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

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FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended February 23, 2002

OR

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

For the transition period from  to

Commission File Number 333-33751

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

Illinois(State of incorporation)

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

60607(zip code)


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

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

As
of April 9, 2002, the number of shares outstanding of the registrant's Common Stock was 4,210, all of which were held by Fannie May Holdings, Inc.

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ARCHIBALD CANDY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED FEBRUARY 23, 2002

INDEX

|                                                                               |  |                                                        |  | Page No.
|------------------------------------------------------------------------------ |  | ------------------------------------------------------ |  | --------
|PART IFINANCIAL INFORMATION:                                                  |  |                                                       
|ITEM 1FINANCIAL STATEMENTS (UNAUDITED)                                        |  |                                                       
|                                                                               |  | CONSOLIDATED BALANCE SHEETS                            |  | 1       
|                                                                               |  | CONSOLIDATED STATEMENTS OF OPERATIONS                  |  | 2       
|                                                                               |  | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |  | 3       
|                                                                               |  | CONSOLIDATED STATEMENTS OF CASH FLOWS                  |  | 4       
|                                                                               |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             |  | 5       
|ITEM 2MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS |  |                                                       
|                                                                               |  | OF OPERATIONS                                          |  | 18      
|ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS             |  | 25                                                    
|PART IIOTHER INFORMATION:                                                     |  |                                                       
|ITEM 6EXHIBITS AND REPORTS ON FORM 8-K                                        |  | 26                                                    
|SIGNATURES                                                                     |  | 27                                                    

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PART IFINANCIAL INFORMATION:

ITEM 1FINANCIAL STATEMENTS

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

|                                                 |                                              | February 23,
2002                   |         | August 25,
2001 |  
|------------------------------------------------ | -------------------------------------------- | ----------------------------------- | ------- | --------------- | -
|
|ASSETS                                           |                                              |                                     |         |                 |  
|Current assets:                                  |                                              |                                     |         |                 |  
|                                                 | Cash and cash equivalents                    |                                     | $       | 2,804           |  
|                                                 | Accounts receivable, net                     |                                     |         | 4,720           |  
|                                                 | Inventories                                  |                                     |         | 30,147          |  
|                                                 | Prepaid expenses and other current assets    |                                     |         | 4,110           |  
|                                                 |                                              |                                     |         |                 |  
|Total current assets                             |                                              |                                     | 41,781  |                 |  
|Property, plant, and equipment, net              |                                              |                                     | 26,093  |                 |  
|Goodwill, net                                    |                                              |                                     | 57,594  |                 |  
|Noncompete agreements and other intangibles, net |                                              |                                     | 45      |                 |  
|Deferred financing fees, net                     |                                              |                                     | 5,801   |                 |  
|Investment in joint venture                      |                                              |                                     | 2,094   |                 |  
|Other assets                                     |                                              |                                     | 1,490   |                 |  
|                                                 |                                              |                                     |         |                 |  
|Total assets                                     |                                              | $                                   | 134,898 |                 | $
|                                                 |                                              |                                     |         |                 |  
|LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)   |                                              |                                     |         |                 |  
|Current liabilities:                             |                                              |                                     |         |                 |  
|                                                 | Revolving line of credit                     |                                     | $       | 2,680           |  
|                                                 | Senior secured notes                         |                                     |         | 170,000         |  
|                                                 | Accounts payable                             |                                     |         | 19,780          |  
|                                                 | Accrued liabilities                          |                                     |         | 4,093           |  
|                                                 | Payroll and related liabilities              |                                     |         | 3,174           |  
|                                                 | Accrued interest                             |                                     |         | 11,614          |  
|                                                 | Restructuring reserve                        |                                     |         |                |  
|                                                 | Current portion of capital lease obligations |                                     |         | 44              |  
|                                                 |                                              |                                     |         |                 |  
|Total current liabilities                        |                                              |                                     | 211,385 |                 |  
|                                                 |                                              |                                     |         |                 |  
|Due to affiliate                                 |                                              |                                     | 40      |                 |  
|Senior secured notes                             |                                              |                                     |        |                 |  
|Deferred rent                                    |                                              |                                     |        |                 |  
|Pension liability                                |                                              |                                     | 1,308   |                 |  
|Capital lease obligations, less current portion  |                                              |                                     | 105     |                 |  
|Shareholder's equity (deficit):                  |                                              |                                     |         |                 |  
|                                                 | Common stock, $0.01 par value:               |                                     |         |                 |  
|                                                 |                                              | Authorized25,000 shares            |         |                 |  
|                                                 |                                              | Issued and outstanding4,210 shares |         |                 | 
|                                                 | Additional paid-in-capital                   |                                     |         | 18,700          |  
|                                                 | Accumulated deficit                          |                                     |         | (96,482         | )
|                                                 | Other comprehensive loss                     |                                     |         | (158            | )
|                                                 |                                              |                                     |         |                 |  
|Total shareholder's deficit                      |                                              |                                     | (77,940 | )               |  
|                                                 |                                              |                                     |         |                 |  
|Total liabilities and shareholder's deficit      |                                              | $                                   | 134,898 |                 | $
|                                                 |                                              |                                     |         |                 |  

See accompanying notes.

1

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

|                                                                                       |  | Three Months Ended |        | Six Months Ended |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- | -
|
|Net sales                                                                              |  | $                  | 81,213 |                  | $
|Cost of sales, excluding depreciation                                                  |  |                    | 32,821 |                  |  
|Cost of sales, nonrecurring(1)                                                         |  |                    |       |                  |  
|                                                                                       |  |                    |        |                  |  
|Total cost of sales                                                                    |  |                    | 32,821 |                  |  
|                                                                                       |  |                    |        |                  |  
|Gross profit                                                                           |  |                    | 48,392 |                  |  
|Selling, general, and administrative expenses, excluding depreciation and amortization |  |                    | 27,663 |                  |  
|Depreciation and amortization expense                                                  |  |                    | 1,868  |                  |  
|Amortization of goodwill and other intangibles                                         |  |                    | 1,096  |                  |  
|Share of loss in joint venture                                                         |  |                    | 50     |                  |  
|Management fees and other fees                                                         |  |                    | 223    |                  |  
|                                                                                       |  |                    |        |                  |  
|Operating income                                                                       |  |                    | 17,492 |                  |  
|Other (income) and expense:                                                            |  |                    |        |                  |  
|Interest expense                                                                       |  |                    | 4,491  |                  |  
|Interest income                                                                        |  |                    |       |                  |  
|Other income and expense                                                               |  |                    | (115   | )                |  
|Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries(2)             |  |                    |       |                  |  
|                                                                                       |  |                    |        |                  |  
|Income (loss) before income taxes                                                      |  |                    | 13,116 |                  |  
|Provision for income taxes                                                             |  |                    | 56     |                  |  
|                                                                                       |  |                    |        |                  |  
|Net income (loss)                                                                      |  | $                  | 13,060 |                  | $
|                                                                                       |  |                    |        |                  |  

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See
accompanying notes.

2

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

|                                        |  | Three Months Ended |        | Six Months Ended |  
|--------------------------------------- |  | ------------------ | ------ | ---------------- | -
|
|Net income (loss)                       |  | $                  | 13,060 |                  | $
|Other comprehensive income (loss):      |  |                    |        |                  |  
|Foreign currency translation adjustment |  |                    | 5      |                  |  
|                                        |  |                    |        |                  |  
|Comprehensive income (loss)             |  | $                  | 13,065 |                  | $
|                                        |  |                    |        |                  |  

See
accompanying notes.

3

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

|                                                                            |                                                                         | Six Months Ended                          |        
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------- | -------
|
|OPERATING ACTIVITIES                                                        |                                                                         |                                           |        
|Net income (loss)                                                           |                                                                         | $                                         | (2,376 
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                         |                                           |        
|                                                                            | Depreciation and amortization                                           |                                           |        
|                                                                            | Share of loss in joint venture                                          |                                           |        
|                                                                            | Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |                                           |        
|                                                                            | Changes in operating assets and liabilities:                            |                                           |        
|                                                                            |                                                                         | Accounts receivable, net                  |        
|                                                                            |                                                                         | Inventories                               |        
|                                                                            |                                                                         | Prepaid expenses and other current assets |        
|                                                                            |                                                                         | Other assets                              |        
|                                                                            |                                                                         | Accounts payable and accrued liabilities  |        
|                                                                            |                                                                         |                                           |        
|Net cash provided by operating activities                                   |                                                                         |                                           | 19,445 
|INVESTING ACTIVITIES                                                        |                                                                         |                                           |        
|Purchase of property, plant, and equipment                                  |                                                                         |                                           | (1,065 
|Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries     |                                                                         |                                           | (336   
|                                                                            |                                                                         |                                           |        
|Net cash used in investing activities                                       |                                                                         |                                           | (1,401 
|FINANCING ACTIVITIES                                                        |                                                                         |                                           |        
|Net repayments under revolving line of credit                               |                                                                         |                                           | (16,793
|Principal payments of capital lease obligations                             |                                                                         |                                           | (26    
|Costs related to financing                                                  |                                                                         |                                           | (807   
|                                                                            |                                                                         |                                           |        
|Net cash used in financing activities                                       |                                                                         |                                           | (17,626
|Effect of exchange rates on cash                                            |                                                                         |                                           | 40     
|                                                                            |                                                                         |                                           |        
|Net increase in cash and cash equivalents                                   |                                                                         |                                           | 458    
|Cash and cash equivalents beginning of period                               |                                                                         |                                           | 2,346  
|                                                                            |                                                                         |                                           |        
|Cash and cash equivalents end of period                                     |                                                                         | $                                         | 2,804  
|                                                                            |                                                                         |                                           |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                           |                                                                         |                                           |        
|Cash paid during the period for:                                            |                                                                         |                                           |        
|                                                                            | Interest                                                                |                                           | $      
|                                                                            |                                                                         |                                           |        
|Non-cash investing and financing activities:                                |                                                                         |                                           |        
|                                                                            | Capital lease obligations recorded                                      |                                           | $      
|                                                                            |                                                                         |                                           |        

See
accompanying notes.

4

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Notes to Consolidated Financial Statements (Unaudited)  February 23, 2002

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

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

Results
of operations for the period from August 25, 2001 to February 23, 2002 are not necessarily indicative of the results that may be achieved for the entire year.

NOTE 2. BANKRUPTCY FILINGSWEET FACTORY GROUP, INC. AND SUBSIDIARIES

On November 15, 2001, Sweet Factory Group, Inc. ("SFG") and its three subsidiaries; Sweet Factory, Inc., SF Properties, Inc. and SF
Candy Company, filed voluntary petitions in the U.S. Bankruptcy Court for the District of Delaware ("Bankruptcy Court") under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy
filings, Sweet Factory, Inc. entered into a Post-Petition Credit, Security and Guaranty Agreement (the "Post-Petition Credit Agreement") with The CIT Group/Business
Credit, Inc. ("CIT") and SFG, SF Properties, Inc. and SF Candy Company as guarantors. The agreement is for one year and provides for revolving loans at any time not to exceed the lesser
of (1) $2.0 million and (2) a borrowing base comprised of a percentage of Sweet Factory, Inc.'s eligible inventory plus a $1.0 million overadvance, subject to
certain reserves. The Post-Petition Credit Agreement is secured by first priority liens on Sweet Factory, Inc.'s accounts receivable and inventory and provides that borrowings
thereunder accrue interest at a variable rate equal to the "prime rate" announced from time to time by J.P. Morgan Chase & Co., plus 1.5%. The Company and Archibald Candy (Canada) Corporation
have guaranteed all obligations of Sweet Factory, Inc. under the Post-Petition Credit Agreement. Sweet Factory, Inc. is required to pay fees in connection with the
Post-Petition Credit Agreement. On March 4, 2002, SFG and its subsidiaries filed a Plan of Reorganization with the Bankruptcy Court. A confirmation hearing is scheduled for
May 24, 2002.

SFG
and its subsidiaries' financial results are included in the Company's consolidated results through November 15, 2001. Accounting principles generally accepted in the United
States generally require that any entity that files for protection under the U.S. Bankruptcy Code whose financial statements were previously consolidated with those of its parent must be prospectively
deconsolidated

5

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from the parent with the investment accounted for using the cost method. The effects on the Company's balance sheet of this deconsolidation and use of the cost method are that: (i) the
Company's investment in SFG is included as a single amount and (ii) the Company's receivable from SFG is no longer eliminated. The effect on the Company's income statement is that beginning
November 15, 2001, the SFG operating results are not included in the consolidated results. At November 15, 2001, the Company's investment in SFG was a negative $17.1 million, and
the receivable had a balance of $19.4 million. Because of SFG's and its subsidiaries' bankruptcies, it was determined that the receivable should be reserved for financial reporting purposes.
That write-off was first netted against the negative investment balance, with the remaining $2.3 million recorded as a non-operating expense.

Management
has assessed the liquidity position of SFG and its subsidiaries as a result of the bankruptcy filings and available debtor in possession financing and believes that SFG and
its subsidiaries will be able to fund their post-petition obligations until a plan of reorganization is finalized or another transaction is effected.

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

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

|                         |  | For the quarter
ended
Feb. 23, 2002 |       | For the quarter
ended
Feb. 24, 2001 |   | For the period of
Aug. 26, 2001 thru
Nov. 15, 2001 |   | For the six months
ended
Feb. 23, 2002 |        | For the six months
ended
Feb. 24, 2001 |  
|------------------------ |  | ----------------------------------- | ----- | ----------------------------------- | - | -------------------------------------------------- | - | -------------------------------------- | ------ | -------------------------------------- | -
|Net sales                |  | $                                   | 9,619 |                                     | $ | 19,513                                             |   | $                                      | 8,867  |                                        | $
|Operating loss           |  |                                     | (372  | )                                   |   | (513                                               | ) |                                        | (3,172 | )                                      |  
|Loss before income taxes |  |                                     | (380  | )                                   |   | (513                                               | ) |                                        | (3,175 | )                                      |  
|Net loss                 |  |                                     | (377  | )                                   |   | (520                                               | ) |                                        | (3,178 | )                                      |  

Operating loss includes restructuring expenses of $35 and $910 for the quarter and year-to-date periods ended
February 23, 2002, respectively.

|                                          |  | Feb. 23, 2002 |         | Nov. 15, 2001 |   | Aug. 25, 2001 |  
|----------------------------------------- |  | ------------- | ------- | ------------- | - | ------------- | -
|Current assets                            |  | $             | 3,042   |               | $ | 2,620         |  
|Property, plant and equipment             |  |               | 4,737   |               |   | 5,316         |  
|Other assets                              |  |               | 791     |               |   | 772           |  
|                                          |  |               |         |               |   |               |  
|Total assets                              |  | $             | 8,570   |               | $ | 8,708         |  
|Current liabilities                       |  | $             | 6,685   |               | $ | 6,079         |  
|Payable to Archibald Candy Corporation    |  |               | 19,544  |               |   | 19,383        |  
|Other liabilities                         |  |               | 313     |               |   | 371           |  
|Total stockholder's deficit               |  |               | (17,972 | )             |   | (17,125       | )
|                                          |  |               |         |               |   |               |  
|Total liabilities & stockholder's deficit |  | $             | 8,570   |               | $ | 8,708         |  
|                                          |  |               |         |               |   |               |  

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

|                           |  | For the quarter
ended Feb. 24, 2001 |        | For the six months
ended Feb. 23, 2002 |   | For the six months
ended Feb. 24, 2001
|-------------------------- |  | ----------------------------------- | ------ | -------------------------------------- | - | --------------------------------------
|Net sales                  |  | $                                   | 82,981 |                                        | $ | 114,721                               
|Operating income           |  |                                     | 19,433 |                                        |   | 12,305                                
|Income before income taxes |  |                                     | 14,629 |                                        |   | 858                                   
|Net income                 |  |                                     | 14,587 |                                        |   | 802                                   
|                           |  |                                     |        |                                        |   |                                       

|                                          |  | August 25,
2001 |        
|----------------------------------------- |  | --------------- | -------
|Current assets                            |  | $               | 34,598 
|Property, plant and equipment             |  |                 | 28,699 
|Investment in and amounts due from SFG    |  |                 | 5,811  
|Other assets                              |  |                 | 68,050 
|                                          |  |                 |        
|Total assets                              |  | $               | 137,158
|Current liabilities                       |  | $               | 41,553 
|Other liabilities                         |  |                 | 171,209
|Total stockholder's deficit               |  |                 | (75,604
|                                          |  |                 |        
|Total liabilities & stockholder's deficit |  | $               | 137,158
|                                          |  |                 |        

NOTE 3. INVENTORIES

Inventories at February 23, 2002 and August 25, 2001 are comprised of the following:

February 23,
2002

August 25,
2001Raw materials

$
13,943

$
12,901Work in process


205


225Finished goods


15,999


18,714$
30,147

$
31,840


NOTE 4. DEBT AND LIQUIDITY

Archibald has not made the approximately $8.7 million interest payment that was due on January 2, 2002 on its outstanding $170 million of
101/4% senior secured notes due 2004 (the "Senior Notes"), however, Archibald has entered into a forbearance agreement (the "Noteholders' Forbearance Agreement") with holders (the
"Consenting Holders") of approximately 88% in aggregate face amount of the Senior Notes. The Senior Notes have been classified as current on Archibald's balance sheet.

Pursuant
to the Noteholders' Forbearance Agreement, the Consenting Holders have agreed to forbear until April 30, 2002 (the "Noteholders' Forbearance Period") from exercising
their rights under the Senior Notes, the indenture pursuant to which the Senior Notes have been issued (the "Indenture") and applicable law resulting from Archibald's failure to make the approximately
$8.7 million interest payment on the Senior Notes that was due on January 2, 2002. The Noteholders' Forbearance Period may be terminated prior to April 30, 2002 if any of the
following occurs (other than if due to the Consenting Holders' breach of their obligations under the Noteholders' Forbearance Agreement): (1) any other event of default under the Indenture,
(2) the termination of Archibald's forbearance agreement (the "CIT Forbearance Agreement") with The CIT Group/Business Credit, Inc. ("CIT"), the agent and sole lender under Archibald's
revolving credit facility (the "CIT Facility"), (3) the termination of Holdings' forbearance agreement (the "Senior Preferred Forbearance Agreement") with the holders
of its senior preferred stock (the "Senior Preferred Holders"), (4) any acceleration of the principal and interest under the Senior Notes, (5) any payment or distribution by Archibald to
the

7

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holders of Holdings' preferred stock or to Holdings for payment to the holders of its preferred stock, (6) any election by the Senior Preferred Holders of a director having 51% of the total
voting power of Holdings' Board of Directors or (7) a breach of any representation, warranty or covenant in the Noteholders' Forbearance Agreement.

Archibald
originally entered into the CIT Forbearance Agreement as of December 31, 2001 because (1) Archibald had failed, or expected to fail, to satisfy certain financial
covenants in the CIT Facility that required, Archibald to meet minimum levels of net earnings, before interest, income taxes, depreciation and amortization, and net cash flow for periods ending in
November and December 2001 and February 2002 and (2) Archibald expected to fail to make the January 2002 interest payment on the Senior Notes. Pursuant to subsequent
amendments to the CIT Forbearance Agreement, CIT also agreed to forbear from exercising its rights with respect to certain additional covenant defaults by Archibald under the CIT Facility. CIT has
extended the forbearance period under the CIT Forbearance Agreement (the "CIT Forbearance Period") beyond March 1, 2002, its originally scheduled expiration date, until April 30, 2002.
Pursuant to the CIT Forbearance Agreement, CIT has allowed Archibald to continue to request borrowings under the CIT Facility for working capital needs, but not in excess of the lesser of a certain
specified limit and a borrowing base comprised of a percentage of the eligible accounts receivable and eligible inventory of Archibald and its Canadian subsidiary, Archibald Candy (Canada)
Corporation. During the CIT Forbearance Period, Archibald's management expects that Archibald will have sufficient availability under the CIT Facility to meet its working capital needs as they become
due; however, there can be no assurance that this will be the case. The CIT Forbearance Period may be terminated prior to April 30, 2002 if any of the following occurs: (1) any
acceleration of the Senior Notes, (2) any payment on account of the Senior Notes or Holdings' preferred stock, (3) any other event of default under the CIT Facility or (4) a
breach of any representation, warranty or covenant in the CIT Forbearance Agreement.

Pursuant
to the Senior Preferred Forbearance Agreement, the Senior Preferred Holders have agreed to forbear until April 30, 2002 (the "Senior Preferred Forbearance Period") from
exercising their right to elect a director to Holdings' Board of Directors who would have 51% of the total voting power of Holdings' Board of Directors and from exercising any other right or remedies
that they may have as a result of Holdings' failure to make the $3.0 million redemption payment required to be made by it to the Senior Preferred Holders on January 15, 2002 and the
$10.5 million in aggregate of remaining redemption payments that automatically accelerated as a result thereof. The Senior Preferred Forbearance Period may be terminated prior to
April 30, 2002 if any of the following occurs (other than if due to the Senior Preferred Holders' breach of their obligations under the Senior Preferred Forbearance Agreement): (1) the
termination of the CIT Forbearance Agreement, (2) the termination of the Noteholders' Forbearance Agreement or (3) a breach by Holdings of any representation, warranty or covenant in the
Senior Preferred Forbearance Agreement. Pursuant to the Senior Preferred Forbearance Agreement, Holdings also has granted to the Senior Preferred Holders the right to designate an individual who is
entitled to observe all meetings of the Boards of Directors of Holdings, Archibald and its subsidiaries.

Archibald
is continuing discussions with the holders of the Senior Notes, CIT, Holdings' significant stockholders and investment advisors on an overall capital restructuring, including,
among other things (1) a restructuring of the Senior Notes through debt for equity exchanges or conversions or repurchases or acquisitions of the Senior Notes on discounted terms,
(2) new equity and/or debt from unaffiliated third parties and/or affiliates of Archibald or its directors and officers, (3) extensions of the forbearance
periods under the Noteholders' Forbearance Agreement, the CIT Forbearance Agreement and the Senior Preferred Forbearance Agreement or (4) combinations of the foregoing. Archibald has not
received any commitments or agreements with respect to any new sources of equity or debt, and there can be no assurance that any such financing will be obtained, particularly if the Senior Notes are
not restructured on a satisfactory basis. There can be no assurance that Archibald will succeed in a restructuring on a timely basis or that the terms and conditions of a restructuring would be
favorable to Archibald.

In
addition to the Senior Preferred Stock, Holdings also has the two following classes of junior preferred stock: Junior Class A PIK Preferred Stock and Junior Class B PIK
Preferred Stock. The

8

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Junior Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock were issued in 1991 in the original face amount of $7.0 million and $0.7 million,
respectively. As of February 23, 2002, affiliates of TCW Capital owned approximately 64% of the Junior Class A PIK Preferred Stock and affiliates (or parties advised by such 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
connection with Archibald entering into the CIT Facility, Holdings entered into agreements with the holders of the Junior Class A PIK Preferred Stock and the Junior
Class B Preferred Stock extending the mandatory redemption date for each such class of preferred stock from November 1, 2001 to March 15, 2006. The redemption value of the Junior
Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock on March 15, 2006 will be approximately $21.2 million and $2.1 million, respectively. The
holders of Junior Class A PIK Preferred Stock also have agreed to extend from January 1, 2000 to June 30, 2003 the date on which they have the right to put to Holdings their
common stock. In the event that Holdings does not redeem all of the common stock and preferred stock owned by affiliates of TCW Capital within 90 days of any exercise of this put right,
affiliates of TCW Capital have the right to take control of a majority of the voting power of Holdings' Board of Directors for purposes of effecting a sale of Holdings.

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

9

---



Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Balance Sheet  As of February 23, 2002  (Unaudited)  (In thousands)

|                                                     |                                   | Archibald Candy
Corporation |         | Guarantor
Subsidiaries(a) |   | Eliminations |       | Consolidated |        
|---------------------------------------------------- | --------------------------------- | --------------------------- | ------- | ------------------------- | - | ------------ | ----- | ------------ | -------
|Assets                                               |                                   |                             |         |                           |   |              |       |              |        
|Current assets:                                      |                                   |                             |         |                           |   |              |       |              |        
|                                                     | Cash and cash equivalents         |                             | $       | 2,302                     |   | $            | 502   |              | $      
|                                                     | Accounts receivables, net         |                             |         | 3,790                     |   |              | 930   |              |        
|                                                     | Inventories                       |                             |         | 26,236                    |   |              | 3,911 |              |        
|                                                     | Prepaids and other current assets |                             |         | 3,752                     |   |              | 358   |              |        
|                                                     |                                   |                             |         |                           |   |              |       |              |        
|Total current assets                                 |                                   |                             | 36,080  |                           |   | 5,701        |       |              |       
|Property, plant, and equipment, net                  |                                   |                             | 17,178  |                           |   | 8,915        |       |              |       
|Intercompany                                         |                                   |                             | 16,719  |                           |   | 487          |       |              |       
|Investment in subsidiaries                           |                                   |                             | (4,109  | )                         |   |             |       |              | (13,016
|Other assets                                         |                                   |                             | 64,836  |                           |   | 2,107        |       |              |       
|                                                     |                                   |                             |         |                           |   |              |       |              |        
|Total assets                                         |                                   | $                           | 130,704 |                           | $ | 17,210       |       | $            | (13,016
|Liabilities and shareholder's equity (deficit)       |                                   |                             |         |                           |   |              |       |              |        
|Current liabilities:                                 |                                   |                             |         |                           |   |              |       |              |        
|                                                     | Revolving line of credit          |                             | $       | 2,680                     |   | $            |      |              | $      
|                                                     | Senior secured notes              |                             |         | 170,000                   |   |              |      |              |        
|                                                     | Accounts payable                  |                             |         | 17,866                    |   |              | 1,914 |              |        
|                                                     | Other current liabilities         |                             |         | 16,906                    |   |              | 2,019 |              |        
|                                                     |                                   |                             |         |                           |   |              |       |              |        
|Total current liabilities                            |                                   |                             | 207,452 |                           |   | 3,933        |       |              |       
|Other noncurrent liabilities                         |                                   |                             | 1,453   |                           |   | 9,303        |       |              | (9,303 
|Total shareholder's equity (deficit)                 |                                   |                             | (78,201 | )                         |   | 3,974        |       |              | (3,713 
|                                                     |                                   |                             |         |                           |   |              |       |              |        
|Total liabilities and shareholder's equity (deficit) |                                   | $                           | 130,704 |                           | $ | 17,210       |       | $            | (13,016
|                                                     |                                   |                             |         |                           |   |              |       |              |        

---

10

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

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

11

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Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Three Months Ended February 23, 2002  (Unaudited)  (In
thousands)

|                                                                                      |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries(a) |   | Eliminations |     | Consolidated |       
|------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------ | ------------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                             |                           | $                           | 61,919 |                           | $ | 19,294       |     | $            |      
|Cost of sales, excluding depreciation                                                 |                           |                             | 23,735 |                           |   | 9,086        |     |              |      
|                                                                                      |                           |                             |        |                           |   |              |     |              |       
|Gross profit                                                                          |                           |                             | 38,184 |                           |   | 10,208       |     |              |      
|Selling, general, and administrative expenses excluding depreciation and amortization |                           |                             | 20,858 |                           |   | 6,805        |     |              |      
|Depreciation and amortization expense                                                 |                           |                             | 1,513  |                           |   | 355          |     |              |      
|Amortization of goodwill and other intangibles                                        |                           |                             | 1,096  |                           |   |             |     |              |      
|Share of loss in joint venture                                                        |                           |                             |       |                           |   | 50           |     |              |      
|Management fees and other fees                                                        |                           |                             | 223    |                           |   |             |     |              |      
|                                                                                      |                           |                             |        |                           |   |              |     |              |       
|Operating income                                                                      |                           |                             | 14,494 |                           |   | 2,998        |     |              |      
|Other (income) expense:                                                               |                           |                             |        |                           |   |              |     |              |       
|                                                                                      | Interest expense          |                             |        | 4,491                     |   |              | 195 |              |       
|                                                                                      | Interest income           |                             |        | (195                      | ) |              |    |              |       
|                                                                                      | Other income and expenses |                             |        | (72                       | ) |              | (43 | )            |       
|Equity in earnings of subsidiaries                                                    |                           |                             | (2,794 | )                         |   |             |     |              | 2,794 
|                                                                                      |                           |                             |        |                           |   |              |     |              |       
|Income before income taxes                                                            |                           |                             | 13,064 |                           |   | 2,846        |     |              | (2,794
|Provision for income taxes                                                            |                           |                             | 4      |                           |   | 52           |     |              |      
|                                                                                      |                           |                             |        |                           |   |              |     |              |       
|Net income                                                                            |                           | $                           | 13,060 |                           | $ | 2,794        |     | $            | (2,794
|                                                                                      |                           |                             |        |                           |   |              |     |              |       

---

12

---

Archibald Candy Corporation  (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)  Consolidating Statement of Operations for the Six Months Ended February 23, 2002  (Unaudited)  (In thousands)

|                                                                                      |                                                                         | Archibald Candy
Corporation |        | Guarantor
Subsidiaries(a) |   | Eliminations |     | Consolidated |       
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------- | ------ | ------------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                             |                                                                         | $                           | 86,195 |                           | $ | 37,393       |     | $            |      
|Cost of sales, excluding depreciation                                                 |                                                                         |                             | 33,724 |                           |   | 16,589       |     |              |      
|                                                                                      |                                                                         |                             |        |                           |   |              |     |              |       
|Gross profit                                                                          |                                                                         |                             | 52,471 |                           |   | 20,804       |     |              |      
|Selling, general, and administrative expenses excluding depreciation and amortization |                                                                         |                             | 36,124 |                           |   | 21,090       |     |              |      
|Depreciation and amortization expense                                                 |                                                                         |                             | 3,221  |                           |   | 1,152        |     |              |      
|Amortization of goodwill and other intangibles                                        |                                                                         |                             | 2,109  |                           |   | 17           |     |              |      
|Share of loss in joint venture                                                        |                                                                         |                             |       |                           |   | 178          |     |              |      
|Management fees and other fees                                                        |                                                                         |                             | 251    |                           |   |             |     |              |      
|                                                                                      |                                                                         |                             |        |                           |   |              |     |              |       
|Operating income (loss)                                                               |                                                                         |                             | 10,766 |                           |   | (1,633       | )   |              |      
|Other (income) expense:                                                               |                                                                         |                             |        |                           |   |              |     |              |       
|                                                                                      | Interest expense                                                        |                             |        | 9,285                     |   |              | 393 |              |       
|                                                                                      | Interest income                                                         |                             |        | (395                      | ) |              |    |              |       
|                                                                                      | Other income and expenses                                               |                             |        | (115                      | ) |              | 24  |              |       
|                                                                                      | Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |                             |        |                           |   |              |     |              |       
|                                                                                      | Intercompany Sweet Factory write-off                                    |                             |        | 2,258                     |   |              |    |              |       
|Equity in loss of subsidiaries                                                        |                                                                         |                             | 2,105  |                           |   |             |     |              | (2,105
|                                                                                      |                                                                         |                             |        |                           |   |              |     |              |       
|Loss before income taxes                                                              |                                                                         |                             | (2,372 | )                         |   | (2,050       | )   |              | 2,105 
|Provision for income taxes                                                            |                                                                         |                             | 4      |                           |   | 55           |     |              |      
|                                                                                      |                                                                         |                             |        |                           |   |              |     |              |       
|Net loss                                                                              |                                                                         | $                           | (2,376 | )                         | $ | (2,105       | )   | $            | 2,105 
|                                                                                      |                                                                         |                             |        |                           |   |              |     |              |       

---

13

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

|                                                                                      |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries |   | Eliminations |     | Consolidated |       
|------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------ | ---------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                             |                           | $                           | 62,219 |                        | $ | 40,275       |     | $            |      
|Cost of sales, excluding depreciation                                                 |                           |                             | 20,947 |                        |   | 18,150       |     |              |      
|Cost of sales, nonrecurring                                                           |                           |                             | 2,439  |                        |   |             |     |              |      
|                                                                                      |                           |                             |        |                        |   |              |     |              |       
|Total cost of sales                                                                   |                           |                             | 23,386 |                        |   | 18,150       |     |              |      
|Selling, general, and administrative expenses excluding depreciation and amortization |                           |                             | 19,369 |                        |   | 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          |     |              |      
|                                                                                      |                           |                             |        |                        |   |              |     |              |       
|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
|                                                                                      |                           |                             |        |                        |   |              |     |              |       

14

---



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

|                                                                                      |                           | Archibald Candy
Corporation |        | Guarantor
Subsidiaries |   | Eliminations |     | Consolidated |       
|------------------------------------------------------------------------------------- | ------------------------- | --------------------------- | ------ | ---------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                             |                           | $                           | 91,526 |                        | $ | 63,515       |     | $            |      
|Cost of sales, excluding depreciation                                                 |                           |                             | 32,876 |                        |   | 26,666       |     |              |      
|Cost of sales, nonrecurring                                                           |                           |                             | 2,439  |                        |   |             |     |              |      
|                                                                                      |                           |                             |        |                        |   |              |     |              |       
|Total cost of sales                                                                   |                           |                             | 35,315 |                        |   | 26,666       |     |              |      
|Selling, general, and administrative expenses excluding depreciation and amortization |                           |                             | 35,111 |                        |   | 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          |     |              |      
|Operating income                                                                      |                           |                             | 15,605 |                        |   | (926         | )   |              |      
|Other (income) expense:                                                               |                           |                             |        |                        |   |              |     |              |       
|                                                                                      | Interest expense          |                             |        | 9,927                  |   |              | 410 |              |       
|                                                                                      | Interest income           |                             |        | (407                   | ) |              | (1  | )            |       
|                                                                                      | Other income and expenses |                             |        | (112                   | ) |              | (1  | )            |       
|Equity in income 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 
|                                                                                      |                           |                             |        |                        |   |              |     |              |       

15

---

Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Consolidated Statements of Cash Flows for the Six Months Ended February 23, 2002
(Unaudited)
(In thousands)

|                                                                        |                                             | Archibald Candy
Corporation                                             |         | Guarantor
Subsidiaries(a) |        | Eliminations |   | Consolidated |      
|----------------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------------------- | ------- | ------------------------- | ------ | ------------ | - | ------------ | -----
|OPERATING ACTIVITIES                                                    |                                             |                                                                         |         |                           |        |              |   |              |      
|Net loss                                                                |                                             | $                                                                       | (2,376  | )                         | $      | (2,105       | ) | $            | 2,105
|Adjustments to reconcile net loss to net cash                           |                                             |                                                                         |         |                           |        |              |   |              |      
|                                                                        | provided by (used in) operating activities: |                                                                         |         |                           |        |              |   |              |      
|                                                                        |                                             | Depreciation and amortization                                           |         |                           | 5,330  |              |   | 1,169        |      
|                                                                        |                                             | Equity in loss of subsidiaries                                          |         |                           |       |              |   |             |      
|                                                                        |                                             | Share of loss in joint venture                                          |         |                           |       |              |   | 178          |      
|                                                                        |                                             | Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |         |                           | 2,258  |              |   |             |      
|Changes in operating assets and liabilities:                            |                                             |                                                                         |         |                           |        |              |   |              |      
|                                                                        |                                             | Accounts receivables, net                                               |         |                           | (2,440 | )            |   | (828         | )    
|                                                                        |                                             | Inventories                                                             |         |                           | 179    |              |   | (673         | )    
|                                                                        |                                             | Prepaid expenses and other current assets                               |         |                           | (1,808 | )            |   | 416          |      
|                                                                        |                                             | Intercompany                                                            |         |                           | 2,101  |              |   | 4            |      
|                                                                        |                                             | Other assets                                                            |         |                           | (37    | )            |   | (35          | )    
|                                                                        |                                             | Accounts payable and accrued liabilities                                |         |                           | 16,184 |              |   | 1,928        |      
|                                                                        |                                             |                                                                         |         |                           |        |              |   |              |      
|Net cash provided by operating activities                               |                                             |                                                                         | 19,391  |                           |        | 54           |   |              |     
|INVESTING ACTIVITIES                                                    |                                             |                                                                         |         |                           |        |              |   |              |      
|Purchase of property, plant, and equipment                              |                                             |                                                                         | (579    | )                         |        | (486         | ) |              |     
|Impact of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |                                             |                                                                         |        |                           |        | (336         | ) |              |     
|                                                                        |                                             |                                                                         |         |                           |        |              |   |              |      
|Net cash used in investing activities                                   |                                             |                                                                         | (579    | )                         |        | (822         | ) |              |     
|FINANCING ACTIVITIES                                                    |                                             |                                                                         |         |                           |        |              |   |              |      
|Net repayments under revolving line of credit                           |                                             |                                                                         | (16,793 | )                         |        |             |   |              |     
|Principal payments of capital lease obligations                         |                                             |                                                                         | (26     | )                         |        |             |   |              |     
|Costs related to refinancing                                            |                                             |                                                                         | (807    | )                         |        |             |   |              |     
|                                                                        |                                             |                                                                         |         |                           |        |              |   |              |      
|Net cash provided by financing activities                               |                                             |                                                                         | (17,626 | )                         |        |             |   |              |     
|Effect of exchange rates on cash                                        |                                             |                                                                         |        |                           |        | 40           |   |              |     
|                                                                        |                                             |                                                                         |         |                           |        |              |   |              |      
|Net increase (decrease) in cash and cash equivalents                    |                                             |                                                                         | 1,186   |                           |        | (728         | ) |              |     
|Cash and cash equivalents beginning of period                           |                                             |                                                                         | 1,116   |                           |        | 1,230        |   |              |     
|                                                                        |                                             |                                                                         |         |                           |        |              |   |              |      
|Cash and cash equivalents end of period                                 |                                             | $                                                                       | 2,302   |                           | $      | 502          |   | $            |     
|                                                                        |                                             |                                                                         |         |                           |        |              |   |              |      

---

16

---

Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Consolidated Statements 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 (used in) 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 (used in) operating activities    |                                             |                                           | 10,695 |                        |        | 167          |   |              |     
|INVESTING ACTIVITIES                                   |                                             |                                           |        |                        |        |              |   |              |      
|Purchase of property, 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 | )                      |        |             |   |              |     
|Principal payments of capital lease obligations        |                                             |                                           | (19    | )                      |        | (8           | ) |              |     
|Costs related to refinancing                           |                                             |                                           | (163   | )                      |        |             |   |              |     
|                                                       |                                             |                                           |        |                        |        |              |   |              |      
|Net cash provided by (used in) financing activities    |                                             |                                           | (6,682 | )                      |        | (8           | ) |              |     
|Effect of exchange rates on cash                       |                                             |                                           |       |                        |        | (49          | ) |              |     
|                                                       |                                             |                                           |        |                        |        |              |   |              |      
|Net increase 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        |   | $            |     
|                                                       |                                             |                                           |        |                        |        |              |   |              |      

NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS

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

17

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

FORWARD-LOOKING STATEMENTS

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

THREE MONTHS ENDED FEBRUARY 23, 2002 COMPARED TO THE THREE MONTHS ENDED FEBRUARY 24, 2001.

NET SALES. Consolidated sales for the three months ended February 23, 2002 were $81.2 million, a decrease of $21.3 million, or 20.8%, from
$102.5 million for the three months ended February 24, 2001. The bankruptcy filing and subsequent deconsolidation of Sweet Factory accounted for $19.5 million of the decline.
Company-operated retail sales excluding Sweet Factory for the three months ended February 23, 2002 were $59.2 million, a decrease of $2.7 million, or 4.4%, from
$61.9 million for the three months ended February 24, 2001. Same store sales decreased 2.3% for Fannie May/Fanny Farmer and 3.7% (0.4% increase in Canadian Dollars) for Laura Secord
primarily due to a weak retail environment during the Christmas and Valentine's Day holiday periods. Sales through the Company's third-party retail outlets and non-retail distribution
channels increased $0.9 million, or 4.3%, to $22.0 million for the three months ended February 23, 2002 from $21.1 million for the three months ended February 24,
2001. The increase was due primarily to higher third-party retail sales to our national chain accounts.

GROSS
PROFIT. Gross profit for the three months ended February 23, 2002 was $48.4 million, a decrease of $12.6 million, or 20.7%, from $61.0 million for the
three months ended February 24, 2001. Gross profit in the prior year included $11.7 million related to Sweet Factory and a reduction of $2.4 million associated with costs related
to the manufacturing start-up of the Laura Secord products beginning in September 2000. After giving effect to these items, gross profit dollars declined $3.3 million versus
the prior year, which was primarily due to lower sales negatively impacting margins $1.1 million; a change in the mix of outside purchased products sold increasing costs $0.9 million; an
increase in inventory shrinkage at Laura Secord of $0.9 million, which such similar costs were recorded in the second half of the prior year upon a physical inventory count; and an increase of
$0.3 million related to higher purchase costs at Laura Secord as a result of the decline of the value of the Canadian dollar versus the U.S dollar.

SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $27.7 million for the three months ended February 23, 2002, a decrease of $9.8 million, or 26.1%,
from $37.5 million for the three months ended February 24, 2001. SG&A expenses, excluding Sweet Factory, were $27.7 million for the three months ended February 23, 2002, an
increase of $1.2 million or 4.5%, from $26.5 million for the three months ended February 24, 2002. This increase was primarily due to a higher healthcare accrual and increased
wrapping costs of which such similar costs were recorded in the second half of the prior year upon a physical inventory count.

18

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EBITDA.    Earnings
before interest, income taxes, depreciation and amortization (EBITDA), excluding the effect of the deconsolidation of Sweet Factory was
$20.6 million for the three months ended February 23, 2002, as compared to $25.0 million for the three months ended February 24, 2001, excluding the manufacturing
start-up costs of $2.4 million and the effect of the deconsolidation of Sweet Factory of $0.7 million. This decrease is primarily due to lower sales, a change in the mix of
outside purchased products sold, the timing of Laura Secord inventory shrinkage, and higher healthcare and wrapping costs, as discussed above.

OPERATING
INCOME.    Operating income was $17.5 million for the three months ended February 23, 2002, a decrease of $1.4 million from income of
$18.9 million for the three months ended February 24, 2001. The decrease in operating income was due primarily to the decline in sales, an increase in other costs described above and the
deconsolidation of Sweet Factory, which had an operating loss of $0.5 million in the prior year.

NET
INCOME. Net income for the three months ended February 23, 2002 was $13.1 million, a decrease of $1.0 million from $14.1 million for the three months
ended February 24, 2001.

SIX MONTHS ENDED FEBRUARY 23, 2002 COMPARED TO THE SIX MONTHS ENDED FEBRUARY 24, 2001

NET SALES. Consolidated sales for the six months ended February 23, 2002 were $123.6 million, a decrease of $31.4 million, or 20.3%, from
$155.0 million for the six months ended February 24, 2001. Company-operated retail sales for the six months ended February 23, 2002 were $90.6, a decrease of $29.2 million,
or 24.4%, from $119.8 million for the six months ended February 24, 2001. This decrease was due primarily to the bankruptcy filing of Sweet Factory and subsequent deconsolidation, the
ongoing closing of Sweet Factory stores, and decline in Sweet Factory same store sales, which accounted for $24.6 million of the decline. Same store sales decreased 3.0% for Fannie May/Fanny
Farmer and 4.1% (0.3% increase in Canadian Dollars) for Laura Secord. Sales through the Company's third-party retail outlets and non-retail distribution channels decreased
$2.2 million to $33.0 million for the six months ended February 23, 2002, from $35.2 million for the six months ended February 24, 2001. The decrease was primarily
due to lower fundraising sales, partially offset by increased third-party sales.

GROSS
PROFIT. Gross profit for the six months ended February 23, 2002 was $73.3 million, a decrease of $19.8 million, or 21.3%, from $93.1 million for the six
months ended February 24, 2001. Gross profit, excluding Sweet Factory and $2.4 million in the prior year associated with costs related to the manufacturing start-up of the
Laura Secord products in September 2000, for the six months ended February 23, 2002 was $67.8 million, a decrease of $6.7 million or 8.9%, from $74.5 million. The
decrease in gross profit dollars was primarily due to lower sales which negatively impacted gross profit $4.2 million; a change in the mix of outside purchased products sold increasing costs of
$1.4 million; an increase in inventory shrinkage at Laura Secord of $1.5 million, which such similar costs were recorded in the second half of the prior year upon a physical inventory
count; and an increase of $0.5 million related to higher purchase costs at Laura Secord as a result of the decline in the value of the Canadian dollar versus the U.S. dollar.

SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $57.2 million for the six months ended February 23, 2002, a decrease of $12.1 million, or 17.5%,
from $69.3 million for the six months ended February 24, 2001. SG&A expenses, excluding Sweet Factory, were $49.0 million for the six months ended February 23, 2002, an
increase of $1.0 million, or 2.1%, from $48.0 million for the six months ended February 24, 2001. The increase was primarily due to a higher healthcare accrual and increased
wrapping costs of which such similar costs were recorded in the second half of the prior year from a physical inventory count partially offset by other cost savings.

19

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

EBITDA.
Earnings before interest, income taxes, depreciation, and amortization (EBITDA), excluding the effect of deconsolidation of Sweet Factory of $2.3 million and the Sweet
Factory EBITDA loss of $2.7 million was $18.5 million for the six months ended February 23, 2002, as compared to $26.3 million for the six months ended February 24,
2001, excluding manufacturing start-up costs of $2.4 million and the Sweet Factory EBITDA loss of $0.4 million. This decrease is primarily due to lower sales, and higher
outside purchased product costs and the timing of Laura Secord packaging costs and inventory shrinkage; and higher healthcare and wrapping costs as discussed above.

OPERATING
INCOME. Operating income was $9.1 million for the six months ended February 23, 2002, a decrease of $5.6 million from income of $14.7 million for
the six months ended February 24, 2001. Operating income was $12.3 million for the six months ended February 23, 2002, excluding Sweet Factory, a decrease of $7.6 million
from operating income of $19.9 million for the six months ended February 24, 2001, excluding manufacturing start-up costs and Sweet Factory. The decrease was primarily due to
the decline in sales and increase in costs described above.

NET
INCOME (LOSS). Net loss for the six months ended February 23, 2002 was $2.4 million, a decrease of $7.2 million from net income of $4.8 million for the
six months ended February 24, 2001. The net loss for the six months ended February 23, 2002 includes the effect of the deconsolidation of Sweet Factory of $2.3 million.

EFFECT OF BANKRUPTCY FILING

On November 15, 2001, Sweet Factory Group, Inc. ("SFG") and its three subsidiaries; Sweet Factory, Inc., SF Properties, Inc. and SF
Candy Company, filed voluntary petitions in the U.S. Bankruptcy Court for the District of Delaware ("Bankruptcy Court") under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy
filings, Sweet Factory, Inc. entered into a Post-Petition Credit, Security and Guaranty Agreement (the "Post-Petition Credit Agreement") with The CIT Group/Business
Credit, Inc. and SFG, SF Properties, Inc. and SF Candy

Company
as guarantors. The agreement is for one year and provides for revolving loans at any time not to exceed the lesser of (1) $2.0 million and (2) a borrowing
base comprised of a percentage of Sweet Factory, Inc.'s eligible inventory plus a $1.0 million overadvance, subject to certain reserves. The Post-Petition Credit Agreement is
secured by first priority liens on Sweet Factory, Inc.'s accounts receivable and inventory and provides that borrowings thereunder accrue interest at a variable rate equal to the "prime rate"
announced from time to time by J.P. Morgan Chase & Co., plus 1.5%. The Company and Archibald Candy (Canada) Corporation have guaranteed all obligations of Sweet Factory, Inc. under the
Post-Petition Credit Agreement. Sweet Factory, Inc. is required to pay fees in connection with the Post-Petition Credit Agreement. On March 4, 2002, SFG and its
subsidiaries filed a Plan of Reorganization with the Bankruptcy Court. A confirmation hearing is scheduled for May 24, 2002.

SFG
and its subsidiaries' financial results are included in the Company's consolidated results through November 15, 2001. Accounting principles generally accepted in the United
States generally require that any entity that files for protection under the U.S. Bankruptcy Code whose financial statements were previously consolidated with those of its parent must be prospectively
deconsolidated from the parent with the investment accounted for using the cost method. The effects on the Company's balance sheet of this deconsolidation and use of the cost method are that:
(i) the Company's investment in SFG is included as a single amount and (ii) the Company's receivable from SFG is no longer eliminated. The effect on the Company's income statement is
that beginning

20

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November 15, 2001, the SFG operating results are not included in the consolidated results. At November 15, 2001, the Company's investment in SFG was a negative $17.1 million, and
the receivable had a balance of $19.4 million. Because of SFG's and its subsidiaries' bankruptcies, it was determined that the receivable should be reserved for financial reporting purposes.
That write-off was first netted against the negative investment balance, with the remaining $1.3 million recorded as a non-operating expense.

Management
has assessed the liquidity position of SFG and its subsidiaries as a result of the bankruptcy filings and available debtor in possession financing and believes that SFG and
its subsidiaries will be able to fund their post-petition obligations until a plan of reorganization is finalized or another transaction is effected.

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

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

|                         |  | For the quarter
ended
Feb. 23, 2002 |       | For the quarter
ended
Feb. 24, 2001 |   | For the period of
Aug. 26, 2001 thru
Nov. 15, 2001 |   | For the six months
ended
Feb. 23, 2002 |        | For the six months
ended
Feb. 24, 2001 |  
|------------------------ |  | ----------------------------------- | ----- | ----------------------------------- | - | -------------------------------------------------- | - | -------------------------------------- | ------ | -------------------------------------- | -
|Net sales                |  | $                                   | 9,619 |                                     | $ | 19,513                                             |   | $                                      | 8,867  |                                        | $
|Operating loss           |  |                                     | (372  | )                                   |   | (513                                               | ) |                                        | (3,172 | )                                      |  
|Loss before income taxes |  |                                     | (380  | )                                   |   | (513                                               | ) |                                        | (3,175 | )                                      |  
|Net loss                 |  |                                     | (377  | )                                   |   | (520                                               | ) |                                        | (3,178 | )                                      |  

Operating loss includes restructuring expenses of $35 and $910 for the quarter and year-to-date periods ended
February 23, 2002, respectively.

|                                          |  | Feb. 23, 2002 |         | Nov 15, 2001 |   | Aug. 25, 2001 |  
|----------------------------------------- |  | ------------- | ------- | ------------ | - | ------------- | -
|Current assets                            |  | $             | 3,042   |              | $ | 2,620         |  
|Property, plant and equipment             |  |               | 4,737   |              |   | 5,316         |  
|Other assets                              |  |               | 791     |              |   | 772           |  
|                                          |  |               |         |              |   |               |  
|Total assets                              |  | $             | 8,570   |              | $ | 8,708         |  
|Current liabilities                       |  | $             | 6,685   |              | $ | 6,079         |  
|Payable to Archibald Candy Corporation    |  |               | 19,544  |              |   | 19,383        |  
|Other liabilities                         |  |               | 313     |              |   | 371           |  
|Total stockholder's deficit               |  |               | (17,972 | )            |   | (17,125       | )
|                                          |  |               |         |              |   |               |  
|Total liabilities & stockholder's deficit |  | $             | 8,570   |              | $ | 8,708         |  
|                                          |  |               |         |              |   |               |  

21

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

|                           |  | For the quarter
ended Feb. 24, 2001 |        | For the six months
ended Feb. 23, 2002 |   | For the six months
ended Feb. 24, 2001
|-------------------------- |  | ----------------------------------- | ------ | -------------------------------------- | - | --------------------------------------
|Net sales                  |  | $                                   | 82,981 |                                        | $ | 114,721                               
|Operating income           |  |                                     | 19,433 |                                        |   | 12,305                                
|Income before income taxes |  |                                     | 14,629 |                                        |   | 858                                   
|Net income                 |  |                                     | 14,587 |                                        |   | 802                                   

|                                          |  | August 25,
2001 |        
|----------------------------------------- |  | --------------- | -------
|Current assets                            |  | $               | 34,598 
|Property, plant and equipment             |  |                 | 28,699 
|Investment in and amounts due from SFG    |  |                 | 5,811  
|Other assets                              |  |                 | 68,050 
|                                          |  |                 |        
|Total assets                              |  | $               | 137,158
|Current liabilities                       |  | $               | 41,553 
|Other liabilities                         |  |                 | 171,209
|Total stockholder's deficit               |  |                 | (75,604
|                                          |  |                 |        
|Total liabilities & stockholder's deficit |  | $               | 137,158
|                                          |  |                 |        

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $19.4 million for the six months ended February 23, 2002 compared to $10.9 million for the six
months ended February 24, 2001. The increase in net cash provided by operating activities was due primarily to the non-payment of the interest due on the senior secured notes on
January 2, 2002 totaling $8.7 million and an increase in accounts payable, offset by a decline in net income. Net loss was $2.4 million for the six months ended
February 23, 2002 compared to net income of $4.8 million for the six months ended February 24, 2001. Net loss included non-cash depreciation and amortization charges
of $6.5 million for the six months ended February 23, 2002 and $8.7 million for the six months ended February 24, 2001. Net loss also included a $2.3 million
non-cash charge associated with the deconsolidation of Sweet Factory due to the bankruptcy filing.

Net
cash used in investing activities decreased to $1.4 million for the six months ended February 23, 2002 from $3.0 million for the six months ended
February 24, 2001 due to lower capital expenditures.

Net
cash used in financing activities was $17.6 million for the six months ended February 23, 2002 compared to $6.7 million for the six months ended
February 24, 2001 due to the repayment of borrowings under our line of credit.

The
CIT Facility provides that borrowings thereunder accrue interest at a variable rate equal to the "prime rate" announced from time to time by JP Morgan Chase & Co., plus 1.0%.
The Company is required to pay fees in connection with the CIT Facility.

The
CIT Group/Business Credit, Inc. ("CIT"), the agent and sole lender under Archibald's Revolving credit facility ("The CIT Facility"), agreed to overadvances under the CIT
Facility in an aggregate amount of not more than $3.0 million, which expired on October 3, 2001. On October 3, 2001, the Company and CIT entered into an Overadvance Agreement and
First Amendment to Financing Agreement pursuant to which CIT agreed to provide a $5.0 million overadvance to the Company, which expired on December 28, 2001. In connection with the
Overadvance Agreement and

22

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First Amendment to Financing Agreement, those stockholders of Holdings who are (or who are advised by) affiliates of The Jordan Company entered into a Participation Agreement pursuant to which such
stockholders agreed to purchase from CIT a last-out participation in any overadvance under the CIT Facility. The aggregate amount of the participation was equal to the lesser of
(1) $2.5 million or (2) 50% of the amount of the outstanding overadvance, if any, under the CIT Facility at the time of the
participation. The participating stockholders were required to purchase the participation on the earlier of (a) December 28, 2001, or (b) if all amounts due under the CIT Facility
were accelerated, on the fifth business day following notice by CIT but, in each case, only if any overadvance was outstanding on the purchase date. The Participation Agreement expired on
December 28, 2001 with no participant having been required to purchase any participation thereunder.

In
connection with the November 15, 2001 bankruptcy filings by our Sweet Factory subsidiaries, the CIT Facility was further amended pursuant to the Second Amendment to allow such
bankruptcy filings, to eliminate, on a go-forward basis, Sweet Factory, Inc. as a co-borrower and to remove the inventory and accounts receivable of our Sweet Factory
subsidiaries from the borrowing base. Concurrently with entering into the Second Amendment, CIT and Sweet Factory, Inc. entered into the Post-Petition Credit Agreement. See "Effect
of Bankruptcy Filing". The Company, Holdings and Archibald Candy (Canada) Corporation have guaranteed all obligations of Sweet Factory, Inc. under the Post-Petition Credit
Agreement.

Archibald
has not made the approximately $8.7 million interest payment that was due on January 2, 2002 on its outstanding $170 million of 101/4%
senior secured notes due 2004 (the "Senior Notes"), however, Archibald has entered into a forbearance agreement (the "Noteholders' Forbearance Agreement") with holders (the "Consenting Holders") of
approximately 88% in aggregate face amount of the Senior Notes. The Senior Notes have been classified as current on Archibald's balance sheet.

Pursuant
to the Noteholders' Forbearance Agreement, the Consenting Holders have agreed to forbear until April 30, 2002 (the "Noteholders' Forbearance Period") from exercising
their rights under the Senior Notes, the indenture pursuant to which the Senior Notes have been issued (the "Indenture") and applicable law resulting from Archibald's failure to make the approximately
$8.7 million interest payment on the Senior Notes that was due on January 2, 2002. The Noteholders' Forbearance Period may be terminated prior to April 30, 2002 if any of the
following occurs (other than if due to the Consenting Holders' breach of their obligations under the Noteholders' Forbearance Agreement): (1) any other event of default under the Indenture,
(2) the termination of Archibald's forbearance agreement (the "CIT Forbearance Agreement") with The CIT Group/Business Credit, Inc. ("CIT), the agent and sole lender under Archibald's
revolving credit facility (the "CIT Facility"), (3) the termination of Holdings' forbearance agreement (the "Senior Preferred Forbearance Agreement") with the holders of its senior preferred
stock (the "Senior Preferred Holders"), (4) any acceleration of the principal and interest under the Senior Notes, (5) any payment or distribution by Archibald to the holders of
Holdings' preferred stock or to Holdings for payment to the holders of its preferred stock, (6) any election by the Senior Preferred Holders of a director having 51% of the total voting power
of Holdings' Board of Directors or (7) a breach of any representation, warranty or covenant in the Noteholders' Forbearance Agreement.

Archibald
originally entered into the CIT Forbearance Agreement as of December 31, 2001 because (1) Archibald had failed, or expected to fail, to satisfy certain financial
covenants in the CIT Facility that required Archibald to meet minimum levels of net earnings, before interest, income taxes, depreciation and amortization, and net cash flow for periods ending in
November and December 2001 and February 2002 and (2) Archibald expected to fail to make the January 2002 interest payment on the Senior Notes. Pursuant to subsequent
amendments to the CIT Forbearance Agreement, CIT also agreed to forbear from exercising its rights with respect to certain additional covenant defaults by
Archibald under the CIT Facility. CIT has extended the forbearance period under the CIT Forbearance Agreement (the "CIT Forbearance Period") beyond March 1, 2002, its originally scheduled
expiration

23

---

date, until April 30, 2002. Pursuant to the CIT Forbearance Agreement, CIT has allowed Archibald to continue to request borrowings under the CIT Facility for working capital needs, but not in
excess of the lesser of a certain specified limit and a borrowing base comprised of a percentage of the eligible accounts receivable and eligible inventory of Archibald and its Canadian subsidiary,
Archibald Candy (Canada) Corporation. The CIT Facility is secured by liens on Archibald's and Sweet Factory, Inc.'s accounts receivable and inventory, and the Company's owned store locations,
and the proceeds therefrom. The Company's other subsidiaries, including Archibald Candy (Canada) Corporation, have guaranteed all obligations under the CIT Facility and granted to the agent under the
CIT Facility a lien on their accounts receivable, inventory, and the proceeds therefrom. In addition, Holdings has guaranteed all obligations under the CIT Facility and granted to the agent under the
CIT Facility a lien on all of its assets, including all the outstanding shares of common stock of the Company.

During
the CIT Forbearance Period, Archibald's management expects that Archibald will have sufficient availability under the CIT Facility to meet its working capital needs as they become
due; however, there can be no assurance that this will be the case. The CIT Forbearance Period may be terminated prior to April 30, 2002 if any of the following occurs: (1) any
acceleration of the Senior Notes, (2) any payment on account of the Senior Notes or Holdings' preferred stock, (3) any other event of default under the CIT Facility or (4) a
breach of any representation, warranty or covenant in the CIT Forbearance Agreement.

Pursuant
to the Senior Preferred Forbearance Agreement, the Senior Preferred Holders have agreed to forbear until April 30, 2002 (the "Senior Preferred Forbearance Period") from
exercising their right to elect a director to Holdings' Board of Directors who would have 51% of the total voting power of Holdings' Board of Directors and from exercising any other right or remedies
that they may have as a result of Holdings' failure to make the $3.0 million redemption payment required to be made by it to the Senior Preferred Holders on January 15, 2002 and the
$10.5 million in aggregate of remaining redemption payments that automatically accelerated as a result thereof. The Senior Preferred Forbearance Period may be terminated prior to
April 30, 2002 if any of the following occurs (other than if due to the Senior Preferred Holders' breach of their obligations under the Senior Preferred Forbearance Agreement): (1) the
termination of the CIT Forbearance Agreement, (2) the termination of the Noteholders' Forbearance Agreement or (3) a breach by Holdings of any representation, warranty or covenant in the
Senior Preferred Forbearance Agreement. Pursuant to the Senior Preferred Forbearance Agreement, Holdings also has granted to the Senior Preferred Holders the right to designate an individual who is
entitled to observe all meetings of the Boards of Directors of Holdings, Archibald and its subsidiaries.

Archibald
is continuing discussions with the holders of the Senior Notes, CIT, Holdings' significant stockholders and investment advisors on an overall capital restructuring, including,
among other things (1) a restructuring of the Senior Notes through debt for equity exchanges or conversions, repurchases or acquisitions of the Senior Notes on discounted terms, (2) new
equity and/or debt from unaffiliated third parties and/or affiliates of Archibald or its directors and officers, (3) extensions of the forbearance periods under the Noteholders' Forbearance
Agreement, the CIT Forbearance Agreement and the Senior Preferred Forbearance Agreement or (4) combinations of the foregoing. Archibald has not
received any commitments or agreements with respect to any new sources of equity or debt, and there can be no assurance that any such financing will be obtained, particularly if the Senior Notes are
not restructured on a satisfactory basis. There can be no assurance that Archibald will succeed in a restructuring on a timely basis or that the terms and conditions of a restructuring would be
favorable to Archibald.

In
addition to the Senior Preferred Stock, Holdings also has the two following classes of junior preferred stock: Junior Class A PIK Preferred Stock and Junior Class B PIK
Preferred Stock. The Junior Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock were issued in 1991 in the original face amount of $7.0 million and
$0.7 million, respectively. As of February 23, 2002,

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affiliates of TCW Capital owned approximately 64% of the Junior Class A PIK Preferred Stock and affiliates (or parties advised by such 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
connection with Archibald entering into the CIT Facility, Holdings entered into agreements with the holders of the Junior Class A PIK Preferred Stock and the Junior
Class B Preferred Stock extending the mandatory redemption date for each such class of preferred stock from November 1, 2001 to March 15, 2006. The redemption value of the Junior
Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock on March 15, 2006 will be approximately $21.2 million and $2.1 million, respectively. The
holders of Junior Class A PIK Preferred Stock also have agreed to extend from January 1, 2000 to June 30, 2003 the date on which they have the right to put to Holdings their
common stock. In the event that Holdings does not redeem all of the common stock and preferred stock owned by affiliates of TCW Capital within 90 days of any exercise of this put right,
affiliates of TCW Capital have the right to take control of a majority of the voting power of Holdings' Board of Directors for purposes of effecting a sale of Holdings.

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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PART IIOTHER INFORMATION:

ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K

|(a) |  | Exhibit 10.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Senior Preferred Forbearance Agreement dated as of February 27, 2002 between Fannie May Holdings, Inc. and the holders of Fannie May Holdings, Inc.'s Senior Preferred Stock.                                                            
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | Exhibit 10.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Forbearance Agreement dated as of February 28, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.                                                                                                 
|    |  | Exhibit 10.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Amendment No. 1 to Forbearance Agreement dated as of February    , 2002 among Archibald Candy Corporation, Fannie May Holdings, Inc. and The CIT Group/Business Credit, Inc., as agent and sole lender.                                  
|    |  | Exhibit 10.4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Amendment No. 2 to Forbearance Agreement dated as of March 1, 2002 among Archibald Candy Corporation, Fannie May Holdings, Inc., Archibald Candy (Canada) Corporation, and The CIT Group/Business Credit, Inc., as agent and sole lender.
|(b) |  | Reports on Form 8-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |  | On January 3, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5 Other Events disclosing that on January 2, 2002, Archibald did not make the interest payment
required on its outstanding senior secured notes and that Archibald was going to enter into discussions with the holders of such notes regarding a potential restructuring of such notes. The Form 8-K also disclosed that Archibald had entered into a
Forbearance Agreement with The CIT Group/Business Credit, Inc.
|    |  | On January 17, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 9-Regulation FD disclosing that in connection with restructuring discussions with certain holders of
Archibald's senior secured notes, Archibald's management had prepared for such holders and Archibald's directors and their affiliates certain earnings forecasts.                                                                                                                                               
|    |  | On February 5, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5Other Events disclosing that Archibald's 30-day grace period for making the interest payment on
its senior secured notes had expired and that Archibald did not expect that Fannie May Holdings, Inc. would be able to make the mandatory redemption payment on Holdings' senior preferred stock on the date due.                                                                                                  
|    |  | On March 5, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5  Other Events disclosing that Archibald had entered into a forbearance agreement with
holders of its senior secured notes and had entered into an extension of its forbearance agreement with The CIT Group/Business Credit, Inc. The Form 8-K also disclosed that Fannie May Holdings, Inc. had entered into a forbearance agreement with the
holders of its senior preferred stock.                                

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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 9, 2002 |  | BY:                        
|                    |  |                            
|                    |  |                            

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