (loss)                                                                      |                           | $                           | 15,853 |                        | $ | 4,082        |     | $            | (4,082
|                                                                                       |                           |                             |        |                        |   |              |     |              |       

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Six Months Ended February 26, 2000  (Unaudited)  (In thousands)

|                                               |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries |   | Eliminations |      | Consolidated |     
|---------------------------------------------- | ------------------------- | --------------------------- | ------ | ---------------------- | - | ------------ | ---- | ------------ | ----
|Net sales                                      |                           | $                           | 88,455 |                        | $ | 66,921       |      | $            |    
|Cost of sales, excluding depreciation          |                           |                             | 31,794 |                        |   | 24,617       |      |              | (299
|Selling, general, and administrative expenses, |                           |                             |        |                        |   |              |      |              |     
|excluding depreciation and amortization        |                           |                             | 36,867 |                        |   | 36,792       |      |              |    
|Depreciation and amortization expense          |                           |                             | 2,722  |                        |   | 3,802        |      |              |    
|Amortization of goodwill and other intangibles |                           |                             | 2,451  |                        |   | 540          |      |              |    
|Share of loss in joint venture                 |                           |                             |       |                        |   | 70           |      |              |    
|Management fees and other fees                 |                           |                             | 261    |                        |   |             |      |              |    
|                                               |                           |                             |        |                        |   |              |      |              |     
|Operating income                               |                           |                             | 14,360 |                        |   | 1,100        |      |              | 299 
|Other (income) expense:                        |                           |                             |        |                        |   |              |      |              |     
|                                               | Interest expense          |                             |        | 9,189                  |   |              | 431  |              |     
|                                               | Interest income           |                             |        | (442                   | ) |              |     |              |     
|                                               | Other income and expenses |                             |        | (447                   | ) |              | (242 | )            |     
|Equity in income of subsidiaries               |                           |                             | (911   | )                      |   |             |      |              | 911 
|                                               |                           |                             |        |                        |   |              |      |              |     
|Income (loss) before income taxes              |                           |                             | 6,971  |                        |   | 911          |      |              | (911
|Provision for income taxes                     |                           |                             | 58     |                        |   |             |      |              |    
|                                               |                           |                             |        |                        |   |              |      |              |     
|Net income (loss)                              |                           | $                           | 6,913  |                        | $ | 911          |      | $            | (911
|                                               |                           |                             |        |                        |   |              |      |              |     

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Cash Flows for the Six Months Ended February 24, 2001  (Unaudited)  (In thousands)

|                                                                                         |                                           | Archibald Candy
Corporation    |        | Guarantor
Subsidiaries |       | Eliminations |        | Consolidated |      
|---------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------ | ------ | ---------------------- | ----- | ------------ | ------ | ------------ | -----
|OPERATING ACTIVITIES                                                                     |                                           |                                |        |                        |       |              |        |              |      
|Net income (loss)                                                                        |                                           | $                              | 4,789  |                        | $     | (1,343       | )      | $            | 1,343
|Adjustments to reconcile net income (loss)
to net cash provided by operating activities: |                                           |                                |        |                        |       |              |        |              |      
|                                                                                         |                                           | Depreciation and amortization  |        |                        | 5,486 |              |        | 3,201        |      
|                                                                                         |                                           | Equity in loss of subsidiaries |        |                        | 1,343 |              |        |             |      
|                                                                                         |                                           | Share of loss in joint venture |        |                        |      |              |        | 105          |      
|Changes in operating assets and liabilities:                                             |                                           |                                |        |                        |       |              |        |              |      
|                                                                                         | Accounts receivables, net                 |                                |        | (5,680                 | )     |              | (816   | )            |      
|                                                                                         | Inventories                               |                                |        | 1,593                  |       |              | (2,508 | )            |      
|                                                                                         | Prepaid expenses and other current assets |                                |        | (57                    | )     |              | 561    |              |      
|                                                                                         | Intercompany                              |                                |        | (2,592                 | )     |              | 2,592  |              |      
|                                                                                         | Other assets                              |                                |        | (255                   | )     |              |       |              |      
|                                                                                         | Accounts payable and accrued liabilities  |                                |        | 6,068                  |       |              | (1,625 | )            |      
|                                                                                         |                                           |                                |        |                        |       |              |        |              |      
|Net cash provided by operating activities                                                |                                           |                                | 10,695 |                        |       | 167          |        |              |     
|INVESTING ACTIVITIES                                                                     |                                           |                                |        |                        |       |              |        |              |      
|Purchase of plant and equipment                                                          |                                           |                                | (2,432 | )                      |       | (596         | )      |              |     
|                                                                                         |                                           |                                |        |                        |       |              |        |              |      
|Net cash used in investing activities                                                    |                                           |                                | (2,432 | )                      |       | (596         | )      |              |     
|FINANCING ACTIVITIES                                                                     |                                           |                                |        |                        |       |              |        |              |      
|Net borrowings under revolving line of credit                                            |                                           |                                | (6,500 | )                      |       |             |        |              |     
|Principle payments of capital lease obligations                                          |                                           |                                | (19    | )                      |       | (8           | )      |              |     
|Costs related to refinancing                                                             |                                           |                                | (163   | )                      |       |             |        |              |     
|                                                                                         |                                           |                                |        |                        |       |              |        |              |      
|Net cash used in financing activities                                                    |                                           |                                | (6,682 | )                      |       | (8           | )      |              |     
|Effect of exchange rates on cash                                                         |                                           |                                |       |                        |       | (49          | )      |              |     
|                                                                                         |                                           |                                |        |                        |       |              |        |              |      
|Net increase (decrease) in cash and cash equivalents                                     |                                           |                                | 1,581  |                        |       | (486         | )      |              |     
|Cash and cash equivalents beginning of period                                            |                                           |                                | 800    |                        |       | 2,320        |        |              |     
|                                                                                         |                                           |                                |        |                        |       |              |        |              |      
|Cash and cash equivalents end of period                                                  |                                           | $                              | 2,381  |                        | $     | 1,834        |        | $            |     
|                                                                                         |                                           |                                |        |                        |       |              |        |              |      

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Cash Flows for the Six Months Ended February 24, 2000  (Unaudited)  (In thousands)

|                                                                                         |                                           | Archibald Candy
Corporation    |        | Guarantor
Subsidiaries |       | Eliminations |        | Consolidated |     
|---------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------ | ------ | ---------------------- | ----- | ------------ | ------ | ------------ | ----
|OPERATING ACTIVITIES                                                                     |                                           |                                |        |                        |       |              |        |              |     
|Net income (loss)                                                                        |                                           | $                              | 6,913  |                        | $     | 911          |        | $            | (911
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                           |                                |        |                        |       |              |        |              |     
|                                                                                         |                                           | Depreciation and amortization  |        |                        | 5,173 |              |        | 4,342        |     
|                                                                                         |                                           | Equity in loss of subsidiaries |        |                        | (911  | )            |        |             |     
|                                                                                         |                                           | Share of loss in joint venture |        |                        |      |              |        | 70           |     
|Changes in operating assets and liabilities:                                             |                                           |                                |        |                        |       |              |        |              |     
|                                                                                         | Accounts receivables, net                 |                                |        | (5,913                 | )     |              | 701    |              |     
|                                                                                         | Inventories                               |                                |        | 3,134                  |       |              | (2,092 | )            |     
|                                                                                         | Prepaid expenses and other current assets |                                |        | (296                   | )     |              | (906   | )            |     
|                                                                                         | Intercompany                              |                                |        | 4,058                  |       |              | (4,058 | )            |     
|                                                                                         | Other assets                              |                                |        | (226                   | )     |              | (140   | )            |     
|                                                                                         | Accounts payable and accrued liabilities  |                                |        | 2,553                  |       |              | 2,281  |              |     
|                                                                                         |                                           |                                |        |                        |       |              |        |              |     
|Net cash provided by operating activities                                                |                                           |                                | 14,485 |                        |       | 1,109        |        |              |    
|INVESTING ACTIVITIES                                                                     |                                           |                                |        |                        |       |              |        |              |     
|Purchase of plant and equipment                                                          |                                           |                                | (4,705 | )                      |       | (1,607       | )      |              |    
|                                                                                         |                                           |                                |        |                        |       |              |        |              |     
|Net cash used in investing activities                                                    |                                           |                                | (4,705 | )                      |       | (1,607       | )      |              |    
|FINANCING ACTIVITIES                                                                     |                                           |                                |        |                        |       |              |        |              |     
|Net borrowings under revolving line of credit                                            |                                           |                                | (8,000 | )                      |       |             |        |              |    
|Principle payments of capital lease obligations                                          |                                           |                                | (26    | )                      |       | (34          | )      |              |    
|Costs related to refinancing                                                             |                                           |                                | (644   | )                      |       | (989         | )      |              |    
|                                                                                         |                                           |                                |        |                        |       |              |        |              |     
|Net cash used in financing activities                                                    |                                           |                                | (8,670 | )                      |       | (1,023       | )      |              |    
|Effect of exchange rates on cash                                                         |                                           |                                |       |                        |       |             |        |              |    
|                                                                                         |                                           |                                |        |                        |       |              |        |              |     
|Net increase (decrease) in cash and cash equivalents                                     |                                           |                                | 1,110  |                        |       | (1,521       | )      |              |    
|Cash and cash equivalents beginning of period                                            |                                           |                                | 2,290  |                        |       | 4,618        |        |              |    
|                                                                                         |                                           |                                |        |                        |       |              |        |              |     
|Cash and cash equivalents end of period                                                  |                                           | $                              | 3,400  |                        | $     | 3,097        |        | $            |    
|                                                                                         |                                           |                                |        |                        |       |              |        |              |     

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  February 24, 2001

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 FEBRUARY 24, 2001 COMPARED TO THE THREE MONTHS ENDED FEBRUARY 26, 2000

NET SALES.  Consolidated sales for the three months ended February 24, 2001 were $101.1 million, an increase of
$0.2 million from $100.9 million for the three months ended February 26, 2000. Company-operated retail sales for the three months ended February 24, 2001 were $81.4, a
decrease of $1.5 million, or 1.8%, from $82.9 million for the three months ended February 26, 2000. This decrease was due primarily to the ongoing closing of Sweet Factory stores
and decline in Sweet Factory same store sales. The Company has closed 18 Sweet Factory stores since the first quarter of fiscal 2000. Same store sales increased 2.3% for Fannie May/Fanny Farmer and
0.6% (4.3% in Canadian Dollars) for Laura Secord, which was partially offset by a 5.2% decline in same store sales for Sweet Factory. Sales through the Company's third-party retail outlets and
non-retail distribution channels increased $1.7 million to $19.7 million for the three months ended February 24, 2001 from $18.0 million for the three months
ended February 26, 2000.

GROSS
PROFIT.  Gross profit for the three months ended February 24, 2001 was $64.0 million, a decrease of $1.8 million, or 2.7%, from
$65.8 million for the three months ended February 26, 2000. Gross profit as a percentage of net sales decreased to 63.3% for the three months ended February 24, 2001 from 65.2%
for the three months ended February 26, 2000. The decrease in gross profit dollars was due primarily to the decline in Sweet Factory sales and an increase in cost of goods sold for Laura Secord
product, which was partially offset by increased sales in the third-party retail outlets and non-retail distribution channels and higher profit margins at the Fannie May/Fanny Farmer
retail stores. The decrease in gross profit percentage was due primarily to the increased cost of goods sold for Laura Secord product.

SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES.  SG&A expenses were $38.2 million for the three months ended February 24, 2001, a decrease of
$1.9 million, or 4.7%, from $40.1 million for the three months ended February 26, 2000. As a percentage of net sales, SG&A expenses decreased to 37.8% for the three months ended
February 24, 2001 from 39.7% for the three months ended February 26, 2000. This decrease was due primarily to lower administrative wages

15

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associated with a reduction in the Company's workforce in the fourth quarter of fiscal year 2000 and lower wages and occupancy costs related to the ongoing closing of Sweet Factory stores.

MANUFACTURING
START-UP COSTS.  On June 8, 1999 the Company acquired the Laura Secord retail business from Nestlè Canada, Inc.
At that time, the Company also entered into an agreement with Nestlè, pursuant to which Nestlè agreed to continue to produce for a one-year period
substantially all the boxed chocolates and other chocolate confectionery items that are sold in Laura Secord stores. In September 2001, the Company transitioned the Laura Secord chocolate
production to its manufacturing facility in Chicago, Illinois. These costs included start-up costs for cooking and enrobing, packaging, and warehouse and distribution; product development
costs; and other costs.

EBITDA.  Earnings
before interest, income taxes, depreciation, and amortization (EBITDA), excluding manufacturing start-up costs, was $25.8 million
for the three months ended February 24, 2001, as compared to $25.6 million for the three months ended February 26, 2000. The Fannie May/Fanny Farmer business contributed
$3.0 million of increased EBITDA, which was offset by a decline in the Laura Secord and Sweet Factory businesses.

OPERATING
INCOME.  Operating income was $18.9 million for the three months ended February 24, 2001, a decrease of $1.6 million from
$20.5 million for the three months ended February 26, 2000. The decrease in operating income was due primarily to the manufacturing start-up costs and a decline in gross
profit, offset by lower SG&A expenses.

NET
INCOME.  Net income for the three months ended February 24, 2001 was $14.1 million, a decrease of $1.8 million from $15.9 million for
the three months ended February 26, 2000. This decrease was due primarily to the decrease in operating income and additional interest expense.

SIX MONTHS ENDED FEBRUARY 24, 2001 COMPARED TO THE SIX MONTHS ENDED FEBRUARY 26, 2000

NET SALES.  Consolidated sales for the six months ended February 24, 2001 were $153.3 million, a decrease of $2.1 million,
or 1.4%, from $155.4 million for the six months ended February 26, 2000. Company-operated retail sales for the six months ended February 24, 2001 were $119.8, a decrease of
$2.6 million, or 2.1%, from $122.4 million for the six months ended February 26, 2000. This decrease was due primarily to the ongoing closing of Sweet Factory stores and decline
in Sweet Factory same store sales. Same store sales increased 1.4% for Fannie May/Fanny Farmer and 0.5% (3.8% in Canadian Dollars) for Laura Secord, which was offset by a 6.0% decline in same store
sales for Sweet Factory. Sales through the Company's third-party retail outlets and non-retail distribution channels increased $0.5 million to $33.5 million for the six
months ended February 24, 2001 from $33.0 million for the six months ended February 26, 2000.

GROSS
PROFIT.  Gross profit for the six months ended February 24, 2001 was $96.4 million, a decrease of $2.9 million, or 2.9%, from
$99.3 million for the six months ended February 26, 2000. Gross profit as a percentage of net sales decreased to 62.9% for the six months ended February 24, 2001 from 63.9% for
the six months ended February 26, 2000. The decrease in gross profit dollars was due primarily to the decline in Sweet Factory sales and an increase in cost of goods sold for Laura Secord
product, which was partially offset by higher profit margins at the Fannie May/Fanny Farmer

16

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retail stores. The decrease in gross profit percentage was due primarily to the increased costs of goods sold for Laura Secord product.

SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES.  SG&A expenses were $70.2 million for the six months ended February 24, 2001, a decrease of
$3.5 million, or 4.7%, from $73.7 million for the six months ended February 26, 2000. As a percentage of net sales, SG&A expenses decreased to 45.8% for the six months ended
February 24, 2001 from 47.4% for the six months ended February 26, 2000. This decrease was due primarily to lower administrative wages associated with a reduction in the Company's
workforce in the fourth quarter of fiscal year 2000 and lower wages and occupancy costs related to the ongoing closing of Sweet Factory stores.

MANUFACTURING
START-UP COSTS.  On June 8, 1999 the Company acquired the Laura Secord retail business from Nestlè Canada, Inc.
At that time, the Company also entered into an agreement with Nestlè, pursuant to which Nestlè agreed to continue to produce for a one-year period
substantially all the boxed chocolates and other chocolate confectionery items that are sold in Laura Secord stores. In September 2001, the Company transitioned the Laura Secord chocolate
production to its manufacturing facility in Chicago, Illinois. These costs included start-up costs for cooking and enrobing, packaging, and warehouse and distribution; product development
costs; and other costs.

EBITDA.  Earnings
before interest, income taxes, depreciation, and amortization (EBITDA), excluding manufacturing start-up costs, was $25.9 million
for the six months ended February 24, 2001, as compared to $25.7 million for the six months ended February 26, 2000. The Fannie May/Fanny Farmer business contributed
$3.6 million of increased EBITDA, which was offset by a decline in the Laura Secord and Sweet Factory businesses.

OPERATING
INCOME.  Operating income was $14.7 million for the six months ended February 24, 2001, a decrease of $1.1 million from
$15.8 million for the six months ended February 26, 2000. The decrease in operating income was due primarily to the manufacturing start-up costs and a decline in gross
profit, offset by lower SG&A expenses.

NET
INCOME.  Net income for the six months ended February 24, 2001 was $4.8 million, a decrease of $2.1 million from $6.9 million for the
six months ended February 26, 2000. This decrease was due primarily to the decrease in operating income and additional interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $10.9 million for the six months ended February 24, 2001 compared to $15.6 million for the
six months ended February 26, 2000. Net income was $4.8 million for the six months ended February 24, 2001 compared to $6.9 million for the six months ended
February 26,
2000. Net income included non-cash depreciation and amortization charges of $8.7 million for the six months ended February 24, 2001 and $9.5 million for the six months
ended February 26, 2000.

Net
cash used in investing activities decreased by $3.3 million to $3.0 million for the six months ended February 24, 2001 from $6.3 million for the six
months ended February 26, 2000 due to lower capital expenditures.

17

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As of February 24, 2001, the Company had outstanding $170 million of 10.25% senior secured notes due July 1, 2004.

The
Company and its Canadian subsidiary, Archibald Candy (Canada) Corporation, are parties to two related revolving credit agreements that work together to provide for revolving loans
to the Company and Archibald Candy (Canada) Corporation in an aggregate principal amount at any time not to exceed the lesser of (1) $20.0 million ($30.0 million prior to
December 31, 2000) and (2) a borrowing base comprised primarily of a percentage of eligible accounts receivable, eligible inventory and some of the owned real properties.

On
July 25, 2000, the Company entered into an amendment of the revolving credit agreements that increased the borrowing availability from $25 million to
$30 million until December 31, 2000 and to $20 million thereafter. The July 25, 2000 amendment required the borrowings to be paid in full during the period beginning
December 27, 2000 and ending December 31, 2000. Borrowings were repaid in full during this period. As of February 24, 2001, the Company's cash balance was $4.2 million and
the Company had outstanding borrowings under the revolving credit agreements of $12.0 million and letters of credit in the amount of $0.2 million.

The
revolving credit agreements expire on April 15, 2001. The Company has obtained from its lenders an extension of the revolving credit agreements until June 15, 2001.
The Company will need to renew the revolving credit agreements or obtain alternative financing to meet its seasonal working capital
needs and other requirements for the period after June 15, 2001, including interest payments on the senior secured notes. The Company did not meet the minimum EBITDA requirement of the
revolving credit agreements for the quarter ended February 24, 2001. The Company has obtained from the lenders a waiver of such requirement.

In
addition, Fannie May Holdings, Inc. has certain dividend and redemption obligations for which the Company must generate the necessary funds. Holdings has the following three
classes of preferred stock: Senior Preferred Stock, Junior Class A PIK Preferred Stock and Junior Class B PIK Preferred Stock. The Senior Preferred

Stock
was issued in 1991 in the original face amount of $10.0 million and is subject to mandatory redemption on August 31, 2001. The redemption value of the Senior
Preferred Stock on August 31, 2001 will be approximately $12.7 million. The Junior Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock were issued in
1991 in the original face amounts of $7.0 million and $0.7 million, respectively. Both classes of Junior PIK Preferred Stock are subject to mandatory redemption on November 1,
2001. The redemption value of the Junior Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock on November 1, 2001 will be approximately $15.1 million and
$1.5 million, respectively. As of February 24, 2001, affiliates of TCW Capital owned approximately 64% of the Junior Class A PIK Preferred Stock and affiliates of The Jordan
Company owned approximately 36% of the Junior Class A PIK Preferred Stock and approximately 80% of the Junior Class B PIK Preferred Stock.

In
order for Holdings to make such redemption payments, Holdings must cause the Company, to the extent permitted by the indenture, its credit agreements and law, to advance the
necessary funds to Holdings by dividend or otherwise. Such advances, if paid, will reduce the funds available for the

18

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Company's operations. To the extent that such funds are not available, whether due to the restrictions set forth in the indenture or the Company's credit agreements or otherwise, the failure to make
required redemption payments (1) would trigger various provisions of Holdings' preferred and common stock, including provisions providing for a change of control of Holdings' and the Company's
Boards of Directors and (2) could result in defaults under the indenture and the Company's credit agreements.

In
light of the above debt service and dividend and redemption obligations, and in order to have sufficient funds to meet the Company's projected capital expenditures and working
capital requirements, the Company is exploring various alternatives, including extending, amending or refinancing the revolving credit agreements, and pursuing other sources of capital. While
management believes the Company's financing requirements will be met, there can be no assurance that the Company will be able to accomplish any of these alternatives or that the Company will be able
to do so on terms favorable to us.

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.

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  February 24, 2001

PART IIOTHER INFORMATION:

ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 4.2Amendment
No. 1 and Waiver to Credit Agreement dated as of April 10, 2001 by and among Archibald Candy (Canada) Corporation and Bank One Canada.

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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: APRIL 10, 2001 |  | By:                        

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