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

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FORM 10-Q

|ý |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2002.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|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 022-28628

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

|Delaware(State or other jurisdiction of incorporation or organization)                      |  | 03-0485115(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1137 West Jackson Boulevard
Chicago, Illinois 60607(Address of principal executive offices) |  | 60607(Zip Code)                               

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

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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark 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

Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a court. Yes ý No o

As
of January 21, 2003, the number of shares outstanding of the registrant's common stock was 276,157.

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ARCHIBALD CANDY CORPORATION  FORM 10-Q  FOR THE QUARTER ENDED NOVEMBER 30, 2002  INDEX

|                                                                                             |                                                        | Page No.
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------
|PART IFINANCIAL INFORMATION:                                                                |                                                        |         
|ITEM 1FINANCIAL STATEMENTS (UNAUDITED)                                                      |                                                        |         
|                                                                                             | CONSOLIDATED BALANCE SHEETS                            |         
|                                                                                             | CONSOLIDATED STATEMENTS OF OPERATIONS                  |         
|                                                                                             | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |         
|                                                                                             | CONSOLIDATED STATEMENTS OF CASH FLOWS                  |         
|                                                                                             | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             |         
|ITEM 2MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                        | 25      
|ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                           |                                                        | 32      
|ITEM 4CONTROLS AND PROCEDURES                                                               |                                                        | 32      
|PART IIOTHER INFORMATION:                                                                   |                                                        |         
|ITEM 1LEGAL PROCEEDINGS                                                                     |                                                        | 33      
|ITEM 2CHANGES IN SECURITIES AND USE OF PROCEEDS                                             |                                                        | 33      
|ITEM 3DEFAULTS UPON SENIOR SECURITIES                                                       |                                                        | 33      
|ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |                                                        | 33      
|ITEM 5OTHER INFORMATION                                                                     |                                                        | 33      
|ITEM 6EXHIBITS AND REPORTS ON FORM 8-K                                                      |                                                        | 34      
|SIGNATURES                                                                                   |                                                        | 35      

2

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PART IFINANCIAL INFORMATION:

ITEM 1FINANCIAL STATEMENTS

Archibald Candy Corporation        Consolidated Balance Sheets        (In thousands, except per share amounts, unaudited)

|                                                     |                                              | Reorganized
Company                                                  |         | Predecessor
Company |  
|---------------------------------------------------- | -------------------------------------------- | -------------------------------------------------------------------- | ------- | ------------------- | -
|
|Assets                                               |                                              |                                                                      |         |                     |  
|Current assets:                                      |                                              |                                                                      |         |                     |  
|                                                     | Cash and cash equivalents                    |                                                                      | $       | 4,986               |  
|                                                     | Restricted cash                              |                                                                      |         |                    |  
|                                                     | Accounts receivable, net                     |                                                                      |         | 4,384               |  
|                                                     | Inventories, net                             |                                                                      |         | 41,702              |  
|                                                     | Prepaid expenses and other current assets    |                                                                      |         | 4,353               |  
|                                                     |                                              |                                                                      |         |                     |  
|Total current assets                                 |                                              |                                                                      | 55,425  |                     |  
|Property, plant, and equipment, net                  |                                              |                                                                      | 59,971  |                     |  
|Goodwill                                             |                                              |                                                                      |        |                     |  
|Other intangible assets                              |                                              |                                                                      | 17,025  |                     |  
|Reorganization intangible                            |                                              |                                                                      | 4,401   |                     |  
|Deferred financing fees                              |                                              |                                                                      | 1,097   |                     |  
|Investment in joint venture                          |                                              |                                                                      | 2,666   |                     |  
|Other assets                                         |                                              |                                                                      | 417     |                     |  
|                                                     |                                              |                                                                      |         |                     |  
|Total assets                                         |                                              | $                                                                    | 141,002 |                     | $
|                                                     |                                              |                                                                      |         |                     |  
|Liabilities and shareholders' equity (deficit)       |                                              |                                                                      |         |                     |  
|Current liabilities:                                 |                                              |                                                                      |         |                     |  
|                                                     | Revolving line of credit                     |                                                                      | $       | 25,338              |  
|                                                     | Accounts payable                             |                                                                      |         | 18,040              |  
|                                                     | Accrued liabilities                          |                                                                      |         | 5,381               |  
|                                                     | Payroll and related liabilities              |                                                                      |         | 2,405               |  
|                                                     | Accrued interest                             |                                                                      |         | 623                 |  
|                                                     | Current portion of capital lease obligations |                                                                      |         | 63                  |  
|                                                     | Liabilities subject to compromise            |                                                                      |         |                    |  
|                                                     |                                              |                                                                      |         |                     |  
|Total current liabilities                            |                                              |                                                                      | 51,850  |                     |  
|Due to affiliate                                     |                                              |                                                                      |        |                     |  
|Deferred taxes                                       |                                              |                                                                      | 12,768  |                     |  
|Secured subordinated notes                           |                                              |                                                                      | 50,000  |                     |  
|Term loan agreement                                  |                                              |                                                                      | 10,000  |                     |  
|Pension liability                                    |                                              |                                                                      | 6,085   |                     |  
|Capital lease obligations, less current portion      |                                              |                                                                      | 84      |                     |  
|Shareholders' equity (deficit):                      |                                              |                                                                      |         |                     |  
|                                                     | Common stock, $0.01 par value:               |                                                                      |         |                     |  
|                                                     |                                              | Authorized300,000 shares and 25,000 shares, respectively            |         |                     |  
|                                                     |                                              | Issued and outstanding276,157 shares and 4,210 shares, respectively |         |                     | 3
|                                                     | Additional paid-in-capital                   |                                                                      |         | 13,081              |  
|                                                     | Accumulated deficit                          |                                                                      |         | (2,889              | )
|                                                     | Other comprehensive income (loss)            |                                                                      |         | 20                  |  
|                                                     |                                              |                                                                      |         |                     |  
|Total shareholders' equity (deficit)                 |                                              |                                                                      | 10,215  |                     |  
|                                                     |                                              |                                                                      |         |                     |  
|Total liabilities and shareholders' equity (deficit) |                                              | $                                                                    | 141,002 |                     | $
|                                                     |                                              |                                                                      |         |                     |  

See
accompanying notes.

3

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Archibald Candy Corporation        Consolidated Statements of Operations        (In thousands, unaudited)

|                                                           |                                                                                      | Reorganized
Company |        | Predecessor
Company |   | Predecessor
Company |        
|---------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------- | ------ | ------------------- | - | ------------------- | -------
|
|Net sales                                                  |                                                                                      | $                   | 12,370 |                     | $ | 20,312              |        
|Cost of sales, excluding depreciation and amortization     |                                                                                      |                     | 5,126  |                     |   | 8,877               |        
|Cost of sales, nonrecurring (Note 5)                       |                                                                                      |                     | 1,039  |                     |   |                    |        
|                                                           |                                                                                      |                     |        |                     |   |                     |        
|                                                           | Total cost of sales                                                                  |                     |        | 6,165               |   |                     | 8,877  
|                                                           |                                                                                      |                     |        |                     |   |                     |        
|Gross profit                                               |                                                                                      |                     | 6,205  |                     |   | 11,435              |        
|Selling, general, and administrative expenses              |                                                                                      |                     | 7,302  |                     |   | 13,821              |        
|Depreciation and amortization expense                      |                                                                                      |                     | 564    |                     |   | 995                 |        
|Amortization of goodwill and other intangibles             |                                                                                      |                     | 72     |                     |   | 283                 |        
|Management fees and other fees                             |                                                                                      |                     | 12     |                     |   | 9                   |        
|Share of loss in joint venture                             |                                                                                      |                     | 35     |                     |   | 99                  |        
|                                                           |                                                                                      |                     |        |                     |   |                     |        
|Operating loss                                             |                                                                                      |                     | (1,780 | )                   |   | (3,772              | )      
|Other (income) and expense:                                |                                                                                      |                     |        |                     |   |                     |        
|                                                           | Interest expense                                                                     |                     |        | 613                 |   |                     | 355    
|                                                           | Interest income                                                                      |                     |        | (1                  | ) |                     | (3     
|                                                           | Gain on debt discharge (Note 2)                                                      |                     |        |                    |   |                     | 124,900
|                                                           | Effect of deconsolidation of Sweet Factory Group, Inc. and its subsidiaries (Note 3) |                     |        |                    |   |                     |       
|                                                           | Other income (expense)                                                               |                     |        | (6                  | ) |                     | 99     
|                                                           |                                                                                      |                     |        |                     |   |                     |        
|Income (loss) before reorganization costs and income taxes |                                                                                      |                     | (2,398 | )                   |   | 120,875             |        
|Reorganization costs (Note 4)                              |                                                                                      |                     | 407    |                     |   | 1,258               |        
|                                                           |                                                                                      |                     |        |                     |   |                     |        
|Income (loss) before income taxes                          |                                                                                      |                     | (2,805 | )                   |   | 119,617             |        
|Provision for income taxes                                 |                                                                                      |                     | 84     |                     |   | 6                   |        
|                                                           |                                                                                      |                     |        |                     |   |                     |        
|Net income (loss)                                          |                                                                                      | $                   | (2,889 | )                   | $ | 119,611             |        
|                                                           |                                                                                      |                     |        |                     |   |                     |        

See
accompanying notes.

4

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Archibald Candy Corporation        Consolidated Statements of Comprehensive Income (Loss)        (In thousands, unaudited)

|                            |                                         | Reorganized
Company |        | Predecessor
Company |   | Predecessor
Company |    
|--------------------------- | --------------------------------------- | ------------------- | ------ | ------------------- | - | ------------------- | ---
|
|Net income (loss)           |                                         | $                   | (2,889 | )                   | $ | 119,611             |    
|Other comprehensive income: |                                         |                     |        |                     |   |                     |    
|                            | Foreign currency translation adjustment |                     |        | 20                  |   |                     | 317
|                            |                                         |                     |        |                     |   |                     |    
|Comprehensive income (loss) |                                         | $                   | (2,869 | )                   | $ | 119,928             |    
|                            |                                         |                     |        |                     |   |                     |    

5

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Archibald Candy Corporation        Consolidated Statements of Cash Flows        (In thousands, unaudited)

|                                                                                     |                                                                             | Reorganized
Company                       |        | Predecessor
Company |       | Predecessor
Company |         
|------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------- | ------ | ------------------- | ----- | ------------------- | --------
|
|Operating activities                                                                 |                                                                             |                                           |        |                     |       |                     |         
|Net income (loss)                                                                    |                                                                             | $                                         | (2,889 | )                   | $     | 119,611             |         
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |                                                                             |                                           |        |                     |       |                     |         
|                                                                                     | Depreciation and amortization                                               |                                           |        | 636                 |       |                     | 1,278   
|                                                                                     | Share of loss in joint venture                                              |                                           |        | 35                  |       |                     | 99      
|                                                                                     | Effect of deconsolidation of Sweet Factory Group, Inc. and its subsidiaries |                                           |        |                    |       |                     |        
|                                                                                     | Extraordinary gain                                                          |                                           |        |                    |       |                     | (124,900
|Changes in operating assets and liabilities:                                         |                                                                             |                                           |        |                     |       |                     |         
|                                                                                     |                                                                             | Accounts receivable, net                  |        |                     | 61    |                     |         
|                                                                                     |                                                                             | Inventories                               |        |                     | (896  | )                   |         
|                                                                                     |                                                                             | Prepaid expenses and other current assets |        |                     | 528   |                     |         
|                                                                                     |                                                                             | Other assets                              |        |                     | (25   | )                   |         
|                                                                                     |                                                                             | Accounts payable and accrued liabilities  |        |                     | 1,530 |                     |         
|                                                                                     |                                                                             |                                           |        |                     |       |                     |         
|Net cash used in operating activities                                                |                                                                             |                                           | (1,020 | )                   |       | (11,148             | )       
|Investing activities                                                                 |                                                                             |                                           |        |                     |       |                     |         
|Purchase of property, plant, and equipment                                           |                                                                             |                                           | (385   | )                   |       | (629                | )       
|Effect of deconsolidation of Sweet Factory Group, Inc. and its subsidiaries          |                                                                             |                                           |       |                     |       |                    |         
|                                                                                     |                                                                             |                                           |        |                     |       |                     |         
|Net cash used in investing activities                                                |                                                                             |                                           | (385   | )                   |       | (629                | )       
|Financing activities                                                                 |                                                                             |                                           |        |                     |       |                     |         
|Net increase in revolving line of credit                                             |                                                                             |                                           | 5,016  |                     |       | 10,322              |         
|Payments of capital lease obligations                                                |                                                                             |                                           | (14    | )                   |       |                    |         
|Costs related to loan agreements                                                     |                                                                             |                                           | (702   | )                   |       | (427                | )       
|                                                                                     |                                                                             |                                           |        |                     |       |                     |         
|Net cash from financing activities                                                   |                                                                             |                                           | 4,300  |                     |       | 9,895               |         
|Effect of exchange rates on cash                                                     |                                                                             |                                           | 20     |                     |       | 97                  |         
|                                                                                     |                                                                             |                                           |        |                     |       |                     |         
|Net increase (decrease) in cash and cash equivalents                                 |                                                                             |                                           | 2,915  |                     |       | (1,785              | )       
|Cash and cash equivalents at beginning of period                                     |                                                                             |                                           | 2,071  |                     |       | 3,856               |         
|                                                                                     |                                                                             |                                           |        |                     |       |                     |         
|Cash and cash equivalents at end of period                                           |                                                                             | $                                         | 4,986  |                     | $     | 2,071               |         
|                                                                                     |                                                                             |                                           |        |                     |       |                     |         
|Supplemental disclosures of cash flow information:                                   |                                                                             |                                           |        |                     |       |                     |         
|                                                                                     | Cash paid during the period for:                                            |                                           |        |                     |       |                     |         
|                                                                                     |                                                                             | Interest                                  |        | $                   | 2     |                     | $       
|                                                                                     |                                                                             |                                           |        |                     |       |                     |         

See
accompanying notes.

6

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Archibald Candy Corporation        Notes to Consolidated Financial Statements        November 30, 2002

1.    Basis of Presentation

Archibald Candy Corporation, a Delaware 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 446 Company-operated stores and in approximately 10,000 third-party retail outlets
as well as through corporate gift, mail order and fundraising programs in the United States and Canada. The Company is the successor in interest to Archibald Candy Corporation, an Illinois corporation
("Archibald Illinois" or the "Predecessor Company"). Archibald Illinois was a wholly owned subsidiary of Fannie May Holdings, Inc. ("Holdings").

On
June 12, 2002, Archibald Illinois and Holdings filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code and, on November 1, 2002, their
Second Amended Joint Plan of Reorganization (the "Archibald Plan") became effective (see Note 2 to the Consolidated Financial Statements). Accordingly, the consolidated financial statements of
the Company during the bankruptcy proceedings are presented in accordance with American Institute of Certified Public Accountant's Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7").

Due
to the reorganization and implementation of fresh-start reporting, consolidated financial statements for the Company (period starting November 1, 2002) are not comparable to
those of the Predecessor Company. The statements reported for the Company relate to all operations post-emergence from bankruptcy and the statements reported for Predecessor Company relate
to all operations pre-emergence from bankruptcy.

The
accompanying consolidated financial statements include the accounts of Archibald and its subsidiaries, Laura Secord Holdings Corp. and 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 3 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 31, 2002.

The
Company's results of operations for the period from November 1, 2002 to November 30, 2002 are not necessarily indicative of the results that may be achieved for the
entire year.

2.    ReorganizationArchibald

On June 12, 2002, Holdings and Archibald Illinois filed petitions with the U.S. Bankruptcy Court for the District of Delaware to commence a consolidated
voluntary bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code. While in bankruptcy, Holdings and Archibald Illinois continued to manage their properties and operate their
businesses in accordance with the applicable provisions of the Bankruptcy Code. In connection with the bankruptcy proceeding, Holdings and Archibald Illinois filed the Archibald Plan, which was
confirmed by the bankruptcy court on September 25, 2002 and became effective as of November 1, 2002. Pursuant to the Archibald Plan, (i) all of the outstanding equity interests of
Holdings and Archibald Illinois were cancelled; (ii) Holdings merged with and into Archibald Illinois; and (iii) Archibald Illinois merged with and into a newly-formed Delaware
corporation, renamed Archibald Candy Corporation. As a result, Archibald acquired all of the assets of Holdings and Archibald Illinois. As part of the Archibald Plan, Archibald entered into a new
$50 million term loan and revolving credit facility with Foothill Capital Corporation, as administrative agent, to finance its working capital and capital expenditures and to pay the costs of
the reorganization. The proceeds of the credit facility also were used, in part, to pay-off the indebtedness outstanding under Archibald Illinois'
debtor-in-possession facility.

7

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In addition, pursuant to the Archibald Plan, all of the $170 million outstanding principal amount of 101/4% senior secured notes due 2004 issued by Archibald Illinois, together
with the accrued and unpaid interest thereon, were cancelled and Archibald issued $50 million of 10% secured subordinated notes due 2007 to the holders of the cancelled notes. Also, pursuant to
the Archibald Plan, in consideration of the cancellation of the claims of the holders of the cancelled notes and certain general unsecured creditors of Archibald Illinois, Archibald issued (or expects
to issue upon completion of the Archibald Plan) to such claimants an aggregate of 276,290 shares of Archibald's common stock, par value $.01 per share, which represents 100% of Archibald's
issued and outstanding common stock.

In
accordance with SOP 90-7, the Company adopted "fresh-start accounting" as of November 1, 2002. In adopting fresh-start reporting, the Company was required to
determine its enterprise value, which represents the fair value of the entity before considering its interest bearing debt. The financial advisors to the Company determined that the Company's
enterprise value as of November 1, 2002 was $93.4 million and the reorganization equity value was $13.1 million.

The
adjustments to reflect the adoption of fresh-start accounting, including the adjustments to record (i) inventories, (ii) prepaid expenses and other current assets,
(iii) property, plant and equipment, (iv) other assets, (v) intangible assets, and (vi) pension liability at their fair market values, and (vii) and the
establishment of $4.4 million of reorganization value in excess of amounts allocable to net identifiable assets ("reorganization intangible"), have been reflected in the following consolidated
balance sheet reconciliation as of November 1, 2002 as fresh-start adjustments. In addition, the Company's consolidated balance sheet was further adjusted to eliminate existing liabilities
subject to compromise and equity and to reflect the aforementioned $93.4 million enterprise value.

The
Company's emergence from bankruptcy did not create a new tax reporting entity. Accordingly, the adjustments required to adopt fresh start accounting are not applicable for tax
reporting. The reorganization of the Company will result in a discharge of debt under the tax code. The Company believes the discharge will substantially reduce or eliminate outstanding net operating
loss carryforwards by the conclusion of the August 30, 2003 fiscal year. If any net operating loss carryforwards are remaining, they will be subject to annual limitations in accordance with
section 382 of the tax code due to the change in control. The deferred tax liability recorded of $12.8 million is based on the estimated impact of the reorganization. This estimate is
subject to change upon completion of our analysis and the filing of all related tax returns.

8

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Below
is an unaudited balance sheet as of November 1, 2002 showing the adjustments thereto to give effect to the reorganization and fresh-start adjustments (in thousands):

|                                                     |                                              | Predecessor
Company
Nov. 1, 2002 |          | Reorganization |   | Fresh-Start Adjustments |          | Reorganized
Company
Nov. 1, 2002
|---------------------------------------------------- | -------------------------------------------- | -------------------------------- | -------- | -------------- | - | ----------------------- | -------- | --------------------------------
|Assets                                               |                                              |                                  |          |                |   |                         |          |                                 
|Current Assets:                                      |                                              |                                  |          |                |   |                         |          |                                 
|                                                     | Cash and cash equivalents                    |                                  | $        | 2,071          |   | $                       |         |                                 
|                                                     | Accounts receivable, net                     |                                  |          | 4,445          |   |                         |         |                                 
|                                                     | Inventories, net                             |                                  |          | 34,806         |   |                         |         |                                 
|                                                     | Prepaid expenses and other current assets    |                                  |          | 5,023          |   |                         |         |                                 
|                                                     |                                              |                                  |          |                |   |                         |          |                                 
|Total current assets                                 |                                              |                                  | 46,345   |                |   |                        |          |                                 
|Property, plant, equipment, net                      |                                              |                                  | 24,576   |                |   |                         |          |                                 
|Goodwill                                             |                                              |                                  | 56,446   |                |   |                        |          |                                 
|Other intangibles                                    |                                              |                                  | 33       |                |   |                        |          |                                 
|Reorganization intangible                            |                                              |                                  |         |                |   |                        |          |                                 
|Deferred financing fees                              |                                              |                                  | 427      |                |   | 701                     | (4)      |                                 
|Investment in joint venture                          |                                              |                                  | 2,529    |                |   |                        |          |                                 
|Other assets                                         |                                              |                                  | 1,210    |                |   |                        |          |                                 
|                                                     |                                              |                                  |          |                |   |                         |          |                                 
|Total Assets                                         |                                              | $                                | 131,566  |                | $ | 701                     |          | $                               
|                                                     |                                              |                                  |          |                |   |                         |          |                                 
|Liabilities and shareholder's equity (deficit)       |                                              |                                  |          |                |   |                         |          |                                 
|Current Liabilities:                                 |                                              |                                  |          |                |   |                         |          |                                 
|                                                     | Revolving line of credit                     |                                  | $        | 30,322         |   | $                       | (10,000  | )(3)                            
|                                                     | Accounts payable                             |                                  |          | 17,323         |   |                         |         |                                 
|                                                     | Accrued liabilities                          |                                  |          | 2,884          |   |                         | 3,136    | (1)                             
|                                                     | Payroll and related liabilities              |                                  |          | 2,177          |   |                         |         |                                 
|                                                     | Accrued interest                             |                                  |          | 12             |   |                         |         |                                 
|                                                     | Current portion of capital lease obligations |                                  |          | 74             |   |                         |         |                                 
|                                                     | Liabilities subject to compromise            |                                  |          | 190,419        |   |                         | (190,419 | )(1)                            
|                                                     |                                              |                                  |          |                |   |                         |          |                                 
|Total current liabilities                            |                                              |                                  | 243,211  |                |   | (197,283                | )        |                                 
|Due to affiliate                                     |                                              |                                  | 39       |                |   |                        |          |                                 
|Secured subordinated notes                           |                                              |                                  |         |                |   | 50,000                  | (2)      |                                 
|Term loan agreement                                  |                                              |                                  |         |                |   | 10,000                  | (3)      |                                 
|Pension liability                                    |                                              |                                  | 4,351    |                |   |                        |          |                                 
|Deferred taxes                                       |                                              |                                  |         |                |   |                        |          |                                 
|Capital lease obligations, less current portions     |                                              |                                  | 88       |                |   |                        |          |                                 
|Shareholder's equity (deficit):                      |                                              |                                  |          |                |   |                         |          |                                 
|                                                     | Common Stock                                 |                                  |          |               |   |                         | 3        | (2)                             
|                                                     | Additional paid-in-capital                   |                                  |          | 18,700         |   |                         | 13,081   | (2)                             
|                                                     | Accumulated deficit                          |                                  |          | (132,558       | ) |                         | 124,900  | (1)(2)                          
|                                                     | Other Comprehensive income (loss)            |                                  |          | (2,265         | ) |                         |         |                                 
|                                                     |                                              |                                  |          |                |   |                         |          |                                 
|Total shareholder's equity (deficit)                 |                                              |                                  | (116,123 | )              |   | 137,984                 |          |                                 
|                                                     |                                              |                                  |          |                |   |                         |          |                                 
|Total liabilities and shareholder's equity (deficit) |                                              | $                                | 131,566  |                | $ | 701                     |          | $                               
|                                                     |                                              |                                  |          |                |   |                         |          |                                 

9

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---

As
a result of the bankruptcy filing, no principal or interest payments were made on any pre-petition debt. Contractual interest expense not recorded on certain
pre-petition debt totaled $2.9 million for the period from September 1, 2002 to October 31, 2002.

The
gain recognized by the Predecessor Company prior to emergence from bankruptcy is as follows (in thousands):

Liabilities subject to compromise:Senior secured notes

$
169,500Accrued interest


16,775Accounts payable


4,144Total


190,419Less:Payments of liabilities subject to compromise


2,435Value of secured subordinated notes


50,000Value of common stock


13,084Gain on debt discharge

$
124,900


The accounts payable amount above may be subject to further adjustment depending on further development with respect to the reconciliation of claims and the
resolution of disputed claims.

10

---

3.    Bankruptcy FilingSweet Factory

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 under Chapter 11 of the U.S. Bankruptcy Code. On August 6, 2002, the assets of SFG and
its subsidiaries were sold for $6.6 million to RDR Group, a California corporation. The proceeds of the sale were applied to pay-off the debtor-in-possession
financing provided by The CIT Group/Business Credit, Inc. ("CIT"), to pay Archibald Illinois' secured claim, to make cure payments to the landlords under the assumed store leases that were assumed by
RDR Group, to pay administrative expenses, to make a payment to the holders of Archibald Illinois' 101/4% senior secured notes and to make a payment to the unsecured creditors' class.
On October 29, 2002, SFG and its subsidiaries were dissolved.

SFG
and its subsidiaries' financial results are included in the Predecessor 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 Predecessor Company's balance sheet of this deconsolidation and use of the cost
method are that: (i) the Predecessor Company's investment in SFG is included as a single amount and (ii) the Predecessor Company's receivable from SFG is no longer eliminated. The effect
on the Predecessor 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
Predecessor 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. Upon the sale of SFG and its subsidiaries, the Predecessor Company received net proceeds of $1.6 million.

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

For the period of
August 26, 2001
through
November 15, 2001Net sales

$
8,867Operating loss


(3,172
)Loss before income taxes


(3,175
)Net loss


(3,178
)


Following
are the condensed pro forma consolidated statement of operations dat a for the Predecessor Company, assuming the deconsolidation of SFG and its subsidiaries (in thousands):

For the three months ended Nov. 24, 2001Net sales

$
33,508Operating loss


(5,187
)Loss before income taxes


(12,258
)Net loss


(12,258
)


4.    Reorganization Costs

Although Archibald has emerged from Chapter 11 bankruptcy, reorganization costs are still being incurred related primarily to professional fees associated
with establishing the new corporate structure and resolving all claims filed against the Predecessor Company.

5.    Inventories

Inventories are stated at the lower of cost or market. Inventories are valued primarily at either average or first in, first out (FIFO) cost. Supply inventories
are relieved monthly based on an estimated gross margin and adjusted to actual upon the taking of an annual physical inventory at the end of July. In fiscal 2002, we recorded a

11

---

reserve for supply inventories of approximately $3.0 million. This reserve relates primarily to the discontinuance of certain product lines for which we had unique packaging, and other
slow-moving and obsolete packaging and supply inventories. We will write-off those items which are deemed obsolete and periodically monitor the inventories for other potential
slow moving and obsolete items. Inventories are comprised of the following:

Reorganized
Company

Predecessor
CompanyNovember 30, 2002

August 31,
2002Raw materials

$
11,831

$
9,145Work-in process


152


134Finished goods


29,719


18,569$
41,702

$
27,848


In
accordance with fresh-start reporting, the Company adjusted inventories to fair value representing the estimated selling prices less the sum of the costs of disposal and a reasonable
profit margin for the selling effort. As a result, the Company increased the basis of inventories by $6.0 million as of November 1, 2002. The cost of sales recorded as a result of this
increase was $1.0 million for the one month ended November 30, 2002 and has been reflected as cost of sales, nonrecurring in the consolidated financial statements.

6.    New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements of Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets" ("the Statements"), effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives are no longer being amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful
lives.

In
connection with the fresh-start accounting adjustments, the Company has applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of
fiscal year 2003. Intangible assets were
recorded based on the new valuation of the Company. As such all remaining goodwill from the Predecessor Company was written-off.

The
pro forma impact of eliminating goodwill amortization on the consolidated statements of income is as follows:

Three months ended
November 24, 2001Reported net loss

$
(15,436
)Goodwill amortization


421Adjusted net loss

$
(15,015
)


Other
intangibles assets are comprised of the following:

Reorganized
Company

Predecessor
CompanyNovember 30, 2002

August 31,
2002Trademarks

$
15,400

$
Other


1,625


36Total

$
17,025

$
36


In
connection with its fresh-start accounting adjustments, the Company has recorded new intangible assets based on the revised valuation of the Company. Trademarks and reorganization
intangible will be subject to the annual impairment tests in accordance with the Statements. Other intangibles are amortized over their useful lives.

12

---

7.    Property, Plant and Equipment

Property, plant and equipment are comprised of the following:

Reorganized
Company

Predecessor
CompanyNovember 30, 2002

August 31,
2002Machinery and equipment

$
10,259

$
32,146Land and buildings


34,789


18,253Furniture and fixtures


2,897


4,098Leasehold improvements


12,547


25,56860,492


80,065Less: Accumulated depreciation


(521
)

(55,203
)$
59,971

$
24,862


In
connection with its fresh-start accounting adjustments, the Company's property, plant and equipment were adjusted to fair market value as of November 1, 2002. The assets are
depreciated on a straight line basis over their useful lives, which are 5 years for machinery & equipment, 20 years for buildings, 7 years for furniture & fixtures
and over the life of the lease for leasehold improvements.

8.    Debt



On June 28, 2001, Archibald Illinois and its subsidiary, Sweet Factory, Inc. ("Sweet Factory"), entered into a revolving credit facility with CIT, as agent
(the "CIT Facility"). The initial borrowings under the CIT Facility were used, in part, to pay all outstanding obligations under Archibald Illinois' revolving credit facility with Bank One, NA, as
agent, which facility was then terminated. The CIT Facility provided for revolving loans and letter of credit issuances, subject to certain borrowing conditions, in an aggregate amount at any time not
to exceed the lesser of (1) $30.0 million (or specified lower amounts at certain times of the year) and (2) a borrowing base comprised of a percentage of eligible accounts
receivable and inventory and owned store locations.

The
CIT Facility was secured by first priority liens on Archibald Illinois' and Sweet Factory's accounts receivable, and inventory, and the Company-owned store locations, and the
proceeds therefrom. The subsidiaries of Archibald Illinois and Sweet Factory, including Archibald Candy (Canada) Corporation, a Canadian corporation ("Archibald Canada"), guaranteed all obligations
under the CIT Facility and granted to the agent under the CIT Facility a first priority lien on their accounts receivable, inventory, and the proceeds therefrom. In addition, Holdings guaranteed all
obligations under the CIT Facility and granted to CIT a first priority lien on all of its assets, including all the outstanding shares of common stock of Archibald Illinois.

As
of June 14, 2002, there was an aggregate of $13.9 million outstanding under the CIT Facility. On June 14, 2002, proceeds from borrowings under the Archibald DIP
Credit Facility (defined below) were used to pay all outstanding obligations under the CIT Facility and the CIT Facility was then terminated.



In connection with the Sweet Factory Bankruptcy, on November 15, 2001, CIT and Sweet Factory entered into a post-petition credit, security and
guaranty agreement (the "SF DIP Credit Facility"). Archibald Illinois, Holdings and Archibald Canada and SFG's other subsidiaries guaranteed all obligations of Sweet Factory under the SF DIP Credit
Facility. The guaranty by Archibald Illinois was secured by a $1.0 million cash collateral account held by CIT. The SF DIP Credit Facility was for one year and provided 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's eligible inventory plus a $1.0 million
overadvance, subject to certain reserves.

As
of August 6, 2002, an aggregate of $0.5 million of revolving loans were outstanding under the SF DIP Credit Facility. Proceeds from the August 6, 2002, sale of
assets of Sweet Factory and its subsidiaries were used to pay all outstanding obligations under the SF DIP Credit Facility and the $1.0 million cash collateral account held by CIT as security
for the Archibald Illinois guaranty was released. The SF DIP Facility was then terminated.

13

---



In connection with the Archibald Illinois Reorganization, on June 14, 2002, Archibald Illinois entered into a post-petition loan and security
agreement and guaranty (the "Archibald DIP Credit Facility") with Foothill Capital Corporation, as the arranger and administrative agent, the lenders party thereto and Holdings and Archibald Canada,
as guarantors. Under the Archibald DIP Credit Facility, the lenders agreed to make available to Archibald Illinois (a) a $25.0 million revolving credit facility, pursuant to which
Archibald Illinois could borrow up to the lesser of (i) $25.0 million and (ii) a borrowing base comprised of certain percentages of eligible accounts receivable and inventory,
subject to certain reserves, and (b) an aggregate of $20.0 million in term loans. Initial borrowings under the Archibald DIP Credit Facility were used to pay-off in full the
CIT Facility. As of August 31, 2002, $20.0 million of borrowings and $0.2 million of letters of credit were outstanding under the Archibald DIP Credit Facility.

As
of November 1, 2002, an aggregate of $30.3 million was outstanding under the Archibald DIP Credit Facility. In connection with the Archibald Plan effective
November 1, 2002, all outstanding amounts under the Archibald DIP Credit Facility were repaid in full from proceeds of the initial borrowings under Archibald's New Credit Facility (defined
below) and the Archibald DIP Credit Facility was terminated.



On November 1, 2002, Archibald entered into a loan and security agreement and guaranty with the financial institutions signatory thereto and Foothill
Capital Corporation ("Foothill"), as administrative agent (the "New Credit Facility"). The New Credit Facility was extended to Archibald in connection with its emergence from bankruptcy and replaced
the financing provided pursuant to the Archibald DIP Credit Facility, which was terminated pursuant to the Archibald Plan.

The
New Credit Facility provides up to $50 million in credit, which is comprised of a revolving loan facility, a term loan A, a term loan B and letter of credit issuances. Under
the revolving loan facility, Archibald may, subject to certain borrowing conditions, incur revolving loans in an amount up to the lesser of (1) $30.0 million and (2) a borrowing
base comprised of a percentage of eligible accounts receivable and eligible inventory, which borrowing base components are subject to certain limits, minus a reserve of $2.5 million (as such
amount may be reduced in accordance with the provisions of the loan agreement) and minus certain additional reserves which may from time to time be imposed by Foothill. Revolving loans are due and
payable in full on November 1, 2005 (the "Maturity Date").

Subject
to certain conditions, the term loan A will be made available to Archibald from July 1 through December 31 of each calendar year, with any outstanding obligations
under such term loan to be repaid in full on December 31 of each year. Subject to any applicable reserves, in 2002, term loan A shall not exceed the lesser of (1) $10.0 million
and (2) a specified percentage of the value of Archibald's equipment and real property. In 2003, term loan A shall not exceed the lesser of (1) $9.0 million and (2) a
specified percentage of the value of Archibald's equipment and real property. In 2004, term loan A shall not exceed the lesser of (1) $7.0 million and (2) a specified percentage
of the value of Archibald's equipment and real property and between July 1, 2005 and the Maturity Date, term loan A shall not exceed $5.0 million. In addition to the term loan A, on
November 1, 2002, term loan B was extended to Archibald in an amount equal to $10.0 million. The outstanding principal amount of term loan B is due and payable in full on the Maturity
Date; provided, that if at any time the outstanding principal amount of
term loan B shall be less than $5.0 million as a result of mandatory or voluntary prepayments, the remaining amount of term loan B shall be immediately due and payable (subject to certain
exceptions).

The
New Credit Facility provides the various interest rates which are applicable to the revolving loans and term loans thereunder. At Archibald's election, revolving loan advances will
bear interest at either (a) a variable per annum rate equal to the "prime rate" announced from time to time by Wells Fargo Bank, National Association (the "Prime Rate"), plus 0.50% or
(b) a variable per annum rate equal to the "LIBOR" rate determined by Foothill in accordance with its customary procedures, plus 2.75%. Term loan A bears interest at the Prime Rate, plus 2.0%.
Term loan B bears interest at a per annum rate equal to (A) the greater of (x) the Prime Rate plus 3.0% and (y) 7.75%, plus (B) 4.75% (the "PIK Amount"), which PIK Amount
shall be paid in kind by

14

---

being added to the principal amount of term loan B. The PIK Amount is subject to reduction in calendar year 2003 if there shall not exist any default or event of default under the New Credit
Facility.

The
New Credit Facility is secured by first priority liens on all of Archibald's assets and all of the proceeds therefrom. Archibald's wholly-owned subsidiaries, Laura Secord Holdings
Corp. and Archibald Canada (together, the "Guarantor Subsidiaries") have guaranteed all of Archibald's obligations under the New Credit Facility and granted a first priority lien in all of their
respective assets and the proceeds therefrom as security for such guarantees.

The
New Credit Facility contains various business and financial covenants including, among other things, limitations on dividends, redemptions and repurchases of capital stock,
limitations on the incurrence of and payments in respect of indebtedness, limitations on asset dispositions, limitations on capital expenditures and requirements to maintain certain targeted EBITDA
amounts. The New Credit Facility also requires Archibald to make prepayments of the loans in certain circumstances, including, among other things, from Archibald's excess cash flow, as defined, and
from proceeds of certain asset sales, insurance and condemnation proceeds (unless Archibald is permitted to repair or replace the applicable collateral as provided in the loan agreement), and in the
event that certain financial tests are not met. These loan restrictions could restrict corporate activities, including Archibald's ability to respond to market conditions, to provide for unanticipated
capital expenditures or to take advantage of business opportunities.

Based
on the Company's performance during the December holidays, it is unlikely that it will satisfy the EBITDA covenant of the New Credit Facility for the second fiscal quarter of 2003.
The Company has begun discussions with Foothill regarding a waiver or amendment of this potential default. However, there can be no assurance that it will be successful in negotiating such a waiver or
amendment.

As
of November 30, 2002, $35.3 million of borrowings and $0.6 million of letters of credit were outstanding under the New Credit Facility.



In connection with the Archibald Plan, concurrently with the execution and delivery of the New Credit Facility, pursuant to an Indenture dated November 1,
2002 (the "Indenture") between Archibald, the Guarantor
Subsidiaries and BNY Midwest Trust Company, as trustee (the "Trustee"), Archibald issued $50.0 million in aggregate principal amount of Archibald's 10% Secured Subordinated Notes due 2007 (the
"Notes") in a transaction exempt from registration under the Securities Act of 1933, as amended. The Notes were issued in replacement of those certain 101/4% senior secured notes
totaling $170.0 million due 2004 issued by Archibald Illinois pursuant to the Indenture dated July 2, 1997 (as amended and supplemented) between Archibald Illinois and The Bank of New
York, as trustee, which indenture (and the notes issued thereunder) was terminated pursuant to the Archibald Plan.

Interest
is payable under the Notes at the rate of 10% per annum and interest payments are to be made semi-annually on January 1 and July 1 of each year, and on
the maturity date, commencing on January 1, 2003. On or prior to November 1, 2005, Archibald may elect, in the judgment of its Board of Directors, to make all or a portion of each such
interest payment in cash or by issuing new promissory notes (each a "PIK Note") with a principal amount, in each case, equal to the amount of interest that each holder of a Note was due on the
interest payment date and which Archibald has elected to pay by issuance of the PIK Note; provided, however, unless certain conditions are satisfied, the New Credit Facility requires that interest
accrued under the Notes be paid by the issuance of PIK Notes.

The
Notes are secured by a second priority lien on all of Archibald's assets and all of the proceeds therefrom. The Guarantor Subsidiaries have guaranteed all of Archibald's obligations
under the Indenture (including the Notes) and granted a second priority lien in all of their respective assets and the proceeds therefrom as security for such guarantees. The liens in favor of the
Trustee are subordinate to the liens granted by Archibald and the Guarantor Subsidiaries in favor of Foothill under the New Credit Facility. The manner and terms under which the liens granted to the
Trustee under the Indenture are subordinated to the liens in favor of Foothill under the New Credit Facility are as set forth in the Indenture.

15

---

The
Indenture contains various business covenants including, among other things, limitations on dividends, redemptions and repurchases of capital stock, limitations on the incurrence of
indebtedness and limitations on asset dispositions. The Indenture also requires Archibald to make an offer to repurchase Notes in certain circumstances, including, among other things, to the extent
net cash proceeds from asset sales exceed a certain threshold amount (but only to the extent such proceeds are not reinvested or used to repay certain other indebtedness). These restrictions could
restrict corporate activities, including Archibald's ability to respond to market conditions, to provide for unanticipated capital expenditures or to take advantage of business opportunities.

9.    Contingencies

Under various federal, state, provincial and local laws, ordinances and regulations, an owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on, in or migrating from such property. Such liability may be imposed without regard to whether the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. A number of properties owned by Archibald were formerly operated by others as gasoline stations. Archibald has conducted subsurface
investigations at these owned properties and based on these investigations, Archibald has determined that some contamination exists at certain of these sites. Archibald is unaware of any remediation
required with respect to such contamination that would have a material impact on its financial condition. However, Archibald cannot assure you that no additional remediation will be required at these
sites or that no additional environmental
liabilities will arise with respect to these sites. An accrual has not been recorded as of November 30, 2002 in the financial statements.

10.    Guarantor Subsidiaries

The Company's obligations under its secured subordinated notes due 2007 are fully and unconditionally guaranteed on a secured, joint and several basis by the
Guarantor Subsidiaries. None of the Company's subsidiaries was subject to any restrictions on its ability to pay dividends or make distributions to the Company. The following condensed consolidating
financial data illustrates the composition of the Company and its subsidiaries. Separate financial statements of the respective Guarantor Subsidiaries have not been provided because the Company's
management determined that such additional information would not be useful in assessing the financial composition of the Guarantor Subsidiaries.

16

---

Reorganized Company

Condensed Consolidating Balance Sheet

November 30, 2002

(In thousands, unaudited)

|                                                   |                                   | Archibald Candy Corporation |         | Guarantor Subsidiaries |   | Eliminations |       | Consolidated
|-------------------------------------------------- | --------------------------------- | --------------------------- | ------- | ---------------------- | - | ------------ | ----- | ------------
|Assets                                             |                                   |                             |         |                        |   |              |       |             
|Current assets:                                    |                                   |                             |         |                        |   |              |       |             
|                                                   | Cash and cash equivalents         |                             | $       | 4,181                  |   | $            | 805   |             
|                                                   | Accounts receivables, net         |                             |         | 3,357                  |   |              | 1,027 |             
|                                                   | Inventories, net                  |                             |         | 35,130                 |   |              | 6,572 |             
|                                                   | Prepaids and other current assets |                             |         | 3,361                  |   |              | 992   |             
|                                                   |                                   |                             |         |                        |   |              |       |             
|Total current assets                               |                                   |                             | 46,029  |                        |   | 9,396        |       |             
|Property, plant, and equipment, net                |                                   |                             | 55,764  |                        |   | 4,207        |       |             
|Intangible assets                                  |                                   |                             | 12,602  |                        |   | 4,423        |       |             
|Reorganization intangible                          |                                   |                             | 1,317   |                        |   | 3,084        |       |             
|Investment in joint venture                        |                                   |                             |        |                        |   | 2,666        |       |             
|Deferred financing fees                            |                                   |                             | 1,097   |                        |   |             |       |             
|Intercompany                                       |                                   |                             | 14,146  |                        |   | (5,202       | )     |             
|Investment in subsidiaries                         |                                   |                             | 5,901   |                        |   |             |       |             
|Other assets                                       |                                   |                             | 402     |                        |   | 15           |       |             
|                                                   |                                   |                             |         |                        |   |              |       |             
|Total assets                                       |                                   | $                           | 137,258 |                        | $ | 18,589       |       | $           
|                                                   |                                   |                             |         |                        |   |              |       |             
|Liabilities and shareholder's equity (deficit)     |                                   |                             |         |                        |   |              |       |             
|Current liabilities:                               |                                   |                             |         |                        |   |              |       |             
|                                                   | Revolving line of credit          |                             | $       | 25,338                 |   | $            |      |             
|                                                   | Accounts payable                  |                             |         | 16,039                 |   |              | 2,001 |             
|                                                   | Other current liabilities         |                             |         | 7,266                  |   |              | 1,206 |             
|                                                   |                                   |                             |         |                        |   |              |       |             
|Total current liabilities                          |                                   |                             | 48,643  |                        |   | 3,207        |       |             
|Term loan                                          |                                   |                             | 10,000  |                        |   |             |       |             
|Secured subordinated notes                         |                                   |                             | 50,000  |                        |   |             |       |             
|Intercompany note payable                          |                                   |                             |        |                        |   | 8,944        |       |             
|Other noncurrent liabilities                       |                                   |                             | 18,420  |                        |   | 517          |       |             
|Total shareholder's equity (deficit)               |                                   |                             | 10,195  |                        |   | 5,921        |       |             
|                                                   |                                   |                             |         |                        |   |              |       |             
|Total liabilities & shareholder's equity (deficit) |                                   | $                           | 137,258 |                        | $ | 18,589       |       | $           
|                                                   |                                   |                             |         |                        |   |              |       |             

17

---

Predecessor Company

Condensed Consolidating Balance Sheet

August 31, 2002

(In thousands, unaudited)

|                                                   |                                   | Archibald Candy Corporation |          | Guarantor Subsidiaries |   | Eliminations |       | Consolidated |        
|-------------------------------------------------- | --------------------------------- | --------------------------- | -------- | ---------------------- | - | ------------ | ----- | ------------ | -------
|Assets                                             |                                   |                             |          |                        |   |              |       |              |        
|Current assets:                                    |                                   |                             |          |                        |   |              |       |              |        
|                                                   | Cash and cash equivalents         |                             | $        | 2,521                  |   | $            | 835   |              | $      
|                                                   | Restricted cash                   |                             |          | 500                    |   |              |      |              |        
|                                                   | Accounts receivables, net         |                             |          | 1,021                  |   |              | 53    |              |        
|                                                   | Inventories, net                  |                             |          | 24,886                 |   |              | 2,962 |              |        
|                                                   | Prepaids and other current assets |                             |          | 1,953                  |   |              | 344   |              |        
|                                                   |                                   |                             |          |                        |   |              |       |              |        
|Total current assets                               |                                   |                             | 30,881   |                        |   | 4,194        |       |              |       
|Property, plant, and equipment, net                |                                   |                             | 16,290   |                        |   | 8,572        |       |              |       
|Intercompany                                       |                                   |                             | 8,789    |                        |   | 514          |       |              | (9,303 
|Investment in subsidiaries                         |                                   |                             | 2,527    |                        |   |             |       |              | (2,527 
|Other assets                                       |                                   |                             | 58,268   |                        |   | 2,289        |       |              |       
|                                                   |                                   |                             |          |                        |   |              |       |              |        
|Total assets                                       |                                   | $                           | 116,755  |                        | $ | 15,569       |       | $            | (11,830
|                                                   |                                   |                             |          |                        |   |              |       |              |        
|Liabilities and shareholder's equity (deficit)     |                                   |                             |          |                        |   |              |       |              |        
|Current liabilities:                               |                                   |                             |          |                        |   |              |       |              |        
|                                                   | Revolving line of credit          |                             | $        | 20,000                 |   | $            |      |              | $      
|                                                   | Liabilities subject to compromise |                             |          | 190,130                |   |              |      |              |        
|                                                   | Accounts payable                  |                             |          | 9,485                  |   |              | 1,674 |              |        
|                                                   | Other current liabilities         |                             |          | 4,502                  |   |              | 1,198 |              |        
|                                                   |                                   |                             |          |                        |   |              |       |              |        
|Total current liabilities                          |                                   |                             | 224,117  |                        |   | 2,872        |       |              |       
|Intercompany note payable                          |                                   |                             |         |                        |   | 9,303        |       |              | (9,303 
|Other noncurrent liabilities                       |                                   |                             | 4,425    |                        |   |             |       |              |       
|Total shareholder's equity (deficit)               |                                   |                             | (111,787 | )                      |   | 3,394        |       |              | (2,527 
|                                                   |                                   |                             |          |                        |   |              |       |              |        
|Total liabilities & shareholder's equity (deficit) |                                   | $                           | 116,755  |                        | $ | 15,569       |       | $            | (11,830
|                                                   |                                   |                             |          |                        |   |              |       |              |        

18

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Reorganized Company

Condensed Consolidating Statement of Operations

One Month Ended November 30, 2002

(In thousands, unaudited)

|                                                                                      |                     | Archibald Candy Corporation |        | Guarantor Subsidiaries |   | Eliminations |       | Consolidated |     
|------------------------------------------------------------------------------------- | ------------------- | --------------------------- | ------ | ---------------------- | - | ------------ | ----- | ------------ | ----
|Net sales                                                                             |                     | $                           | 8,922  |                        | $ | 3,448        |       | $            |    
|Cost of sales, excluding depreciation and amortization                                |                     |                             | 3,629  |                        |   | 1,497        |       |              |    
|Cost of sales, nonrecurring                                                           |                     |                             | 837    |                        |   | 202          |       |              |    
|                                                                                      |                     |                             |        |                        |   |              |       |              |     
|                                                                                      | Total cost of sales |                             |        | 4,466                  |   |              | 1,699 |              |     
|Selling, general, and administrative expenses excluding depreciation and amortization |                     |                             | 5,384  |                        |   | 1,918        |       |              |    
|Depreciation, amortization and other                                                  |                     |                             | 513    |                        |   | 170          |       |              |    
|                                                                                      |                     |                             |        |                        |   |              |       |              |     
|Operating income (loss)                                                               |                     |                             | (1,441 | )                      |   | (339         | )     |              |    
|Interest expense, net                                                                 |                     |                             | 547    |                        |   | 65           |       |              |    
|Other income (expense)                                                                |                     |                             | 7      |                        |   | (13          | )     |              |    
|Equity interest in losses of subsidiaries                                             |                     |                             | 420    |                        |   |             |       |              | (420
|                                                                                      |                     |                             |        |                        |   |              |       |              |     
|Loss before reorganization costs and income taxes                                     |                     |                             | (2,401 | )                      |   | (417         | )     |              | 420 
|Reorganization costs                                                                  |                     |                             | 407    |                        |   |             |       |              |    
|                                                                                      |                     |                             |        |                        |   |              |       |              |     
|Loss before income taxes                                                              |                     |                             | (2,808 | )                      |   | (417         | )     |              | 420 
|Provision for income taxes                                                            |                     |                             | 81     |                        |   | 3            |       |              |    
|                                                                                      |                     |                             |        |                        |   |              |       |              |     
|Net loss                                                                              |                     | $                           | (2,889 | )                      | $ | (420         | )     | $            | 420 
|                                                                                      |                     |                             |        |                        |   |              |       |              |     

19

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Predecessor Company

Condensed Consolidating Statement of Operations

Two Months Ended October 31, 2002

(In thousands, unaudited)

|                                                                                      |  | Archibald Candy Corporation |         | Guarantor Subsidiaries |   | Eliminations |   | Consolidated |     
|------------------------------------------------------------------------------------- |  | --------------------------- | ------- | ---------------------- | - | ------------ | - | ------------ | ----
|Net sales                                                                             |  | $                           | 14,131  |                        | $ | 6,181        |   | $            |    
|Cost of sales, excluding depreciation and amortization                                |  |                             | 5,945   |                        |   | 2,932        |   |              |    
|Selling, general, and administrative expenses excluding depreciation and amortization |  |                             | 10,173  |                        |   | 3,648        |   |              |    
|Depreciation, amortization and other                                                  |  |                             | 1,018   |                        |   | 368          |   |              |    
|                                                                                      |  |                             |         |                        |   |              |   |              |     
|Operating income (loss)                                                               |  |                             | (3,005  | )                      |   | (767         | ) |              |    
|Interest expense, net                                                                 |  |                             | 225     |                        |   | 127          |   |              |    
|Gain on debt discharge                                                                |  |                             | 124,900 |                        |   |             |   |              |    
|Other income (expense)                                                                |  |                             | 54      |                        |   | 45           |   |              |    
|Equity interest in losses of subsidiaries                                             |  |                             | 855     |                        |   |             |   |              | (855
|                                                                                      |  |                             |         |                        |   |              |   |              |     
|Loss before reorganization costs and income taxes                                     |  |                             | 120,869 |                        |   | (849         | ) |              | 855 
|Reorganization costs                                                                  |  |                             | 1,258   |                        |   |             |   |              |    
|                                                                                      |  |                             |         |                        |   |              |   |              |     
|Loss before income taxes                                                              |  |                             | 119,611 |                        |   | (849         | ) |              | 855 
|Provision for income taxes                                                            |  |                             |        |                        |   | 6            |   |              |    
|                                                                                      |  |                             |         |                        |   |              |   |              |     
|Net income (loss)                                                                     |  | $                           | 119,611 |                        | $ | (855         | ) | $            | 855 
|                                                                                      |  |                             |         |                        |   |              |   |              |     

20

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Predecessor Company

Condensed Consolidating Statement of Operations

Three Months Ended November 24, 2001

(In thousands, unaudited)

|                                                                                      |                                                                         | Archibald Candy Corporation |         | Guarantor(a)
Subsidiaries |   | Eliminations |     | Consolidated |       
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------- | ------- | ------------------------- | - | ------------ | --- | ------------ | ------
|Net sales                                                                             |                                                                         | $                           | 24,276  |                           | $ | 18,099       |     | $            |      
|Cost of sales, excluding depreciation                                                 |                                                                         |                             | 9,989   |                           |   | 7,503        |     |              |      
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Gross profit                                                                          |                                                                         |                             | 14,287  |                           |   | 10,596       |     |              |      
|Selling, general, and administrative expenses excluding depreciation and amortization |                                                                         |                             | 15,266  |                           |   | 14,285       |     |              |      
|Depreciation, amortization and other                                                  |                                                                         |                             | 2,749   |                           |   | 942          |     |              |      
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Operating loss                                                                        |                                                                         |                             | (3,728  | )                         |   | (4,631       | )   |              |      
|Other (income) expense:                                                               |                                                                         |                             |         |                           |   |              |     |              |       
|                                                                                      | Interest expense                                                        |                             |         | 4,794                     |   |              | 198 |              |       
|                                                                                      | Interest income                                                         |                             |         | (200                      | ) |              |    |              |       
|                                                                                      | Other income (expenses)                                                 |                             |         | 43                        |   |              | (67 | )            |       
|                                                                                      | Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries |                             |         | 2,258                     |   |              |    |              |       
|Equity in losses of subsidiaries                                                      |                                                                         |                             | 4,899   |                           |   |             |     |              | (4,899
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Loss before income taxes                                                              |                                                                         |                             | (15,436 | )                         |   | (4,896       | )   |              | 4,899 
|Provision for income taxes                                                            |                                                                         |                             |        |                           |   | 3            |     |              |      
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       
|Net loss                                                                              |                                                                         | $                           | (15,436 | )                         | $ | (4,899       | )   | $            | 4,899 
|                                                                                      |                                                                         |                             |         |                           |   |              |     |              |       

---

21

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Reorganized Company

Condensed Consolidating Statement of Cash Flows

One Month Ended November 30, 2002

(In thousands, unaudited)

|                                                      |  | Archibald Candy Corporation |        | Guarantor
Subsidiaries |   | Eliminations |   | Consolidated |  
|----------------------------------------------------- |  | --------------------------- | ------ | ---------------------- | - | ------------ | - | ------------ | -
|Operating activities                                  |  |                             |        |                        |   |              |   |              |  
|Cash flows provided by (used in) operating activities |  | $                           | (1,461 | )                      | $ | 441          |   | $            | 
|Investing activities                                  |  |                             |        |                        |   |              |   |              |  
|Purchase of property and equipment                    |  |                             | (247   | )                      |   | (138         | ) |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Net cash provided by (used in) investing activities   |  |                             | (247   | )                      |   | (138         | ) |              | 
|Financing activities                                  |  |                             |        |                        |   |              |   |              |  
|Net increase in revolving line of credit              |  |                             | 5,016  |                        |   |             |   |              | 
|Cost related to loan agreements                       |  |                             | (702   | )                      |   |             |   |              | 
|Principal payment of capital lease obligations        |  |                             | (14    | )                      |   |             |   |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Net cash provided by (used in) financing activities   |  |                             | 4,300  |                        |   |             |   |              | 
|Effect of exchange rates on cash                      |  |                             |       |                        |   | 20           |   |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Net decrease in cash and cash equivalents             |  |                             | 2,592  |                        |   | 323          |   |              | 
|Cash and cash equivalents at beginning of year        |  |                             | 1,589  |                        |   | 482          |   |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Cash and cash equivalents at end of year              |  | $                           | 4,181  |                        | $ | 805          |   | $            | 
|                                                      |  |                             |        |                        |   |              |   |              |  

22

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Predecessor Company

Condensed Consolidating Statement of Cash Flows

Two Months Ended October 31, 2002

(In thousands, unaudited)

|                                                      |  | Archibald Candy Corporation |         | Guarantor Subsidiaries |   | Eliminations |   | Consolidated |  
|----------------------------------------------------- |  | --------------------------- | ------- | ---------------------- | - | ------------ | - | ------------ | -
|Operating activities                                  |  |                             |         |                        |   |              |   |              |  
|Cash flows provided by (used in) operating activities |  | $                           | (10,747 | )                      | $ | (401         | ) | $            | 
|Investing activities                                  |  |                             |         |                        |   |              |   |              |  
|Purchase of property and equipment                    |  |                             | (580    | )                      |   | (49          | ) |              | 
|                                                      |  |                             |         |                        |   |              |   |              |  
|Net cash provided by (used in) investing activities   |  |                             | (580    | )                      |   | (49          | ) |              | 
|Financing activities                                  |  |                             |         |                        |   |              |   |              |  
|Net increase in revolving line of credit              |  |                             | 10,322  |                        |   |             |   |              | 
|Costs related to loan agreements                      |  |                             | (427    | )                      |   |             |   |              | 
|                                                      |  |                             |         |                        |   |              |   |              |  
|Net cash provided by (used in) financing activities   |  |                             | 9,895   |                        |   |             |   |              | 
|Effect of exchange rates on cash                      |  |                             |        |                        |   | 97           |   |              | 
|                                                      |  |                             |         |                        |   |              |   |              |  
|Net decrease in cash and cash equivalents             |  |                             | (1,432  | )                      |   | (353         | ) |              | 
|Cash and cash equivalents at beginning of year        |  |                             | 3,021   |                        |   | 835          |   |              | 
|                                                      |  |                             |         |                        |   |              |   |              |  
|Cash and cash equivalents at end of year              |  | $                           | 1,589   |                        | $ | 482          |   | $            | 
|                                                      |  |                             |         |                        |   |              |   |              |  

23

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Predecessor Company

Condensed Consolidating Statement of Cash Flows

Three Months Ended November 24, 2001

(In thousands, unaudited)

|                                                      |  | Archibald Candy Corporation |        | Guarantor Subsidiaries |   | Eliminations |   | Consolidated |  
|----------------------------------------------------- |  | --------------------------- | ------ | ---------------------- | - | ------------ | - | ------------ | -
|Operating activities                                  |  |                             |        |                        |   |              |   |              |  
|Cash flows provided by (used in) operating activities |  | $                           | (8,564 | )                      | $ | 280          |   | $            | 
|Investing activities                                  |  |                             |        |                        |   |              |   |              |  
|Purchase of property and equipment                    |  |                             | (395   | )                      |   | (382         | ) |              | 
|Sweet Factory deconsolidation                         |  |                             |       |                        |   | (336         | ) |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Net cash provided by (used in) investing activities   |  |                             | (395   | )                      |   | (718         | ) |              | 
|Financing activities                                  |  |                             |        |                        |   |              |   |              |  
|Net increase in revolving line of credit              |  |                             | 10,194 |                        |   |             |   |              | 
|Principal payments of capital lease obligations       |  |                             | (13    | )                      |   |             |   |              | 
|Costs related to loan agreements                      |  |                             | (17    | )                      |   |             |   |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Net cash provided by (used in) financing activities   |  |                             | 10,164 |                        |   |             |   |              | 
|Effect of exchange rates on cash                      |  |                             |       |                        |   | 35           |   |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Net decrease in cash and cash equivalents             |  |                             | 1,205  |                        |   | (403         | ) |              | 
|Cash and cash equivalents at beginning of year        |  |                             | 1,116  |                        |   | 1,230        |   |              | 
|                                                      |  |                             |        |                        |   |              |   |              |  
|Cash and cash equivalents at end of year              |  | $                           | 2,321  |                        | $ | 827          |   | $            | 
|                                                      |  |                             |        |                        |   |              |   |              |  

24

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

Overview

We are a manufacturer and marketer of quality boxed chocolates and other confectionery items. We manufacture a variety of candies and operate confectionery retail
chains under the Fannie May, Fanny Farmer and Laura Secord brand names. As of November 30, 2002, we sold our products through 446 Company-operated stores and approximately 10,000 third party
retail outlets in 17 states and the District of Columbia in the United States and 9 provinces in Canada, as well as through corporate gift, mail order and fundraising programs in the
United States and Canada.

Historically,
Company-operated retail has represented the most significant distribution channel for our products, accounting for $21.9 million, or 67.0%, of net sales for the
quarterly period ended November 30, 2002. Our third-party retail and non-retail businesses collectively accounted for $10.8 million, or 33.0%, of net sales for the quarterly
period ended November 30, 2002. We are currently focusing on growing sales and earnings by building on our Fannie May, Fanny Farmer and Laura Secord brand names by increasing same store sales
and increasing points of availability for our products.

Our
costs of sales include costs associated with our manufactured products and costs associated with product purchased from third parties and resold by us. The principal elements of our
manufactured product costs are raw materials, labor and manufacturing overhead. Raw materials consist primarily of chocolate, nutmeats, sweeteners and dairy products, the overall cost of which has
remained relatively stable despite susceptibility to fluctuations for specific items. Labor costs consist primarily of hourly wages and incentives based on achieving operating efficiencies.
Manufacturing overhead generally includes employee benefits, utilities, rents and manufacturing supplies. Historically, we generally have been able to raise the prices of our products equal to or in
excess of any increases in cost of sales; however, there can be no assurance that we will be able to continue to do so in the future.

Selling,
general and administrative costs include: (1) Company-operated retail store operating costs, such as wages, rent and utilities, (2) expenses associated with
third-party retail and non-retail sales, which include catalog expenses
and direct wages and (3) general overhead expenses, which consist primarily of non-allocable wages, professional fees and administrative and management overhead.

To
facilitate a meaningful comparison of the Company's quarterly operating performance in fiscal years 2003 and 2002, the following discussion of results of operations is presented on a
traditional comparative basis for both periods. Accordingly, the results of operations for the quarter ended November 30, 2002 represents the mathematic addition of the historical amounts for
the predecessor company period, September 1 through October 31, 2002, and the reorganized company period, November 1 through November 30, 2002. Consequently, the current
year's information presented below does not comply with accounting requirements for companies upon emergence from bankruptcy which calls for separate reporting for the newly reorganized company and
the predecessor company. Management believes that a combined discussion of predecessor and reorganized company periods is reasonable and appropriate because there were no material adjustments to the
presented items (other than cost of sales, depreciation, amortization and interest expense) resulting from the adoption of fresh-start reporting.

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 us or statements made by our 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. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.

25

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Effect of Bankruptcy Filings

Archibald Illinois and Holdings

On June 12, 2002, Holdings and Archibald Illinois filed petitions with the United States Bankruptcy Court for the District of Delaware to commence a joint
voluntary bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code. While in bankruptcy, Holdings and Archibald Illinois continued to manage their properties and operate their
businesses in accordance with the applicable provisions of the Bankruptcy Code. In connection with the bankruptcy proceeding, Holdings and Archibald Illinois filed the Archibald Plan, which was
confirmed by the bankruptcy court on September 25, 2002 and became effective as of November 1, 2002. Pursuant to the Archibald Plan, (i) all of the outstanding equity interests of
Holdings and Archibald Illinois were cancelled; (ii) Holdings merged with and into Archibald Illinois; and (iii) Archibald Illinois merged with and into us. As a result, we acquired all
of the assets of Holdings and Archibald Illinois. As part of the Archibald Plan, we entered into a new $50 million term loan and revolving credit facility with Foothill Capital Corporation, as
administrative agent, to
finance our working capital and capital expenditures and to pay the costs of the reorganization. The proceeds of the credit facility also were used, in part, to pay-off the indebtedness
outstanding under Archibald Illinois' debtor-in-possession facility. In addition, pursuant to the Archibald Plan, all of the $170 million outstanding principal amount of
101/4% senior secured notes due 2004 issued by Archibald Illinois, together with the accrued and unpaid interest thereon, were cancelled and we issued $50 million of 10% secured
subordinated notes due 2007 to the holders of the cancelled notes. Also, pursuant to the Archibald Plan, in consideration of the cancellation of the claims of the holders of the cancelled notes and
the claims of certain general unsecured creditors of Archibald Illinois, we issued (or expect to issue upon completion of the Archibald Plan) to such claimants an aggregate of 276,290 shares of
our common stock, par value $.01 per share, which represents 100% of our issued and outstanding common stock.

As
a result of the effectiveness of the Archibald Plan, we have adopted "fresh-start" reporting as of November 1, 2002 and created a new reporting entity. "Fresh-start" reporting
has resulted in the recording of assets at reorganization value and liabilities at the present value of amounts to be paid.

The
Archibald Illinois reorganization has had a material impact on our liquidity. See "Liquidity and Capital Resources" for more information regarding the impact of the
Archibald Illinois reorganization on our liquidity.

Sweet Factory

On November 15, 2001, Sweet Factory Group, Inc. ("SFG") and its three subsidiaries, Sweet Factory, Inc., SF Candy Company and SF
Properties, Inc., filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware under Chapter 11 of the U.S. Bankruptcy Code. Through the bankruptcy
proceedings, the leases for 90 Sweet Factory stores were rejected and the employment of approximately 100 full-time and 400 part-time employees was terminated. On
August 6, 2002, we sold the assets of SFG and its subsidiaries for $6.6 million to RDR Group, a California corporation. The proceeds of the sale were applied to pay off the
debtor-in-possession financing provided by The CIT Group/Business Credit, Inc. ("CIT"), to pay Archibald Illinois' secured claim, to make cure payments to the landlords under
the assumed store leases, to pay administrative expenses, to make a payment to the holders of Archibald Illinois' senior secured notes due 2004 and to make a payment to SFG's unsecured creditors'
class. On October 29, 2002, we dissolved SFG and its subsidiaries.

SFG
and its subsidiaries' financial results are included in our 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 our balance sheet of this deconsolidation and use of the cost method are that: (i) our
investment in SFG is included as a single amount and (ii) our receivable from SFG is no longer eliminated. The effect on our income statement is that beginning November 15, 2001, SFG's
operating results are not included in the consolidated results. At November 15, 2001, our 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, we 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. See Note 3 "Bankruptcy FilingSweet Factory"
of the notes to the financial statements included in this report for more information regarding the SFG bankruptcy.

26

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Three Months Ended November 30, 2002 Compared to Three Months Ended November 24, 2001

Net Sales.Consolidated sales for the three months ended November 30, 2002 were $32.7 million, a decrease of
$9.7 million from $42.4 million for the three months ended November 24, 2001. The bankruptcy filing and subsequent deconsolidation of Sweet Factory and its subsidiaries accounted
for $8.9 million of the decline. Company-operated retail sales, excluding Sweet Factory, for the three months ended November 30, 2002 were $21.9 million, a decrease of
$0.6 million, or 2.7%, from $22.5 million for the three months ended November 24, 2001. Sales for the three months ended November 30, 2002 were positively impacted by the
shift of one week in the reporting calendar as a result of the 53rd week in fiscal 2002. As a result of this shift, the quarter ended one week later than the prior year, which has higher seasonal
sales. Same store sales, adjusted for the 53rd week in fiscal 2002, decreased 6.6% for Fannie May/Fanny Farmer and 5.2% (4.1% decrease in Canadian dollars) for Laura Secord, primarily due to a weak
retail environment. Sales through our third-party retail outlets and non-retail distribution channels decreased $0.2 million to $10.8 million for the three months ended
November 30, 2002, from $11.0 million for the three months ended November 24, 2001. The decrease was primarily due to lower mass market and specialty market sales, offset by
increased corporate gift sales. Mass market sales were lower due primarily to the loss of a significant customer. The specialty market channel was eliminated in fiscal 2002 upon the expiration of a
contract with Hallmark. Specialty market sales for the quarter ended November 24, 2001 were $1.1 million.

Gross Profit.Gross profit for the three months ended November 30, 2002 was $17.6 million, a decrease of
$7.3 million from $24.9 million for the three months ended November 24, 2001. Gross profit, excluding $1.0 million in the current year associated with the
write-up of inventories to fair market value for fresh-start accounting (see Note 5 to the financial statements) and $5.5 million in the prior year for Sweet Factory, for the
three months ended November 30, 2002 was $18.6 million, a decrease of $0.8 million or 4.1%, from $19.4 million for the three months ended November 24, 2001. The
decrease in gross profit dollars was primarily due to lower sales.

Selling, General and Administrative.SG&A expenses were $21.1 million for the three months ended November 30,
2002, a decrease of $8.5 million from $29.6 million for the three months ended November 24, 2001. SG&A expenses, excluding Sweet Factory, were $21.4 million for the three
months ended November 24, 2001 for a decrease of $0.3 million. This decrease was primarily due to lower healthcare costs and professional fees.

Operating Loss.Operating loss was $5.6 million for the three months ended November 30, 2002, an improvement of
$2.8 million from operating loss of $8.4 million for the three months ended November 24, 2001. Operating loss, excluding Sweet Factory, was $5.2 million for the three
months ended November 24, 2001 for a decrease of $0.4 million. This decrease was primarily due to the additional $1.0 million in cost of sales associated with the
write-up of inventories for fresh-start accounting and lower sales, offset by lower depreciation expense and intangible amortization expense of $1.2 million and lower SG&A expenses.

Interest Expense.Interest expense for the three months ended November 30, 2002 was $1.0 million, a decrease of
$3.8 million from $4.8 million for the three months ended November 24, 2001. This decrease was primarily due to no longer recording interest expense on the $170 million of
senior secured notes due 2004 issued by Archibald Illinois upon commencement of the Archibald bankruptcy proceedings on June 12, 2002 for the period of September 1, 2002 to
October 31, 2002. In addition, for the period of November 1, 2002 to November 30, 2002, interest was accrued at a rate of 10% on the newly issued $50 million secured
subordinated notes as compared to 101/4% on $170 million of senior notes last year for a savings of approximately $1.1 million. On an annual basis, interest expense has
been reduced by $12.4 million.

Other (Income) and Expenses.Included in other income in the current year is the gain of $124.9 million associated
with the debt discharge in connection with the reorganization. Included in other expenses in the prior year is a charge of $2.3 million associated with SFG's bankruptcy and the net
write-off (for financial reporting purposes) of a $19.4 million receivable due from SFG and subsidiaries, after first offsetting $17.1 million of that write-off
against our negative investment balance in SFG and subsidiaries.

Reorganization Costs.On June 12, 2002, our predecessor companies, Archibald Illinois and Holdings, filed petitions in
the United States Bankruptcy Court for the District of Delaware to commence a consolidated voluntary bankruptcy proceeding under Chapter 11 of the United States Bankruptcy Code. In connection
with these proceedings, we incurred $1.7 million in professional fees and other expenses for the three months ended November 30, 2002. Although we have emerged from Chapter 11
bankruptcy, reorganization costs are still being

27

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incurred related primarily to professional fees associated with the establishing of a new corporate structure and resolving all claims filed against Archibald Illinois.

EBITDA.Earnings before interest, income taxes, depreciation and amortization, excluding the effect of the nonrecurring cost
of sales of $1.0 million, reorganization costs of $1.7 million and the gain on debt discharge of $124.9 million, was a loss of $2.6 million for the three months ended
November 30, 2002 as compared to a loss of $2.1 million for the three months ended November 24, 2001, excluding the Sweet Factory EBITDA loss of $2.7 million and the effect
of the deconsolidation of Sweet Factory of $2.3 million. The decrease was due primarily to the lower sales offset by the decrease in SG&A expenses.

Net Income (Loss).Net income for the three months ended November 30, 2002 was $116.7 million, as compared to a
loss of $15.4 million for the three months ended November 24, 2001.

Liquidity and Capital Resources

Operating Activities

The Archibald Illinois reorganization and the SFG bankruptcy and sale have had a material impact on our liquidity. As a result of the Archibald Plan effective as
of November 1, 2002, $170.0 million in principal of Archibald Illinois' 101/4% senior secured notes due 2004 has been extinguished and we have issued and have outstanding
$50.0 million of 10% secured subordinated notes due 2007. We expect this will generate annual interest savings of approximately $12.4 million. In addition, approximately
$13.5 million in mandatory redemption payments that were owed by Holdings on its senior preferred stock have been eliminated and approximately $23.3 million in mandatory redemption
payments that would have been owed by Holdings on its junior preferred stock in March 2006 also have been eliminated. We have also terminated unprofitable store leases and renegotiated certain
leases and contracts with favorable terms, which we expect will generate annual savings of approximately $0.2 million. The cash costs of the Archibald Illinois reorganization are expected to
total approximately $7.0 million.

Our
liquidity requirements have arisen principally from the Archibald Illinois and Sweet Factory reorganizations and from various capital expenditures, seasonal and general working
capital requirements and debt service obligations. We have satisfied these requirements during the past three fiscal years primarily with (1) term and revolver borrowings and (2) cash
generated by operating activities.

Net
cash used in operating activities was $12.2 million for the three months ended November 30, 2002 compared to $8.3 million for the three months ended
November 24, 2001. The decrease in net cash provided by operating activities for the three months ended November 30, 2002 was due primarily to lower accounts payable and accrued
liabilities increase offset by lower interest expense associated with the reorganization.

Investing Activities

Net cash used in investing activities was $1.0 million for the three months ended November 30, 2002 compared to $1.1 million for the three
months ended November 24, 2002.

Financing Activities

CIT Facility

On June 28, 2001, our predecessor company Archibald Illinois and its subsidiary, Sweet Factory Inc. ("Sweet Factory"), entered into a revolving credit
facility with CIT, as agent (the "CIT Facility"). The initial borrowings under the CIT Facility were used, in part, to pay all outstanding obligations under Archibald Illinois' revolving credit
facility with Bank One, NA, as agent, which facility was then terminated. The CIT Facility provided for revolving loans and letter of credit issuances, subject to certain borrowing conditions, in an
aggregate amount at any time not to exceed the lesser of (1) $30.0 million (or specified lower amounts at certain times of the year) and (2) a borrowing base comprised of a
percentage of eligible accounts receivable and inventory and owned store locations.

The
CIT Facility was secured by first priority liens on Archibald Illinois' and Sweet Factory's accounts receivable, and inventory, and the Company-owned store locations, and the
proceeds therefrom. The subsidiaries of Archibald Illinois and SFG, including Archibald Canada, guaranteed all obligations under the CIT Facility and granted to the agent under the CIT Facility a
first priority lien on their accounts receivable, inventory, and the

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proceeds therefrom. In addition, Holdings guaranteed all obligations under the CIT Facility and granted to CIT a first priority lien on all of its assets, including all the outstanding shares of
common stock of Archibald Illinois.

As
of June 14, 2002, there was an aggregate of $13.9 million outstanding under the CIT Facility. On June 14, 2002, proceeds from borrowings under the Archibald DIP
Credit Facility (defined below) were used to pay all outstanding obligations under the CIT Facility and the CIT Facility was then terminated.

Sweet Factory DIP Credit Facility

In connection with the Sweet Factory Bankruptcy, on November 15, 2001, CIT and Sweet Factory entered into a post-petition credit, security and
guaranty agreement (the "SF DIP Credit Facility"). Archibald Illinois, Holdings and Archibald Canada and SFG's other subsidiaries guaranteed all obligations of Sweet Factory under the SF DIP Credit
Facility. The guaranty by Archibald Illinois was secured by a $1.0 million cash collateral account held by CIT. The SF DIP Credit Facility was for one year and provided 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's eligible inventory plus a $1.0 million
overadvance, subject to certain reserves.

As
of August 6, 2002, an aggregate of $0.5 million of revolving loans were outstanding under the SF DIP Credit Facility. Proceeds from the August 6, 2002 sale of
assets of SFG and its subsidiaries were used to pay all outstanding obligations under the SF DIP Credit Facility and the $1.0 million cash collateral account held by CIT as security for the
Archibald Illinois guaranty was released. The SF DIP Facility was then terminated.

Archibald DIP Credit Facility

In connection with the Archibald Illinois Reorganization, on June 14, 2002, Archibald Illinois entered into a post-petition loan and security
agreement and guaranty (the "Archibald DIP Credit Facility") with Foothill Capital Corporation, as the arranger and administrative agent, the lenders party thereto and Holdings and Archibald Canada,
as guarantors. Under the Archibald DIP Credit Facility, the lenders agreed to make available to Archibald Illinois (a) a $25.0 million revolving credit facility, pursuant to which
Archibald Illinois could borrow up to the lesser of (i) $25.0 million and (ii) a borrowing base comprised of certain percentages of eligible accounts receivable and inventory,
subject to certain reserves, and (b) an aggregate of $20.0 million in term loans. Initial borrowings under the Archibald DIP Credit Facility were used to pay-off in full the
CIT Facility.

As
of November 1, 2002, an aggregate of $30.3 million was outstanding under the Archibald DIP Credit Facility. In connection with the Archibald Plan effective
November 1, 2002, all outstanding amounts under the Archibald DIP Credit Facility were repaid in full from proceeds of the initial borrowings under our New Credit Facility (defined below) and
the Archibald DIP Credit Facility was terminated.

New Credit Facility

On November 1, 2002, we entered into a loan and security agreement and guaranty with the financial institutions signatory thereto and Foothill Capital
Corporation ("Foothill"), as administrative agent (the "New Credit Facility"). The New Credit Facility was extended to us in connection with our emergence from bankruptcy and replaced the financing
provided pursuant to the Archibald DIP Credit Facility, which was terminated pursuant to the Archibald Plan.

The
New Credit Facility provides up to $50 million in credit, which is comprised of a revolving loan facility, a term loan A, a term loan B and letter of credit issuances. Under
the revolving loan facility, we may, subject to certain borrowing conditions, incur revolving loans in an amount up to the lesser of (1) $30.0 million and (2) a borrowing base
comprised of a percentage of eligible accounts receivable and eligible inventory, which borrowing base components are subject to certain limits, minus a reserve of $2.5 million (as such amount
may be reduced in accordance with the provisions of the loan agreement) and minus certain additional reserves which may from time to time be imposed by Foothill. Revolving loans are due and payable in
full on November 1, 2005 (the "Maturity Date").

Subject
to certain conditions, the term loan A will be made available to us from July 1 through December 31 of each calendar year, with any outstanding obligations under
such term loan to be repaid in full on December 31 of each year. Subject to any applicable reserves, in 2002, term loan A shall not exceed the lesser of (1) $10.0 million and
(2) a specified percentage of the value of our equipment and real property. In 2003, term loan A shall not exceed the lesser of (1) $9.0 million and (2) a specified
percentage of the value of our equipment and real property. In 2004, term loan A shall not exceed the lesser of (1) $7.0 million and (2) a specified

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percentage of the value of our equipment and real property and between July 1, 2005 and the Maturity Date, term loan A shall not exceed $5.0 million. In addition to the term loan A, on
November 1, 2002, term loan B was extended to us in an amount equal to $10.0 million. The outstanding principal amount of term loan B is due and payable in full on the Maturity Date;
provided, that if at any time the outstanding principal amount of term loan B shall be less than $5.0 million as a result of mandatory or voluntary prepayments, the remaining amount of term
loan B shall be immediately due and payable (subject to certain exceptions).

The
New Credit Facility provides the various interest rates which are applicable to the revolving loans and term loans thereunder. At our election, revolving loan advances will bear
interest at either (a) a variable per annum rate equal to the "prime rate" announced from time to time by Wells Fargo Bank, National Association (the "Prime Rate"), plus 0.50% or (b) a
variable per annum rate equal to the "LIBOR" rate determined by Foothill in accordance with its customary procedures, plus 2.75%. Term loan A bears interest at the Prime Rate, plus 2.0%. Term loan B
bears interest at a per annum rate equal to (A) the greater of (x) the Prime Rate plus 3.0% and (y) 7.75%, plus (B) 4.75% (the "PIK Amount"), which PIK Amount shall be paid
in kind by being added to the principal amount of term loan B. The PIK Amount is subject to reduction in calendar year 2003 if there shall not exist any default or event of default under the New
Credit Facility.

The
New Credit Facility is secured by first priority liens on all of our assets and all of the proceeds therefrom. Our wholly-owned subsidiaries, Laura Secord Holdings Corp. and
Archibald Canada (together, the "Guarantor Subsidiaries") have guaranteed all of our obligations under the New Credit Facility and granted a first priority lien in all of their respective assets and
the proceeds therefrom as security for such guarantees.

The
New Credit Facility contains various business and financial covenants including, among other things, limitations on dividends, redemptions and repurchases of capital stock,
limitations on the incurrence of and payments in respect of indebtedness, limitations on asset dispositions, limitations on capital expenditures and requirements to maintain of certain targeted EBITDA
amounts. The New Credit Facility also requires us to make prepayments of the loans in certain circumstances, including, among other things, from our excess cash flow, as defined, and from proceeds of
certain asset sales, insurance and condemnation proceeds (unless we are permitted to repair or replace the applicable collateral as provided in the loan agreement), and in the event that certain
financial tests are not met. These loan restrictions could restrict corporate activities, including our ability to respond to market conditions, to provide for unanticipated capital expenditures or to
take advantage of business opportunities.

Based
on our performance during the December holidays, it is unlikely we will satisfy the EBITDA covenant of the New Credit Facility for the second fiscal quarter of 2003. We have begun
discussions with Foothill regarding a waiver or amendment of this potential default. However, there can be no assurance that we will be successful in negotiating such a waiver or amendment.

Secured Subordinated Notes

In connection with the Archibald Plan, concurrently with the execution and delivery of the New Credit Facility, pursuant to an Indenture dated November 1,
2002 (the "Indenture") between us, the Guarantor Subsidiaries and BNY Midwest Trust Company, as trustee (the "Trustee"), we issued $50.0 million in aggregate principal amount of our 10% Secured
Subordinated Notes due 2007 (the "Notes") in a transaction exempt from registration under the Securities Act of 1933, as amended. The Notes were issued in replacement of those certain
101/4% senior secured notes totaling $170.0 million due 2004 issued by Archibald Illinois pursuant to the Indenture dated July 2, 1997 (as amended and supplemented)
between Archibald Illinois and The Bank of New York, as trustee, which indenture (and the notes issued thereunder) was terminated pursuant to the Archibald Plan.

Interest
is payable under the Notes at the rate of 10% per annum and interest payments are to be made semi-annually on January 1 and July 1 of each year, and on
the maturity date, commencing on January 1, 2003. On or prior to November 1, 2005, we may elect, in the judgment of our Board of Directors, to make all or a portion of each such interest
payment in cash or by issuing new promissory notes (each a "PIK Note") with a principal amount, in each case, equal to the amount of interest that each holder of a Note was due on the interest payment
date and which we have elected to pay by issuance of the PIK Note; provided, however, unless certain conditions are satisfied, the New Credit Facility requires that interest accrued under the Notes be
paid by the issuance of PIK Notes. The interest payment due on January 1, 2003 will be made in the form of PIK Notes.

The
Notes are secured by a second priority lien on all of our assets and all of the proceeds therefrom. The Guarantor Subsidiaries have guaranteed all of our obligations under the
Indenture (including the Notes) and

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granted a second priority lien in all of their respective assets and the proceeds therefrom as security for such guarantees. The liens in favor of the Trustee are subordinate to the liens granted by
us and the Guarantor Subsidiaries in favor of Foothill under the New Credit Facility. The manner and terms under which the liens granted to the Trustee under the Indenture are subordinated to the
liens in favor of Foothill under the New Credit Facility are as set forth in the Indenture.

The
Indenture contains various business covenants including, among other things, limitations on dividends, redemptions and repurchases of capital stock, limitations on the incurrence of
indebtedness and limitations on asset dispositions. The Indenture also requires us to make an offer to repurchase Notes in certain circumstances, including, among other things, to the extent net cash
proceeds from asset sales exceed a certain threshold amount (but only to the extent such proceeds are not reinvested or used to repay certain other indebtedness). These restrictions could restrict
corporate activities, including our ability to respond to market conditions, to provide for unanticipated capital expenditures or to take advantage of business opportunities.

Critical Accounting Policies and Estimates

Financial Reporting Release No. 60, issued by the Securities and Exchange Commission, requires all registrants to discuss "critical" accounting policies or
methods used in the preparation of financial statements. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations, and
require management's most difficult, subjective or complex judgments, as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Inventories.Inventories are stated at the lower of cost or market. Inventories are valued primarily at either average or
first in, first out (FIFO) cost. Supply inventories are relieved monthly based on an estimated gross margin and adjusted to actual upon the taking of an annual physical inventory at the end of July.
In fiscal 2002, we recorded a reserve for supply inventories of approximately $3.0 million. This reserve relates primarily to the discontinuance of certain product lines for which we had unique
packaging, and other slow-moving and obsolete packaging and supply inventories. We will write-off those items which are deemed obsolete and periodically monitor the inventories
for other potential slow moving and obsolete items.

Inflation

Inflationary factors such as increases in the costs of ingredients, purchased product, labor and corporate overhead may adversely affect our operating profit. In
addition, store operating costs, including most of our retail store leases which require us to pay additional rent based on a percentage of sales as well as taxes, insurance and maintenance expenses,
are subject to inflation. Although our recent results have not been significantly affected by inflation, there can be no assurance that a high rate of inflation in the future would not have an adverse
effect on our operating results.

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ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

Our operations are not currently subject to market risks of a material nature for interest risks, foreign currency rates, commodity prices or other market price
risks. During fiscal year 2003, we have experienced an increase in the cost of chocolate, our largest raw material, as a result of higher cocoa bean prices, which has been influenced by events in the
Ivory Coast.

The
following is a chart of our cash contractual obligations (in thousands) as of November 30, 2002:

|                                   |  |   |         | Payments Due by Period
|---------------------------------- |  | - | ------- | ----------------------
|
|Secured subordinated notes         |  | $ | 75,000  |                       
|Revolving line of credit           |  |   | 25,338  |                       
|Term loan agreement                |  |   | 10,000  |                       
|Capital lease obligations          |  |   | 147     |                       
|Operating leases                   |  |   | 40,273  |                       
|                                   |  |   |         |                       
|Total contractual cash obligations |  | $ | 150,758 |                       
|                                   |  |   |         |                       

ITEM 4CONTROLS AND PROCEDURES

Evaluation
of disclosure controls and procedures

Based
on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, our president, chief executive officer and
secretary and our vice president, chief financial officer, treasurer and assistant secretary have concluded that our disclosure controls and procedures are designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms
and are operating in an effective manner.

Changes
in internal controls

There
have been no significant changes in our internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their most recent
evaluation.

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PART IIOTHER INFORMATION

ITEM 1LEGAL PROCEEDINGS

On June 12, 2002, our predecessor companies, Archibald Illinois and Holdings, filed voluntary petitions in the United States Bankruptcy Court for the
District of Delaware for protection under Chapter 11 of the Bankruptcy Code.

On
November 15, 2001, SFG and its subsidiaries, all of which were wholly owned subsidiaries of Archibald Illinois, filed voluntary petitions in the United States Bankruptcy Court
for the District of Delaware for protection under Chapter 11 of the Bankruptcy Code.

From
time to time, we are involved in routine litigation incidental to our business. We are not a party to any pending or threatened legal proceeding which we believe would have a
material adverse effect on our results of operations or financial condition. Also, except as otherwise discussed above, we were not a party to any such legal proceeding that terminated during the
first quarter of fiscal 2003.

ITEM 2CHANGES IN SECURITIES AND USE OF PROCEEDS

Prior to November 1, 2002, Archibald Illinois had 4,210 issued and outstanding shares of common stock, par value $.01, all of which were owned by Holdings.
Prior to November 1, 2002, Holdings had four classes of authorized common stock. There were seven holders of record of Holdings' Class A common stock, no outstanding shares of Holdings'
Class B common stock, twelve holders of record of Holdings' Class C common stock and one holder of record of Holdings' Class D common stock. There was no established trading
market for Archibald Illinois' or Holdings' common stock.

In
connection with the Archibald Plan effective November 1, 2002, Holdings merged with and into Archibald Illinois and Archibald Illinois merged with and into us. Under the terms
of the Archibald Plan, in exchange for extinguishing certain claims against Archibald Illinois and Holdings, we issued to the holders of Archibald Illinois' 101/4% senior secured notes
due 2004 (and, upon completion of the Archibald Plan, we expect to issue to certain general unsecured creditors of Archibald Illinois) an aggregate of 276,290 shares of our common stock, par
value $.01 per share, which represents 100% of our issued and outstanding common stock. As of November 1, 2002, our common stock was held by 31 participants of The Depository Trust Company
System. The issuance of shares of our common stock pursuant to the Archibald Plan was exempt from registration under the Securities Act of 1933, as amended, as a result of the exemption set forth in
Section 1145(a)(1) of the Bankruptcy Code. No person acted as an underwriter of the shares of common stock and except for the extinguishment of claims, we did not receive any cash proceeds or
other cash consideration from the issuance of such common stock. There is no established public trading market for our common stock.

ITEM 3DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On or about August 14, 2002, Robert L. Berger & Associates, Archibald Illinois' balloting agent, sent to all of Archibald Illinois' creditors,
including the holders of Archibald Illinois' 101/4% senior notes due 2004, a solicitation package for voting on the Archibald Plan pursuant to which each creditor could vote to either
reject or accept the Archibald Plan. The deadline for voting on the Archibald Plan was September 16, 2002. As of the deadline, forty-six ballots were received from the creditors. Of
those ballots, 100% (totaling $91,780,000 in dollar amount) were cast in favor of the Archibald Plan.

ITEM 5OTHER INFORMATION

None.

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ITEM 6EXHIBITS AND REPORTS ON FORM 8-K

|Exhibit
Number |  | Description of Exhibit       
|-------------- |  | -----------------------------
|99.1           |  | Section 906 CEO Certification
|99.2           |  | Section 906 CFO Certification

The
following reports on Form 8-K were filed during the fiscal quarter ended November 30, 2002:

Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereto duly authorized, on January 21, 2003.

| | ARCHIBALD CANDY CORPORATION
| | ---------------------------
| | By:                        

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Certifications

I,
Ted A. Shepherd, certify that:

1.    I
have reviewed this quarterly report on Form 10-Q of Archibald Candy Corporation;

2.    Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date: January 21, 2003 |  | /s/TED A. SHEPHERDTed A. ShepherdPresident, Chief Executive Officer and Secretary
|---------------------- |  | ---------------------------------------------------------------------------------

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Certifications

I,
Richard J. Anglin, certify that:

1.    I
have reviewed this quarterly report on Form 10-Q of Archibald Candy Corporation;

2.    Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date: January 21, 2003 |  | /s/RICHARD J. ANGLINRichard J. AnglinVice President, Chief Financial Officer, Treasurer and Assistant Secretary
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------

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