UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[ X ]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

For the Quarterly Period Ended:     July 4, 1998

                                                        or

[    ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934

For the Transition Period from       to

Commission File Number:    333-45179


                       MRS. FIELDS' ORIGINAL COOKIES, INC.
               (Exact name of registrant specified in its charter)

        DELAWARE                                           87-0552899
----------------------------                    -------------------------------
(State or other jurisdiction of                (IRS employer identification no.)
incorporation or organization)


2855 East Cottonwood Parkway, Suite 400
        Salt Lake City, Utah                               84121-7050
---------------------------------------         --------------------------------
(Address of principal executive offices)                   (Zip Code)


                                 (801) 736-5600
              ---------------------------------------------------
              (Registrant's telephone number, including area code)


 --------------------------------------------------------------------- 
 (Former name, former address and former fiscal year, if changed since 
  last report)

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  preceeding 12 months (or for such shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

 X  yes        no

The Company had 400 shares of common stock outstanding at August 17, 1998.



<PAGE>




              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES


                                TABLE OF CONTENTS


PART I.   FINANCIAL INFORMATION


Item 1.   Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of July 4, 1998 and January 3, 1998...3

Condensed Consolidated Statements of Operations for the thirteen weeks
   ended July 4, 1998 and June 28, 1997........................................5

Condensed Consolidated Statements of Operations for the twenty six weeks
   ended July 4, 1998 and June 28, 1997........................................6

Condensed Consolidated Statements of Cash Flows for the twenty six weeks
   ended July 4, 1998 and June 28, 1997........................................7

Notes to Condensed Consolidated Financial Statements...........................8


Item 2.   Management's Discussion and Analysis of Financial Condition and 
          Results of Operations...............................................18


PART II.   OTHER INFORMATION

Item 1.   Legal Proceedings...................................................28

Item 5.   Other Information...................................................28

Item 6.   Exhibits and Reports on Form 8-K....................................28



<PAGE>



                                          PART I - FINANCIAL INFORMATION

ITEM 1.    Financial Statements
                                                                    

              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                          July 4,            January 3,
                                                                                           1998                 1998
                                                                                          -------            ----------
                                                                                                 (Unaudited)
<S>                                                                                    <C>                 <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                          $    8,266          $    16,287
    Accounts receivable, net of allowance for doubtful accounts of $166 and $32,
       respectively                                                                         1,148                1,535
    Amounts due from franchisees and licensees, net of allowance for doubtful
       accounts of $417 and $582, respectively                                              1,995                2,176
    Inventories                                                                             2,860                3,100
    Prepaid rent and other                                                                  2,437                2,960
    Deferred income tax assets, current portion                                             2,765                2,765
                                                                                      -----------          -----------

                Total current assets                                                       19,471               28,823
                                                                                       ----------           ----------

PROPERTY AND EQUIPMENT, at cost:
    Leasehold improvements                                                                 21,622               21,099
    Equipment and fixtures                                                                 14,862               14,100
    Land                                                                                      128                  128
                                                                                       ----------         ------------
                                                                                           36,612               35,327
    Less accumulated depreciation and amortization                                         (7,628)              (6,125)
                                                                                       ----------          -----------

                Net property and equipment                                                 28,984               29,202
                                                                                       ----------           ----------

DEFERRED INCOME TAX ASSETS, net of current portion                                            734                  734
                                                                                       ----------         ------------

GOODWILL, net of accumulated amortization of $7,376 and $4,980, respectively
                                                                                           67,037               68,501
                                                                                        ---------           ----------

TRADEMARKS AND OTHER INTANGIBLES, net of accumulated amortization of $1,962 and
    $1,409, respectively                                                                   14,640               15,193
                                                                                        ---------           ----------

DEFERRED LOAN COSTS, net of accumulated amortization of $498 and
    $70, respectively                                                                       5,478                5,906
                                                                                      -----------          -----------

OTHER ASSETS                                                                                1,064                1,325
                                                                                      -----------          -----------

                                                                                         $137,408             $149,684
                                                                                      ===========          ===========
</TABLE>






                The accompanying notes to condensed consolidated
                  financial statements are an integral part of
                  these condensed consolidated balance sheets.

<PAGE>

                                                                 
              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
                  (dollars in thousands, except per share data)

                      LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>

                                                                                    July 4,             January 3,
                                                                                     1998                  1998
                                                                                   ---------            ----------
                                                                                            (Unaudited)
<S>                                                                              <C>                    <C>
CURRENT LIABILITIES:
    Current portion of long-term debt                                             $       422            $     472
    Current portion of capital lease obligations                                          180                  142
    Accounts payable                                                                    2,854                3,805
    Accrued liabilities                                                                 1,182                2,826
    Current portion of store closure reserve                                            2,507                3,664
    Accrued salaries, wages and benefits                                                1,923                1,891
    Accrued interest payable                                                              911                1,082
    Sales taxes payable                                                                   375                  937
    Deferred credits                                                                      273                  871
                                                                                 ------------           ----------

              Total current liabilities                                                10,627               15,690

LONG-TERM DEBT, net of current portion                                                100,069              100,284

STORE CLOSURE RESERVE, net of current portion                                           1,802                1,802

CAPITAL LEASE OBLIGATIONS, net of current portion                                         144                  183
                                                                                 ------------         ------------

              Total liabilities                                                       112,642              117,959
                                                                                 ------------         ------------

MANDATORILY  REDEEMABLE  CUMULATIVE  PREFERRED  STOCK of PTI (a  majority  owned
    subsidiary), aggregate liquidation preference of $1,466 and $1,437,
    respectively                                                                        1,081                  902
                                                                                  -----------          -----------

MINORITY INTEREST                                                                         221                   58
                                                                                 ------------          -----------

STOCKHOLDER'S EQUITY:
    Common stock, $.01 par value; 1,000 shares authorized and 400 shares
       outstanding                                                                        -                    -
    Additional paid-in capital                                                         30,843               30,843
    Accumulated deficit                                                                (7,379)                 (78)
                                                                                   ----------           ----------

              Total stockholder's equity                                               23,464               30,765
                                                                                   ----------           ----------

                                                                                     $137,408             $149,684
                                                                                   ==========           ==========
</TABLE>







                The accompanying notes to condensed consolidated
               financial statements are an integral part of these
                     condensed consolidated balance sheets.

<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                                                  Thirteen Weeks Ended       Thirteen Weeks Ended
                                                                                      July 4, 1998              June 28, 1997
                                                                                      ------------              -------------
                                                                                                   (Unaudited)
<S>                                                                                  <C>                             <C>
REVENUES:
    Net store sales                                                                      $28,102                      $26,197
    Franchising, net                                                                       1,092                          623
    Licensing, net                                                                           432                          379
    Other, net                                                                               415                          128
                                                                                      ----------                   ----------

       Total revenues                                                                     30,041                       27,327
                                                                                        --------                     --------

OPERATING COSTS AND EXPENSES:
    Selling and store occupancy costs                                                     16,854                       15,207
    Food cost of sales                                                                     6,618                        6,293
    General and administrative                                                             4,116                        3,605
    Depreciation and amortization                                                          3,316                        2,151
                                                                                       ---------                    ---------

       Total operating costs and expenses                                                 30,904                       27,256
                                                                                        --------                     --------

          (Loss) income from operations                                                     (863)                          71
                                                                                        ---------                    --------

OTHER INCOME (EXPENSE), net:
    Interest expense                                                                      (2,870)                      (1,546)
    Interest income                                                                          241                           20
    Other expense                                                                           (131)                         (10)
                                                                                        ---------                    ---------

       Total other income (expense), net                                                  (2,760)                      (1,536)
                                                                                         --------                    ---------

          Loss before provision for income taxes                                          (3,623)                      (1,465)

PROVISION FOR INCOME TAXES                                                                    (4)                         (94)
                                                                                        ---------                    ---------

          Loss before preferred stock accretion, dividends of subsidiaries
              and minority interest                                                       (3,627)                      (1,559)

PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES
                                                                                            (111)                         (93)

MINORITY INTEREST                                                                           (154)                           -
                                                                                        ---------                    ---------

          Net loss                                                                       $(3,892)                    $ (1,652)
                                                                                        =========                    =========
</TABLE>






                The accompanying notes to condensed consolidated
               financial statements are an integral part of these
                       condensed consolidated statements.

<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                                                 Twenty Six Weeks Ended    Twenty Six Weeks Ended
                                                                                      July 4, 1998              June 28, 1997
                                                                                      ------------              -------------
                                                                                                    (Unaudited)
<S>                                                                                  <C>                           <C>
REVENUES:
    Net store sales                                                                      $56,647                      $53,839
    Franchising, net                                                                       2,213                        1,368
    Licensing, net                                                                           683                          818
    Other, net                                                                               583                          213
                                                                                        --------                     --------

       Total revenues                                                                     60,126                       56,238
                                                                                        --------                     --------

OPERATING COSTS AND EXPENSES:
    Selling and store occupancy costs                                                     33,908                       31,298
    Food cost of sales                                                                    13,359                       12,990
    General and administrative                                                             8,198                        7,303
    Depreciation and amortization                                                          6,197                        4,223
                                                                                        --------                     --------

       Total operating costs and expenses                                                 61,662                       55,814
                                                                                        --------                     --------

          (Loss) income from operations                                                   (1,536)                         424
                                                                                        ---------                    --------

OTHER INCOME (EXPENSE), net:
    Interest expense                                                                      (5,626)                      (3,091)
    Interest income                                                                          417                          128
    Other expense                                                                           (144)                         (10)
                                                                                        ---------                    ---------

       Total other income (expense), net                                                  (5,353)                      (2,973)
                                                                                        ---------                    ---------

          Loss before provision for income taxes                                          (6,889)                      (2,549)

PROVISION FOR INCOME TAXES                                                                   (14)                        (144)
                                                                                        --------                     ---------

          Loss before preferred stock accretion, dividends of subsidiaries
              and minority interest                                                       (6,903)                      (2,693)

PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES
                                                                                            (222)                        (182)

MINORITY INTEREST                                                                           (176)                           -
                                                                                        ---------                    ---------

          Net loss                                                                       $(7,301)                    $ (2,875)
                                                                                        =========                    =========
</TABLE>






                The accompanying notes to condensed consolidated
               financial statements are an integral part of these
                       condensed consolidated statements.


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                                                 Twenty Six Weeks     Twenty Six Weeks Ended
                                                                                Ended July 4, 1998         June 28, 1997
                                                                                ------------------    ----------------------
                                                                                              (Unaudited)
<S>                                                                               <C>                           <C>
Increase (Decrease) in Cash and Cash Equivalents

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                          $  (7,301)                $ (2,875)
   Adjustments to reconcile net loss to net cash used in
     operating activities, net of effects from acquisitions:
         Depreciation and amortization                                                   6,197                    4,223
         Amortization of deferred loan costs                                               427                        -
         Loss on sale of assets                                                            144                        -
         In-kind interest expense on note payable to stockholder                             -                      182
         Preferred stock accretion and dividends of subsidiaries                           222                      182
         Minority interest                                                                 176                        -
         Changes in assets and liabilities, net of effects from acquisitions:
               Accounts receivable                                                         387                      150
               Amounts due from franchisees and licensees                                  181                      318
               Inventories                                                                 240                      (63)
               Prepaid rent and other                                                      523                    1,216
               Other assets                                                                261                      177
               Accounts payable and accrued liabilities                                 (2,518)                  (4,048)
               Store closure reserve                                                      (946)                  (1,107)
               Accrued salaries, wages and benefits                                         32                     (537)
               Accrued interest payable                                                   (171)                     706
               Sales taxes payable                                                        (562)                    (302)
               Deferred income                                                            (598)                     (58)
                                                                                       --------               ----------
                  Net cash used in operating activities                                 (3,306)                  (1,836)
                                                                                       --------               ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Net cash paid for acquisition expenses                                               (928)                       -
    Purchase of property and equipment, net of effects from acquisitions                (3,342)                  (2,268)
                                                                                       --------               ----------
                  Net cash used in investing activities                                 (4,270)                  (2,268)
                                                                                       --------               ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Borrowings on line of credit                                                             -                      400
    Principal payments on long-term debt                                                  (265)                     (56)
    Principal payments on capital lease obligations                                       (138)                       -
    Reduction in preferred stock                                                           (42)                       -
                                                                                       --------               ---------
                  Net cash (used in) provided by financing activities                     (445)                     344
                                                                                       --------               ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                               (8,021)                  (3,760)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                    16,287                    6,709
                                                                                       -------                 --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                         $ 8,266                 $  2,949
                                                                                       =======                 ========

</TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for  interest was  approximately  $5,370 and $1,704 for the twenty six
  weeks ended July 4, 1998 and June 28, 1997, respectively.


                       The accompanying notes to condensed
                    consolidated financial statements are an
            integral part of these condensed consolidated statements.


<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(1)      DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation,  is
a wholly owned subsidiary of Mrs.  Fields' Holding  Company,  Inc. ("MFH" or the
"Parent").  MFH is a majority owned  subsidiary of Capricorn  Investors II, L.P.
("Capricorn"). The Company has five wholly owned subsidiaries;  namely, The Mrs.
Fields' Brand,  Inc.  ("MFB"),  Mrs.  Fields' Cookies  Australia,  Mrs.  Fields'
Cookies  (Canada)  Ltd.,  H & M  Canada,  and  Fairfield  Foods,  Inc.  and four
partially owned subsidiaries, the largest of which is Pretzel Time, Inc. ("PTI")
of which the Company owns 70 percent of the common stock.

The Company  primarily  operates retail stores which sell freshly baked cookies,
brownies, pretzels and other food products through four specialty retail chains.
As of July 4, 1998,  the Company  owned and operated 142 "Mrs.  Fields  Cookies"
stores,  141 "Original Cookie Company" stores,  92 "Hot Sam Pretzels" stores and
95  "Pretzel  Time"  stores,  all of which are  located  in the  United  States.
Additionally,  the Company has  franchised  or licensed 470 stores in the United
States  and 84 stores in 12 other  countries.  As of July 4, 1998,  the  Company
operated  365 core stores and  operated  105 stores  which are in the process of
being closed or franchised.  All of the stores in the process of being closed or
franchised  are  expected to be closed or  franchised  by the end of fiscal year
1999.

The Company's  business  follows seasonal trends and is also affected by climate
and weather  conditions.  The Company  experiences  its highest  revenues in the
fourth  quarter.  Because  the  Company's  stores are  heavily  concentrated  in
shopping malls, the Company's sales  performance is  significantly  dependent on
the performance of those malls.


Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared  by the Company in  accordance  with the rules and  regulations  of the
Securities  and  Exchange  Commission  for Form 10-Q,  and  accordingly,  do not
include all of the  information  and  footnotes  required by generally  accepted
accounting  principles.  In  the  opinion  of  management,   these  consolidated
financial  statements  reflect all  adjustments,  which  consist  only of normal
recurring  adjustments,  which are  necessary  to present  fairly the  Company's
financial position,  results of operations and cash flows as of July 4, 1998 and
for  the  periods  presented  herein.  These  unaudited  condensed  consolidated
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial  statements  and notes thereto  included in the  Company's  previously
filed Registration Statement on Form S-4, as amended.

The  results of  operations  for the twenty six weeks ended July 4, 1998 are not
necessarily  indicative of the results that may be expected for the remainder of
the fiscal year ending January 2, 1999. Earnings per share is not presented,  as
the Company is wholly owned by MFH.


(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncement

During  the 26 weeks  ended July 4,  1998,  the  Company  adopted  Statement  of
Financial  Accounting  Standards  ("SFAS")  No.  130,  "Reporting  Comprehensive
Income.".  SFAS No. 130 requires an  "all-inclusive"  income statement  approach
which specifies that all revenues,  expenses, gains and losses recognized during
the period be reported in income,  regardless of whether they are  considered to
be results of operations of the period. The adoption of SFAS No.
130 had no material impact on the Company's financial statement presentation.

<PAGE>




(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reclassifications

Certain  reclassifications  have been made in the  prior  period's  consolidated
financial statements to conform with the current year presentation.


(3)   PRO FORMA RESULTS OF OPERATIONS

The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company  assuming the PTI and H&M  acquisitions had
occurred at the  beginning of the fiscal year ended  Janaury 3, 1998.  Pro forma
adjustments have been made to give effect to amortization of goodwill,  interest
expense on acquisition debt and certain other adjustments. The pro forma results
have been  prepared  for  comparative  purposes  only and do not  purport  to be
indicative of the results of operations  which  actually would have resulted had
the  acquisitions  been  consummated  at the  beginning of the fiscal year ended
January 3, 1998.

<TABLE>
<CAPTION>

                                    13 Weeks Ended      13 Weeks Ended      26 Weeks Ended     26 Weeks Ended
                                     July 4, 1998        June 28, 1997       July 4, 1998       June 28, 1997
                                    --------------      --------------      --------------     -------------- 
                                                                     (Unaudited)

<S>                                        <C>                 <C>               <C>               <C>    
      Total Revenues.............          $30,041             $32,110           $60,126           $66,024

      (Loss) income from
        operations...............             (863)                834            (1,536)            1,466

      Net loss...................          $(3,892)            $(2,212)          $(7,301)          $(4,182)

</TABLE>

(4)   SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company's obligation related to its $100,000,000  aggregate principal amount
of 10 1/8  percent  Series A and  Series B Senior  Notes  due 2004 is fully  and
unconditionally  guaranteed  ("the  Guarantee")  on a senior basis by one of the
Company's  wholly  owned  subsidiaries.  The  Guarantee  is a general  unsecured
obligation of The Mrs. Fields' Brand, Inc. ("the Guarantor  Subsidiary"),  ranks
senior in right of payment to all subordinated indebtedness of the Guarantor and
ranks  pari  passu in right of  payment  with all  existing  and  future  senior
indebtedness  of the  Guarantor.  There  are no  restrictions  on the  Company's
ability  to obtain  cash  dividends  or other  distributions  of funds  from the
Guarantor  Subsidiary,  except those  imposed by  applicable  law. The following
supplemental  financial  information  sets forth,  on a condensed  consolidating
basis, balance sheets, statements of operations and statements of cash flows for
Mrs. Fields' Original  Cookies,  Inc. (the "Parent  Company"),  The Mrs. Fields'
Brand,  Inc. and Mrs. Fields' Cookies  Australia,  Mrs. Fields' Cookies (Canada)
Ltd.,  H & M  Canada,  and  Fairfield  Foods,  Inc.  and  four  partially  owned
subsidiaries,  the largest of which is Pretzel Time,  Inc., of which the Company
owns  70  percent  of  the  common  stock   (collectively,   the  "Non-guarantor
Subsidiaries").  The Company has not presented separate financial statements and
other disclosures  concerning the Guarantor  Subsidiary  because  management has
determined that such information is not material.

In the supplemental condensed  consolidated financial statements,  the principal
elimination  entries eliminate the Parent Company's  investments in subsidiaries
and intercompany balances and transactions.

<PAGE>



               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                               AS OF JULY 4, 1998
                             (dollars in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>

                                          Parent          Guarantor      Non-Guarantor
                                          Company         Subsidiary     Subsidiaries      Eliminations        Consolidated
                                      --------------   ----------------  ---------------   ---------------    --------------
<S>                                   <C>              <C>               <C>               <C>                 <C>
                ASSETS

    CURRENT ASSETS:
       Cash and cash equivalents        $    7,045      $       346       $       875       $          -      $       8,266
       Accounts receivable, net                989                -               159                  -              1,148
       Amounts due from franchisees
          and licensees, net                 1,242              610               143                  -              1,995
       Inventories                           2,854                -                 6                  -              2,860
       Other current assets and
          amounts due from (to)         
          affiliates, net                    5,564              (76)             (286)                 -              5,202
                                        ---------------  ---------------  ----------------  -----------------    -----------
            Total current assets            17,694              880               897                  -             19,471

    PROPERTY AND EQUIPMENT, net             28,713                1               270                  -             28,984
    INTANGIBLES, net                        57,879           17,084             6,714                  -             81,677
    INVESTMENTS IN SUBSIDIARIES             26,031                -                 -            (26,031)                 -
    OTHER ASSETS                             7,139                -               137                  -              7,276

                                        $  137,456      $    17,965       $     8,018       $    (26,031)      $    137,408
                                        =============   ===============   ===============   ================    ===========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
       Current portion of long-term
          debt and capital lease       
          obligations                   $      180      $         -       $       422       $          -      $         602
       Accounts payable                      2,760                5                89                  -              2,854
       Accrued liabilities                   6,721               23               427                  -              7,171
                                        -------------    -------------     --------------   ----------------   ------------
        Total current liabilities            9,661               28               938                  -             10,627
                                        -------------    -------------     --------------   ----------------   ------------       

LONG-TERM DEBT AND CAPITAL LEASE
    OBLIGATIONS, net of current       
    portion                                100,144                -                69                  -            100,213
                                           
OTHER ACCRUED LIABILITIES                    1,802                -                 -                  -              1,802
MANDATORILY REDEEMABLE CUMULATIVE
    PREFERRED STOCK                              -                -             1,081                  -              1,081
MINORITY INTEREST                                -                -               291                (70)               221
STOCKHOLDER'S EQUITY                        25,849           17,937             5,639            (25,961)            23,464
                                        ------------     -------------    -------------     --------------      -----------
                                        $  137,456      $    17,965       $     8,018       $    (26,031)      $    137,408
                                        ============     =============    =============     ==============      ===========

</TABLE>

<PAGE>


          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                       FOR THE 13 WEEKS ENDED JULY 4, 1998
                             (dollars in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>

                                          Parent          Guarantor      Non-Guarantor
                                          Company        Subsidiary      Subsidiaries        Eliminations      Consolidated
                                         ------------   ----------------  -----------       ---------------    -------------
<S>                                     <C>              <C>              <C>               <C>                <C>         
NET REVENUES                            $   28,784       $      432       $     1,121       $        (296)     $     30,041
                                         ------------   ----------------  ------------      --------------     -------------
OPERATING COSTS AND EXPENSES:
       Selling and store occupancy costs    16,972                -               178               (296)            16,854
       Food cost of sales                    6,575                -                43                  -              6,618
       General and administrative            3,534              278               304                  -              4,116
       Depreciation and amortization         2,882              321               113                  -              3,316
                                         ------------   ----------------  ------------      --------------     -------------
   Total operating costs and expenses        29,963             599               638               (296)            30,904
                                         ------------   ----------------  ------------      --------------     -------------
        (Loss)income from operations         (1,179)           (167)              483                  -               (863)
                                        

    INTEREST EXPENSE AND
      OTHER, net                            (2,771)               6                 5                  -             (2,760)
                                         ------------   ----------------  ------------      --------------     -------------

       (Loss) income before
         provision for income taxes
         and equity in net loss of          
         consolidated subsidiaries         (3,950)            (161)               488                  -             (3,623)

    PROVISION FOR INCOME TAXES                  (4)               -                 -                  -                 (4)
                                        ------------   ----------------  ------------      --------------     -------------
       (Loss) income before
         preferred stock accretion    
         subsidiaries and equity in                            
         net loss of consolidated           
         subsidiaries                      (3,954)          (161)                488                  -             (3,627)

    PREFERRED STOCK ACCRETION AND
       DIVIDENDS OF SUBSIDIARIES                -               -               (111)                 -               (111)

    EQUITY IN NET LOSS OF
       CONSOLIDATED SUBSIDIARIES                -               -               (154)                 -               (154)
                                        ------------   ----------------  ------------      --------------     -------------
    NET (LOSS) INCOME                   $   (3,954)      $     (161)       $     223       $          -       $     (3,892)
                                        ============   ================  ============      ==============     =============

</TABLE>

<PAGE>





          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                       FOR THE 26 WEEKS ENDED JULY 4, 1998
                             (dollars in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>

                                          Parent          Guarantor      Non-Guarantor
                                          Company         Subsidiary     Subsidiaries        Eliminations      Consolidated
                                         ------------   ----------------  -----------       ---------------    -------------
<S>                                     <C>              <C>              <C>               <C>                <C>          
NET REVENUES                            $   58,155       $      683       $     1,867       $        (579)     $      60,126
                                         ------------   ----------------  -----------       ---------------    -------------
OPERATING COSTS AND EXPENSES:
       Selling and store occupancy costs    34,309                -               178               (579)            33,908
       Food cost of sales                   13,316                -                43                  -             13,359
       General and administrative            6,872              554               772                  -              8,198
       Depreciation and amortization         5,331              640               226                  -              6,197
                                         ------------   ----------------  -----------       ---------------    -------------
            Total operating costs
               and expenses                 59,828            1,194             1,219               (579)            61,662
                                         ------------   ----------------  -----------       ---------------    -------------

      (Loss) income from operations         (1,673)            (511)              648                  -             (1,536)

    INTEREST EXPENSE AND
      OTHER, net                             (5,372)             14                 5                  -             (5,353)
                                         ------------   ----------------  -----------       ---------------    -------------
       (Loss) income before
         provision for income taxes
         and equity in net loss of          (7,045)            (497)              653                  -             (6,889)
         consolidated subsidiaries

    PROVISION FOR INCOME TAXES                 (14)               -                 -                  -                (14)
                                         ------------   ----------------  -----------       ---------------    -------------
       (Loss) income before
         preferred stock accretion    
         and dividends of
         subsidiaries and equity in         
         net loss of consolidated          
         subsidiaries                       (7,059)            (497)              653                  -             (6,903)

    PREFERRED STOCK ACCRETION AND
       DIVIDENDS OF SUBSIDIARIES                 -                -              (222)                 -               (222)

    EQUITY IN NET LOSS OF
       CONSOLIDATED SUBSIDIARIES                  -               -              (176)                 -               (176)
                                         ------------   ----------------  -----------       ---------------    -------------
    NET (LOSS) INCOME                   $   (7,059)      $     (497)      $       255       $           -      $      (7,301)
                                         ============   ================  ===========       ===============    =============
</TABLE>

<PAGE>


          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                       FOR THE 26 WEEKS ENDED JULY 4, 1998
                             (dollars in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>

                                          Parent          Guarantor      Non-Guarantor
                                          Company        Subsidiary      Subsidiaries       Eliminations         Consolidated
                                       ---------------  ---------------  ----------------  -----------------    --------------
<S>                                   <C>              <C>               <C>               <C>                  <C> 
    NET CASH USED IN  OPERATING
       ACTIVITIES                        $   (2,824)      $     (379)      $      (103)      $           -      $    (3,306)
                                       ---------------  ---------------  ----------------  -----------------    --------------

    CASH FLOWS FROM INVESTING
       ACTIVITIES:
          Net cash paid for acquisitions       (928)               -                 -                  -               (928)
          Purchase of property and
            equipment, net                   (3,335)               -                (7)                 -             (3,342)
                                       ---------------  ---------------  ----------------  -----------------    --------------
               Net cash used in
                 investing activities        (4,263)               -                (7)                 -             (4,270)
                                       ---------------  ---------------  ----------------  -----------------    --------------

    CASH FLOWS FROM FINANCING
       ACTIVITIES:
          Reduction of long-term
            debt and capital lease            (138)               -              (265)                 -               (403)
            obligations
          Reduction in preferred stock           -                -               (42)                 -                (42)
                                       ---------------  ---------------  ----------------  -----------------    --------------
                Net cash used in
                   financing activities       (138)               -              (307)                 -               (445)
                                       ---------------  ---------------  ----------------  -----------------    --------------

    NET DECREASE IN CASH AND CASH
       EQUIVALENTS                          (7,225)            (379)             (417)                 -             (8,021)
    CASH AND CASH EQUIVALENTS,
       beginning of period                      
                                            14,270              725             1,292                  -             16,287
                                       ---------------  ---------------  ----------------  -----------------    --------------
    CASH AND CASH EQUIVALENTS, end
       of period                        $    7,045       $      346       $       875       $           -        $    8,266
                                       ===============  ===============  ================  =================    ==============

</TABLE>


<PAGE>



               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                              AS OF JANUARY 3, 1998

                             (dollars in thousands)

<TABLE>
<CAPTION>
                                          Parent          Guarantor      Non-Guarantor
                                          Company         Subsidiary     Subsidiaries       Eliminations       Consolidated
                                      ---------------  ---------------  ----------------  -----------------    ------------- 
<S>                                   <C>              <C>               <C>              <C>                  <C>
                ASSETS              

    CURRENT ASSETS:
       Cash and cash equivalents        $   14,270      $       725       $     1,292       $          -      $      16,287
       Accounts receivable, net              1,388                -               147                  -              1,535
       Amounts due from franchisees
          and licensees, net                 1,517              659                 -                  -              2,176
       Inventories                           3,094                -                 6                  -              3,100
       Other current assets and
          amounts due from (to)              
          affiliates, net                    6,593             (615)             (253)                 -              5,725
                                        ----------      ------------      ------------     ---------------    -------------
            Total current assets            26,862              769             1,192                  -             28,823

    PROPERTY AND EQUIPMENT, net             28,907                1               294                  -             29,202
    INTANGIBLES, net                        59,928           17,725             6,041                  -             83,694
    INVESTMENTS IN SUBSIDIARIES             23,089                -                 -            (23,089)                 -
    OTHER ASSETS                             7,902                -                63                  -              7,965
                                        ----------      ------------      ------------     ---------------    -------------
                                        $  146,688      $    18,495       $     7,590      $     (23,089)     $     149,684
                                        ==========      ============      ============     ===============    =============

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
       Current portion of long-term
          debt and capital lease        
          obligations                   $        -      $         -       $       614      $           -      $         614
       Accounts payable                      3,621               36               148                  -              3,805
       Accrued liabilities                  10,499               25               747                  -             11,271
                                        ----------      ------------      ------------     ---------------    -------------
         Total current liabilities          14,120               61             1,509                  -             15,690
       liabilities

LONG-TERM DEBT AND CAPITAL LEASE
    OBLIGATIONS, net of current
    portion                                100,000                -               467                  -            100,467
                                           
OTHER ACCRUED LIABILITIES                    1,802                -                 -                  -              1,802
MANDATORILY REDEEMABLE CUMULATIVE
  PREFERRED STOCK                                -                -               902                  -                902
MINORITY INTEREST                                -                -                 -                 58                 58
STOCKHOLDER'S EQUITY                        30,766           18,434             4,712            (23,147)            30,765
                                        ----------      ------------      ------------     ---------------    -------------
                                        $  146,688      $    18,495       $     7,590      $     (23,089)     $     149,684
                                        ==========      ============      ============     ===============    =============
                                        
</TABLE>

<PAGE>





          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                      FOR THE 13 WEEKS ENDED JUNE 28, 1997
                             (dollars in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>

                                          Parent          Guarantor      Non-Guarantor
                                          Company         Subsidiary     Subsidiaries        Eliminations       Consolidated
                                      ---------------  ---------------  ----------------  -----------------    -------------
<S>                                     <C>              <C>              <C>               <C>                <C>         
NET REVENUES                            $   26,948       $      379       $         -       $           -      $     27,327

OPERATING COSTS AND EXPENSES:

       Selling and store occupancy costs    15,207                -                 -                  -             15,207
       Food cost of sales                    6,293                -                 -                  -              6,293
       General and administrative            3,330              252                23                  -              3,605
       Depreciation and amortization         1,875              276                 -                  -              2,151
                                      ---------------  ---------------  ----------------  -----------------    ------------
            Total operating costs
               and expenses                 26,705              528                23                  -             27,256
                                      ---------------  ---------------  ----------------  -----------------    -------------
      Income (loss)from operations             243             (149)              (23)                 -                 71

    INTEREST EXPENSE AND
      OTHER, net                            (1,201)            (335)                -                  -             (1,536)
                                      ---------------  ---------------  ----------------  -----------------    ------------
       Loss before provision for
         income taxes and equity in
         net loss of consolidated             
         subsidiaries                        (958)            (484)              (23)                  -             (1,465)

    PROVISION FOR INCOME TAXES                (94)               -                 -                   -                (94)
                                      ---------------  ---------------  ----------------  -----------------    ------------
       Loss before preferred stock
         accretion and dividends of   
         subsidiaries and equity in
         net loss of consolidated                              (484)              (23)                 -             (1,559)
         subsidiaries                       (1,052)

    PREFERRED STOCK ACCRETION AND
       DIVIDENDS OF SUBSIDIARIES                 -              (93)                -                  -               (93)
                                      ---------------  ---------------  ----------------  -----------------    ------------
    NET LOSS                            $   (1,052)      $     (577)      $       (23)     $           -       $    (1,652)
                                      ===============  ===============  ================  =================    ============

</TABLE>

<PAGE>




          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                      FOR THE 26 WEEKS ENDED JUNE 28, 1997
                             (dollars in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>

                                          Parent          Guarantor      Non-Guarantor
                                          Company         Subsidiary     Subsidiaries       Eliminations       Consolidated
                                      ---------------  ---------------  ----------------  -----------------    -------------
<S>                                     <C>              <C>              <C>               <C>                <C>          
NET REVENUES                            $   55,420       $      818       $         -       $           -      $     56,238
                                      ---------------  ---------------  ----------------  -----------------    -------------
OPERATING COSTS AND EXPENSES:
       Selling and store occupancy costs    31,298                -                 -                  -             31,298
       Food cost of sales                   12,990                -                 -                  -             12,990
       General and administrative            6,850              430                23                  -              7,303
       Depreciation and amortization         3,670              553                 -                  -              4,223
                                      ---------------  ---------------  ----------------  -----------------    -------------
            Total operating costs
               and expenses                 54,808              983                23                  -             55,814
                                      ---------------  ---------------  ----------------  -----------------    -------------
      Income (loss)from operations             612             (165)              (23)                 -                424

    INTEREST EXPENSE AND
      OTHER, net                            (2,303)            (670)                -                  -             (2,973)
                                      ---------------  ---------------  ----------------  -----------------    -------------
       Loss before provision for
         income taxes and equity in
         net loss of consolidated          
         subsidiaries                       (1,691)            (835)              (23)                 -             (2,549)

    PROVISION FOR INCOME TAXES                (144)               -                 -                  -               (144)
                                      ---------------  ---------------  ----------------  -----------------    -------------
       Loss before preferred stock
         accretion and dividends of   
         subsidiaries and equity in
         net loss of consolidated                              
         subsidiaries                       (1,835)            (835)              (23)                 -             (2,693)

    PREFERRED STOCK ACCRETION AND
       DIVIDENDS OF SUBSIDIARIES                 -             (182)                -                  -               (182)
                                      ---------------  ---------------  ----------------  -----------------    -------------
    NET LOSS                            $   (1,835)      $   (1,017)      $       (23)     $           -       $     (2,875)
                                      ===============  ===============  ================  =================    =============

</TABLE>

<PAGE>



          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE 26 WEEKS ENDED JUNE 28, 1997
                             (dollars in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>

                                           Parent         Guarantor      Non-Guarantor
                                           Company        Subsidiary     Subsidiaries       Eliminations        Consolidated
                                      ---------------  ---------------  ----------------  -----------------    -------------
<S>                                   <C>              <C>              <C>              <C>                   <C>
    NET CASH (USED IN) PROVIDED BY
       OPERATING ACTIVITIES              $   (2,088)     $      228       $        24       $           -      $     (1,836)
                                      ---------------  ---------------  ----------------  -----------------    -------------

    CASH FLOWS FROM INVESTING
       ACTIVITIES:
          Purchase of property and
            equipment, net                   (2,268)              -                 -                  -             (2,268)
                                      ---------------  ---------------  ----------------  -----------------    -------------
               Net cash used in
                 investing activities        (2,268)              -                 -                  -             (2,268)
                                      ---------------  ---------------  ----------------  -----------------    -------------

    CASH FLOWS FROM FINANCING
       ACTIVITIES:
          Borrowings on line of                
            credit                              400               -                 -                  -                400
          Reduction of long-term
            debt and capital lease              (56)              -                 -                  -                (56)
            obligations                        
                                      ---------------  ---------------  ----------------  -----------------    -------------
                Net cash used in
                financing activities            344               -                 -                  -                344
                                      ---------------  ---------------  ----------------  -----------------    -------------

    NET (DECREASE) INCREASE IN CASH
       AND CASH EQUIVALENTS                  (4,012)            228                24                  -             (3,760)
    CASH AND CASH EQUIVALENTS,
       beginning of period                    6,121             588                 -                  -              6,709
                                      ---------------  ---------------  ----------------  -----------------    -------------
    CASH AND CASH EQUIVALENTS, end
       of period                         $    2,109      $      816       $        24      $           -       $      2,949
                                      ===============  ===============  ================  =================    =============
</TABLE>
<PAGE>




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

Overview

     In  1996,   an  investor   group  led  by  Capricorn   Investors  II,  L.P.
("Capricorn")  formed Mrs. Fields' Original  Cookies,  Inc. and The Mrs. Fields'
Brand, Inc.  (collectively,  "Mrs.  Fields" or the "Company") as subsidiaries of
Mrs. Fields' Holding Company, Inc. ("MFH").

     On September 17, 1996, the Company  initiated  operations when it purchased
substantially  all of the assets and assumed certain  liabilities of Mrs. Fields
Inc. and  subsidiaries,  The Original  Cookie Company,  Incorporated  ("Original
Cookie"), and the pretzel business of Hot Sam Company, Inc. ("Hot Sam").

         The Company set out to increase sales and  profitability  of its cookie
and pretzel operations by implementing key elements of its business plan coupled
with  strategic  acquisitions.  A key element of the business plan is closing or
franchising certain Company-owned stores that do not meet specific financial and
geographical criteria established by management.  Implementation of this element
of the  business  plan is expected to result in  enhanced  operating  margins as
these  stores are  franchised  or closed.  Stores not planned for  franchise  or
closure are  referred  to as "core"  stores.  Core  stores  will  continue to be
operated by the Company into the foreseeable  future.  As a result of converting
certain  stores to  franchises,  royalty  revenues  are expected to increase and
general and administrative  expenses  associated with operating those stores are
expected to be reduced.

         The  Company  is  pursuing  growth  in  both  its  cookie  and  pretzel
businesses through strategic  acquisitions.  Management expects that significant
operating  synergies,  expense  leveraging  and  geographic  market share can be
achieved through targeted  acquisitions.  On July 25, 1997, a subsidiary of MFH,
Mrs. Fields' Pretzel Concepts,  Inc. ("MFPC") acquired  substantially all of the
assets and assumed  certain  liabilities of H&M Concepts Ltd. Co.  ("H&M"),  the
largest franchisee of Pretzel Time,  Inc.("Pretzel Time"). On September 2, 1997,
MFH acquired  56% of the common stock of Pretzel  Time,  the  franchisor  of the
Pretzel Time concept.

         On November 26, 1997, the Company received as a contribution  from MFH,
the  business of MFPC and 56% of the shares of common stock of Pretzel Time (the
"Pretzel  Contributions").   On  that  same  date  the  Company  received  as  a
contribution  from MFH, all of the common stock of The Mrs. Fields' Brand,  Inc.
On January 2, 1998 and June 12, 1998, the Company  acquired an additional 4% and
10%,  respectively,  of Pretzel Time common stock,  bringing the Company's total
ownership to 70%.



<PAGE>



Results of Operations

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
information  relating to the operations of the Company expressed in thousands of
dollars and percentage changes from period to period. Data in the table reflects
the  consolidated  results of the  Company for the 13 and 26 weeks ended July 4,
1998 and June 28, 1997, respectively. As supplemental information the table also
segregates the statement of operations data into a core stores and stores in the
process of being closed or franchised format.
<TABLE>
<CAPTION>
                                       For the 13 Weeks Ended                 For the 26 Weeks Ended
                                   ----------------------------------   -----------------------------------
                                                                % OF                                % OF
                                                                 CHG                                 CHG
                                                                FROM                                FROM
                                         JULY        JUNE      1997 TO        JULY        JUNE     1997 TO
                                       4, 1998      28, 1997    1998         4, 1998    28, 1997     1998                         
                                   -------------   ----------- -------  ------------   ----------- --------
<S>                                 <C>            <C>         <C>       <C>            <C>         <C>
     Unaudited Statement of Operations Data:                    (Dollars in thousands)           

     Revenues:
            Net store sales........      $28,102     $26,197     7.3%       $56,647     $53,839      5.2%
            Franchising, net.......        1,092         623    75.3          2,213       1,368     61.8
            Licensing, net.........          432         379    14.0            683         818    (16.5)
            Other revenue, net.....          415         128   224.2            583         213    173.7
                                         -------     -------                -------     --------
                    Total revenues.       30,041      27,327     9.9         60,126      56,238      6.9
                                         -------     -------                -------     --------

     Operating Costs and Expenses:
            Selling and store
             occupancy costs.......       16,854      15,207    10.8         33,908      31,298      8.3
            Food cost of sales.....        6,618       6,293     5.2         13,359      12,990      2.8
            General and                    
             administrative........        4,116       3,605    14.2          8,198       7,303     12.3             
            Depreciation and               3,316       2,151    54.2          6,197       4,223     46.7
            amortization...........      -------     -------                -------      ------
            Total operating costs         
                 and expenses......       30,904      27,256    13.4         61,662      55,814     10.5
                                         -------     -------                -------      ------
     Other Income (Expense), net:
            Interest expense.......      (2,870)     (1,546)    85.6         (5,626)     (3,091)    82.0
                                         -------     -------                -------      ------
            Interest income........         241          20  1,105.0            417         128    225.8
                                         -------     -------                -------      ------
            Other expenses.........        (400)       (197)   103.0           (556)       (336)    65.5
                                         -------     -------                -------      ------
            Net loss...............     $(3,892)    $(1,652)   135.6%       $(7,301)    $(2,875)   153.9%
                                        ========    ========                =======     =======

     Unaudited Supplemental Information:

     Core stores:
         Net store sales...........     $25,066     $21,710     15.5%       $49,655     $44,139     12.5%
                                        -------     -------                 -------     -------
         Operating costs and expenses:
           Selling and store
            occupancy costs........      13,967      11,352     23.0         27,550      22,984     19.9
           Food cost of sales......       5,724       4,906     16.7         11,378      10,059     13.1
           Depreciation and                                 
            amortization...........       1,387       1,297      6.9          2,421       2,106     15.0
                                        -------     -------                 -------     -------
              Total operating costs                                  
               and expenses........      21,078      17,555     20.1         41,349      35,149     17.6
                                        -------     -------                 -------     -------
        Core stores contribution...     $ 3,988     $ 4,155     (4.0)       $ 8,306     $ 8,990     (7.6)
                                        =======     =======                 =======     =======

     Stores in the process of
     being closed or franchised:
         Net store sales...........     $ 3,036     $ 4,487    (32.3)       $ 6,992     $ 9,700    (27.9)
                                        -------     -------                 -------     -------
         Operating costs and expenses:
           Selling and store
            occupancy costs........       2,887       3,855    (25.1)         6,358       8,314    (23.5)
           Food cost of sales......         894       1,387    (35.5)         1,981       2,931    (32.4)
           Depreciation and                 
            amortization...........         149         195    (23.6)           258         195     32.3
                                        -------     -------                 -------     -------
              Total operating costs
               and expenses........       3,930       5,437    (27.7)         8,597      11,440    (24.9)
                                        -------     -------                 -------     -------
      Stores in the process of
       being closed or                              
        franchised contribution....       (894)       (950)     (5.9)        (1,605)     (1,740)   (7.8)
                                        =======     =======                 =======     =======
        EBITDA....................      $2,453      $2,222      10.4%       $ 4,661     $ 4,647     0.3%
                                        =======     =======                 =======     =======

</TABLE>


<PAGE>



13 Weeks Ended July 4, 1998 Compared to the 13 Weeks Ended June 28, 1997

Company-owned and Franchised or Licensed Store Activity

         As of July  4,  1998,  there  were  470  Company-owned  stores  and 554
franchised or licensed stores in operation.  The store activity for the 13 weeks
ended  July 4,  1998  and the 13 weeks  ended  June 28,  1997 is  summarized  as
follows:
<TABLE>
<CAPTION>

                                                                        1998                    1997
                                                                        -----                   ----
                                                                 Company-   Franchised  Company-   Franchised
                                                                  Owned    or Licensed   Owned    or Licensed
                                                                 --------  -----------  --------  -----------
<S>                                                                 <C>        <C>         <C>        <C>
Stores open as of the beginning of the fiscal year                  472        547         463        436
                                                                                       
     Stores opened (including relocations)                            2         20           1          4
                                                                                    
     Stores closed (including relocations)                           (2)       (13)         (3)       (15)
                                                                                    
     Non-core (exit plan) stores closed (September 18, 1996                                              
     forward)                                                        (2)         -         (24)         -
     Stores sold to franchisees                                      (1)         1          (1)         1
                                                                                   
     Non-core (exit plan) stores franchised (September 18,                           
     1996 forward)                                                   (9)         9          (1)         1
     Stores acquired from franchisees                                10        (10)          -          -
                                                                   ------    -------    -------    ---------
Stores open as of the end of the period                             470        554         435        427
                                                                   ======    =======    =======    =========
</TABLE>


         The activity reflected above resulted in 6,123 and 5,873  Company-owned
equivalent store weeks and 7,157 and 5,610 franchisee/licensee  equivalent store
weeks  during the 13 weeks  ended  July 4, 1998 and the 13 weeks  ended June 28,
1997, respectively.

Revenues

         Net Stores Sales. Total net store sales increased $1,905,000,  or 7.3%,
from  $26,197,000 to $28,102,000 for the 13 weeks ended July 4, 1998 compared to
the 13 weeks ended June 28, 1997.

          Net store sales from core stores increased $3,356,000,  or 15.5%, from
$21,710,000 to  $25,066,000  for the 13 weeks ended July 4, 1998 compared to the
13 weeks ended June 28,  1997.  The increase in net store sales from core stores
was primarily  attributable  to (i) the operation of 69 Pretzel Time core stores
obtained  in  connection  with the  Pretzel  Acquisitions  in July  1997 (ii) an
increase  in  average  ticket  from  marketing   initiatives  coupled  with  the
introduction of new product line extensions and (iii) the Company  purchasing 10
core stores back from certain franchisees.

     On a comparable  store basis,  system-wide  core store sales were down 1.5%
during  the 13 weeks  ended  July 4, 1998  compared  to the same  period in 1997
primarily  due to declines in sales at the  Original  Cookie and Hot Sam stores.
However, the Mrs. Fields core stores continue to demonstrate the strength of the
Mrs.  Fields brand by posting a 1.9%  increase in  comparable  store sales.  The
Pretzel Time stores also posted a 0.5%  increase in  comparable  store sales for
the period.

         Net  store  sales  from  stores  in the  process  of  being  closed  or
franchised decreased $1,451,000, or 32.3%, from $4,487,000 to $3,036,000 for the
13 weeks ended July 4, 1998  compared to the 13 weeks ended June 28, 1997.  This
decrease  results from closing 2 stores and  franchising  9 stores during the 13
weeks ended July 4, 1998 and the effect of closing 24 stores during the 13 weeks
ended June 28, 1997. In addition,  29 stores were closed and 10  franchised  for
the period June 29, 1997 to April 4, 1998 which were in operation  during the 13
weeks ended June 28, 1997.


         Franchising  Revenues.  Franchising  revenues  increased  $469,000,  or
75.3%,  from $623,000 to $1,092,000 for the 13 weeks ended July 4, 1998 compared
to the 13 weeks ended June 28, 1997.  The increase in  franchising  revenues was
primarily  attributable  to royalties  earned from 141 Pretzel  Time  franchised
stores obtained in connection with the Pretzel Acquisitions in July 1997, offset
in part by 10 franchised stores purchased by the Company during the period.

         Licensing  Revenues.  Licensing revenues  increased $53,000,  or 14.0%,
from $379,000 to $432,000 for the 13 weeks ended July 4, 1998 compared to the 13
weeks ended June 28,  1997.  The increase in  licensing  revenues was  primarily
attributable to royalties received in connection with the introduction of a Mrs.
Fields branded ice cream sandwich in late June 1997.

         Other Revenue,  net. Other revenue, net, increased $287,000, or 224.2%,
from $128,000 to $415,000 for the 13 weeks ended July 4, 1998 compared to the 13
weeks ended June 28, 1997.  The increase in other  revenue,  net, was  primarily
attributable  to  area   development  fees  earned  from  certain  Pretzel  Time
franchised  stores  obtained  in the  Pretzel  Acquisitions  in July 1997 and an
increase in contribution  from the sale of Mrs. Fields branded  products through
the Company's mail order division.

         Total Revenues.  Total revenue  increased by $2,714,000,  or 9.9%, from
$27,327,000 to  $30,041,000  for the 13 weeks ended July 4, 1998 compared to the
13 weeks  ended  June 28,  1997  primarily  due to the  combination  of  factors
discussed above.

<PAGE>



Operating Costs and Expenses

         Selling and Store  Occupancy  Costs.  Total selling and store occupancy
costs increased $1,647,000, or 10.8%, from $15,207,000 to $16,854,000 for the 13
weeks ended July 4, 1998 compared to the 13 weeks ended June 28, 1997.

          Selling  and  store  occupancy  costs  for core  stores  increased  by
$2,615,000,  or 23.0%,  from  $11,352,000 to $13,967,000  for the 13 weeks ended
July 4, 1998  compared to the 13 weeks ended June 28, 1997.  Within this overall
increase, selling expenses increased by $1,218,000, or 25.4%, from $4,798,000 to
$6,016,000  for the 13 weeks  ended July 4, 1998  compared to the 13 weeks ended
June 28, 1997. The increase in selling  expenses was primarily  attributable  to
the 69  Pretzel  Time  core  stores  obtained  in  connection  with the  Pretzel
Contributions  in July 1997 and the effect of the  minimum  wage  increasing  to
$5.15 from $4.75 on September 1, 1997. Store occupancy costs increased $909,000,
or 18.2%,  from  $4,997,000  to  $5,906,000  for the 13 weeks ended July 4, 1998
compared to the 13 weeks ended June 28, 1997.  The  increase in store  occupancy
costs was primarily  attributable to the 69 Pretzel Time core stores obtained in
connection with the Pretzel Contributions in July 1997, coupled with the opening
of two new core stores and the Company  re-acquiring 10 core stores from certain
franchisees  during the 13 weeks ended July 4, 1998 and lease renewal increases.
Other store expense increased  $488,000,  or 31.3% from $1,557,000 to $2,045,000
for the 13 weeks ended July 4, 1998 compared to the 13 weeks ended June 28, 1997
primarily as a result of the Pretzel Contributions in July 1997.

         Selling  and store  occupancy  costs for stores in the process of being
closed or franchised decreased $968,000, or 25.1%, from $3,855,000 to $2,887,000
for the 13 weeks  ended  July 4, 1998  compared  to the 13 weeks  ended June 28,
1997. This decrease was primarily the result of closing 2 stores and franchising
9 stores  during  the 13 weeks  ended  July 4, 1998 and the effect of closing 23
stores  during the 13 weeks ended June 28,  1997.  In  addition,  29 stores were
closed and 10  franchised  for the period  June 29,  1997 to April 4, 1998 which
were in operation during the 13 weeks ended June 28, 1997.

         Food Cost of Sales.  Total food cost of sales  increased  $325,000,  or
5.2%, from $6,293,000 to $6,618,000 for the 13 weeks ended July 4, 1998 compared
to the 13 weeks ended June 28, 1997.

     Food cost of sales  for core  stores  increased  $818,000,  or 16.7%,  from
$4,906,000 to $5,724,000 for the 13 weeks ended July 4, 1998.  This increase was
primarily  the result of the  addition  of 69 Pretzel  Time core  stores in July
1997. As a percentage of net core store sales,  food cost of sales was 22.8% for
the 13 weeks  ended July 4, 1998  compared  to 22.6% for the 13 weeks ended June
28, 1997.  Additionally,  the Mrs.  Fields brand stores use butter as one of the
main ingredients in its products.  The price of butter has increased  $0.47/lb.,
from $0.78/lb.  at the beginning of 1997 to $1.25/lb.  at the beginning of 1998.
As a result food cost of sales at the Mrs.  Fields brand  stores was  negatively
impacted by increased butter cost during the 13 weeks ended July 4, 1998, offset
in part by an aggressive waste control program  implemented  Company-wide in May
1997.

         Food  cost of sales  for  stores  in the  process  of being  closed  or
franchised decreased $493,000,  or 35.5%, from $1,387,000 to $894,000 for the 13
weeks  ended July 4, 1998  compared to the 13 weeks  ended June 28,  1997.  This
decrease was primarily  the result of closing 2 stores and  franchising 9 stores
during  the 13 weeks  ended  July 4, 1998 and the  effect of  closing  24 stores
during the 13 weeks ended June 28, 1997. In addition,  29 stores were closed and
10  franchised  for the  period  June 29,  1997 to April 4, 1998  which  were in
operation during the 13 weeks ended June 28, 1997.

         General  and  Administrative   Expenses.   General  and  administrative
expenses increased $511,000,  or 14.2%, from $3,605,000 to $4,116,000 for the 13
weeks  ended July 4, 1998  compared  to the 13 weeks  ended June 28,  1997.  The
increase in general and  administrative  expenses was primarily  attributable to
the addition of the Pretzel Contributions.

         Depreciation  and  Amortization.  Total  depreciation  and amortization
expense increased by $1,165,000, or 54.2%, from $2,151,000 to $3,316,000 for the
13 weeks ended July 4, 1998  compared to the 13 weeks ended June 28, 1997.  This
increase  was  primarily  attributable  to increased  goodwill  from the Pretzel
Contributions.

         Depreciation  and  amortization   expense  for  core  stores  increased
$90,000,  or 6.9%,  from $1,297,000 to $1,387,000 for the 13 weeks ended July 4,
1998 compared to the 13 weeks ended June 28, 1997. This increase in depreciation
and  amortization  expense  was  primarily  attributable  to the  addition of 69
Pretzel  Time core stores in July 1997 and two newly  opened core stores  during
the 13 weeks ended July 4, 1998.

         Total Operating Costs and Expenses.  Total operating costs and expenses
increased by $3,648,000,  or 13.4%,  from  $27,256,000 to $30,904,000 for the 13
weeks ended July 4, 1998  compared to the 13 weeks ended June 28, 1997,  for the
reasons discussed above.

<PAGE>


         Interest  Expense.  Interest expense,  net,  increased  $1,324,000,  or
85.6%,  from  $1,546,000  to  $2,870,000  for the 13 weeks  ended  July 4,  1998
compared  to the 13 weeks  ended June 28,  1997.  This  increase  was  primarily
attributable to interest on the  $100,000,000 in high yield notes which were put
in place in November 1997.

         Interest Income. Interest income, increased $221,000, or 1,105.0%, from
$20,000 to $241,000 for the 13 weeks ended July 4, 1998 compared to the 13 weeks
ended June 28, 1997.  This  increase was primarily  the result  interest  income
earned on excess  cash  provided by the  $100,000,000  in high yield notes which
were put in place in November 1997.

         Other Expenses.  Other expenses,  increased  $203,000,  or 103.0%, from
$197,000  to  $400,000  for the 13 weeks  ended July 4, 1998  compared to the 13
weeks ended June 28, 1997.  This increase is primarily the result of the Company
recognizing  the  minority  interest  from  the  net  loss at the  Pretzel  Time
subsidiary for the 13 weeks ended July 4, 1998.

         Net  Loss.  The net loss  increased  by  $2,240,000,  or  135.6%,  from
$1,652,000 to $3,892,000  for the 13 weeks ended July 4, 1998 compared to the 13
weeks ended June 28, 1997 due to the combination of factors described above.

         Contribution from Core Stores.  Contribution from core stores decreased
by $167,000,  or 4.0%, from $4,155,000 to $3,988,000 for the 13 weeks ended July
4,  1998  compared  to the 13  weeks  ended  June  28,  1997.  The  decrease  is
attibutable to declining comparable store sales at the Company's Original Cookie
and Hot Sam stores,  offset in part by increased  comparable core store sales at
the Mrs.  Fields and Pretzel  Time stores and the  increase in selling and store
occupancy costs as described above.

         Negative  Contribution  from Stores in the  Process of Being  Closed or
Franchised. The negative contribution from stores in the process of being closed
or franchised  decreased by $56,000,  or 5.9%, from $950,000 to $894,000 for the
13 weeks ended July 4, 1998  compared to the 13 weeks ended June 28,  1997.  The
decrease in negative contribution was primarily attributable to closing 2 stores
and  franchising  9 stores during the 13 weeks ended July 4, 1998 and the effect
of closing 23 stores  during the 13 weeks ended June 28, 1997.  In addition,  29
stores  were closed and 10  franchised  for the period June 29, 1997 to April 4,
1998 which were in operation during the 13 weeks ended June 28, 1997.

         EBITDA. Earnings before interest, taxes, depreciation and amortization,
preferred stock accretion and dividends of subsidiaries,  minority  interest and
other income  (expense)  ("EBITDA")  is presented as  management  believes  that
certain  investors  find it to be a useful  tool for  measuring  the  ability to
service debt. EBITDA does not represent net income or cash flows from operations
as these terms are defined by generally accepted accounting  principles and does
not necessarily  indicate  whether cash flows have been or will be sufficient to
fund cash needs.  EBITDA  increased by $231,000,  or 10.4%,  from  $2,222,000 to
$2,453,000  for the 13 weeks  ended July 4, 1998  compared to the 13 weeks ended
June 28, 1997 for the reasons described above.



26 Weeks Ended July 4, 1998 Compared to the 26 Weeks Ended June 28, 1997

Company-owned and Franchised or Licensed Store Activity

         As of July  4,  1998,  there  were  470  Company-owned  stores  and 554
franchised or licensed stores in operation.  The store activity for the 26 weeks
ended  July 4,  1998  and the 26 weeks  ended  June 28,  1997 is  summarized  as
follows:
<TABLE>
<CAPTION>

                                                                        1998                    1997
                                                                        -----                   ----
                                                                 Company-   Franchised  Company-   Franchised
                                                                  Owned    or Licensed   Owned    or Licensed
                                                                 --------  -----------  --------  -----------
<S>                                                                    <C>        <C>      <C>         <C>
Stores open as of the beginning of the fiscal year                     481        553      482         418
                                                                                       
     Stores opened (including relocations)                               5         42        2          30
                                                                                    
     Stores closed (including relocations)                              (7)       (42)      (4)        (19)
                                                                                   
     Non-core (exit plan) stores closed (September 18, 1996             
     forward)                                                           (8)         -      (47)          -                 
     Stores sold to franchisees                                         (1)         1       (1)          1
                                                                                    
     Non-core (exit plan) stores franchised (September 18,             
     1996 forward)                                                     (11)        11       (1)          1
     Stores acquired from franchisees                                   11        (11)       4          (4)
                                                                     -----     -------    ------     -------
Stores open as of the end of the period                               470        554       435         427
                                                                     =====     =====      ======     =======
</TABLE>
                                                                             

         The   activity   reflected   above   resulted   in  12,363  and  11,921
Company-owned  equivalent store weeks and 14,391 and 10,985  franchisee/licensee
equivalent  store weeks  during the 26 weeks ended July 4, 1998 and the 26 weeks
ended June 28, 1997, respectively.

Revenues

         Net Stores Sales. Total net store sales increased $2,808,000,  or 5.2%,
from  $53,839,000 to $56,647,000 for the 26 weeks ended July 4, 1998 compared to
the 26 weeks ended June 28, 1997.
<PAGE>

          Net store sales from core stores increased $5,516,000,  or 12.5%, from
$44,139,000 to  $49,655,000  for the 26 weeks ended July 4, 1998 compared to the
26 weeks ended June 28,  1997.  The increase in net store sales from core stores
was  primarily  attributable  to the  operation  of 69 Pretzel  Time core stores
obtained in connection  with the Pretzel  Acquisitions  in July 1997,  offset in
part by the negative  effect of a calendar  shift whereby the Company's year end
was December 28 in 1996 and January 3, 1998 in 1997. As a result, the New Year's
holiday week fell in the first  quarter of 1997 and again in the fourth  quarter
1997.  The first  quarter of 1998 did not  benefit  from the New Year's  holiday
sales.  Had this holiday been in the first quarter of 1998, net store sales from
core stores would have been approximately $800,000 greater or $50,455,000.

         On  a  comparable  store  basis  (adjusted  for  the  calendar  shift),
system-wide  core store  sales were down 0.8%  during the 26 weeks ended July 4,
1998 compared to the same period in 1997.  However,  the Mrs. Fields core stores
continue to demonstrate  the strength of the Mrs. Fields brand by posting a 3.4%
increase in comparable store sales.

         Net  store  sales  from  stores  in the  process  of  being  closed  or
franchised decreased $2,708,000, or 27.9%, from $9,700,000 to $6,992,000 for the
26 weeks ended July 4, 1998  compared to the 26 weeks ended June 28, 1997.  This
decrease  results from closing 8 stores and  franchising 11 stores during the 26
weeks ended July 4, 1998 and the effect of closing 47 stores during the 26 weeks
ended June 28, 1997. In addition,  31 stores were closed and 19  franchised  for
the period June 29, 1997 to April 4, 1998 which were in operation  during the 26
weeks ended June 28, 1997.


         Franchising  Revenues.  Franchising  revenues  increased  $845,000,  or
61.8%,  from  $1,368,000  to  $2,213,000  for the 26 weeks  ended  July 4,  1998
compared  to the 26 weeks  ended June 28,  1997.  The  increase  in  franchising
revenues was primarily  attributable  to royalties  earned from 141 Pretzel Time
franchised stores obtained in connection with the Pretzel Contributions.

         Licensing Revenues.  Licensing revenues decreased  $135,000,  or 16.5%,
from $818,000 to $683,000 for the 26 weeks ended July 4, 1998 compared to the 26
weeks ended June 28,  1997.  The decrease in  licensing  revenues was  primarily
attributable  to a Mrs.  Fields branded dry cookie mix license fee earned during
the 26 weeks  ended June 28,  1997 that did not recur in the 26 weeks ended July
4, 1998 and the net closure of 6 licensed locations during the the period.

         Other Revenue,  net. Other revenue, net, increased $370,000, or 173.7%,
from $213,000 to $583,000 for the 26 weeks ended July 4, 1998 compared to the 26
weeks ended June 28, 1997.  The increase in other  revenue,  net, was  primarily
attributable  to  area   development  fees  earned  from  certain  Pretzel  Time
franchised  stores  obtained  in the Pretzel  Contributions  in July 1997 and an
increase in contribution  from the sale of Mrs. Fields branded  products through
the Company's mail order division.

         Total  Revenues.  Despite the holiday  calendar  shift,  total revenues
increased by $3,888,000,  or 6.9%,  from  $56,238,000 to $60,126,000  for the 26
weeks ended July 4, 1998 compared to the 26 weeks ended June 28, 1997 due to the
addition of the Pretzel Contributions offset by the effects of closed stores.


Operating Costs and Expenses

         Selling and Store  Occupancy  Costs.  Total selling and store occupancy
costs increased $2,610,000,  or 8.3%, from $31,298,000 to $33,908,000 for the 26
weeks ended July 4, 1998 compared to the 26 weeks ended June 28, 1997.

          Selling  and  store  occupancy  costs  for core  stores  increased  by
$4,566,000,  or 19.9%,  from  $22,984,000 to $27,550,000  for the 26 weeks ended
July 4, 1998  compared to the 26 weeks ended June 28, 1997.  Within this overall
increase, selling expenses increased by $2,141,000, or 22.0%, from $9,724,000 to
$11,865,000  for the 26 weeks ended July 4, 1998  compared to the 26 weeks ended
June 28, 1997. The increase in selling  expenses was primarily  attributable  to
the 69  Pretzel  Time  core  stores  obtained  in  connection  with the  Pretzel
Contributions  in July 1997 and the effect of the  minimum  wage  increasing  to
$5.15  from  $4.75  on  September  1,  1997.  Store  occupancy  costs  increased
$1,646,000, or 16.6%, from $9,923,000 to $11,569,000 for the 26 weeks ended July
4, 1998  compared to the 26 weeks  ended June 28,  1997.  The  increase in store
occupancy  costs was primarily  attributable  to the 69 Pretzel Time core stores
obtained in connection with the Pretzel  Contributions in July 1997, the Company
re-acquiring 11 core stores from  franchisees  during the 26 weeks ended July 4,
1998 and lease renewal  increases.  Other store expense increased  $779,000,  or
23.3% from $3,337,000 to $4,116,000 for the 26 weeks ended July 4, 1998 compared
to the 26 weeks  ended  June 28,  1997  primarily  as a  result  of the  Pretzel
Contributions in July 1997.

         Selling  and store  occupancy  costs for stores in the process of being
closed  or  franchised  decreased  $1,956,000,  or  23.5%,  from  $8,314,000  to
$6,358,000  for the 26 weeks  ended July 4, 1998  compared to the 26 weeks ended
June 28, 1997.  This  decrease was  primarily the result of closing 8 stores and
franchising  11 stores  during the 26 weeks ended July 4, 1998 and the effect of
closing 47 stores  during the 26 weeks  ended June 28,  1997.  In  addition,  31
stores  were closed and 19  franchised  for the period June 29, 1997 to April 4,
1998 which were in operation during the 26 weeks ended June 28, 1997.



<PAGE>




     Food Cost of Sales. Total food cost of sales increased  $369,000,  or 2.8%,
from  $12,990,000 to $13,359,000 for the 26 weeks ended July 4, 1998 compared to
the 26 weeks ended June 28, 1997.

     Food cost of sales for core stores  increased  $1,319,000,  or 13.1%,  from
$10,059,000  to $11,378,000  for the 26 weeks ended July 4, 1998.  This increase
was  primarily the result of the addition of 69 Pretzel Time core stores in July
1997.  Additionally,  the Mrs. Fields brand stores use butter as one of the main
ingredients in its products.  The price of butter has increased $0.47/lb.,  from
$0.78/lb.  at the beginning of 1997 to $1.25/lb.  at the beginning of 1998. As a
result  food  cost of sales at the Mrs.  Fields  brand  stores  was   negatively
impacted by the butter  increase for the 26 weeks ended July 4, 1998 compared to
the 26 weeks ended June 28, 1997,  offset in part by an aggressive waste control
program implemented Company-wide in May 1997.

         The market for butter has been in a highly volatile state. In mid-July
1998, the price of butter increased an additional  $0.80/lb.  to $2.05/lb.  from
$1.25/lb.  This increase was fueled by the United States  Government  dispensing
vast  quantities  of butter to  developing  third world  countries  coupled with
severe  droughts in the  Mid-West  which  limited  milk  production.  Management
believes that the price of butter will remain at current levels through year-end
and estimates that the increased  butter costs will negatively  impact food cost
of sales for the remainder of 1998 by approximately $1.0 million.

         Food  cost of sales  for  stores  in the  process  of being  closed  or
franchised  decreased $950,000,  or 32.4%, from $2,931,000 to $1,981,000 for the
26 weeks ended July 4, 1998  compared to the 26 weeks ended June 28, 1997.  This
decrease was primarily the result of closing 8 stores and  franchising 11 stores
during  the 26 weeks  ended  July 4, 1998 and the  effect of  closing  23 stores
during the 26 weeks ended June 28, 1997. In addition,  31 stores were closed and
19  franchised  for the  period  June 29,  1997 to April 4, 1998  which  were in
operation during the 26 weeks ended June 28, 1997.

         General  and  Administrative   Expenses.   General  and  administrative
expenses increased $895,000,  or 12.3%, from $7,303,000 to $8,198,000 for the 26
weeks  ended July 4, 1998  compared  to the 26 weeks  ended June 28,  1997.  The
increase in general and  administrative  expenses was primarily  attributable to
the addition of the Pretzel Contributions.

         Depreciation  and  Amortization.  Total  depreciation  and amortization
expense increased by $1,974,000, or 46.7%, from $4,223,000 to $6,197,000 for the
26 weeks ended July 4, 1998  compared to the 26 weeks ended June 28, 1997.  This
increase  was  primarily  attributable  to increased  goodwill  from the Pretzel
Contributions.

         Depreciation  and  amortization   expense  for  core  stores  increased
$315,000, or 15.0%, from $2,106,000 to $2,421,000 for the 26 weeks ended July 4,
1998 compared to the 26 weeks ended June 28, 1997. This increase in depreciation
and  amortization  expense  was  primarily  attributable  to the  addition of 69
Pretzel Time core stores in July 1997.


         Total Operating Costs and Expenses.  Total operating costs and expenses
increased by $5,848,000,  or 10.5%,  from  $55,814,000 to $61,662,000 for the 26
weeks ended July 4, 1998  compared to the 26 weeks ended June 28, 1997,  for the
reasons discussed above.

         Interest  Expense.  Interest expense,  net,  increased  $2,535,000,  or
82.0%,  from  $3,091,000  to  $5,626,000  for the 26 weeks  ended  July 4,  1998
compared  to the 26 weeks  ended June 28,  1997.  This  increase  was  primarily
attributable to interest on the  $100,000,000 high yield notes which were put
in place in November 1997.

         Interest Income.  Interest income,  increased $289,000, or 225.8%, from
$128,000  to  $417,000  for the 26 weeks  ended July 4, 1998  compared to the 26
weeks ended June 28, 1997.  This  increase  was  primarily  the result  interest
income on excess  cash  provided by the  $100,000,000 high yield notes which
were put in place in November 1997.

         Other Expenses.  Other expenses,  increased  $220,000,  or 65.5%,  from
$336,000  to  $556,000  for the 26 weeks  ended July 4, 1998  compared to the 26
weeks ended June 28, 1997.  This  increase  was  primarily  attributable  to the
Company  recognizing the minority interest from the net loss at the Pretzel Time
subsidiary for the 26 weeks ended July 4, 1998.

         Net  Loss.  The net loss  increased  by  $4,426,000,  or  153.9%,  from
$2,875,000 to $7,301,000  for the 26 weeks ended July 4, 1998 compared to the 26
weeks ended June 28, 1997 due to the combination of factors described above.


<PAGE>



         Contribution from Core Stores.  Contribution from core stores decreased
by $684,000,  or 7.6%, from $8,990,000 to $8,306,000 for the 26 weeks ended July
4, 1998  compared to the 26 weeks ended June 28,  1997.  Contribution  from core
stores during the first quarter of 1998 was  negatively  impacted by declines in
sales  at the  Company's  Original  Cookie  and Hot Sam  brand  stores  and by a
calendar  shift  whereby  the  Company's  year end was  December  28 in 1996 and
January 3, 1998 for 1997. As a result,  the New Year's  holiday week fell in the
first quarter of 1997 and again in the fourth quarter 1997. The first quarter of
1998 did not benefit from the New Year's holiday sales. Had this holiday been in
the first  quarter  of 1998,  contribution  from  core  stores  would  have been
approximately $600,000 greater or $8,906,000.

         Negative  Contribution  from Stores in the  Process of Being  Closed or
Franchised. The negative contribution from stores in the process of being closed
or franchised decreased by $135,000,  or 7.8%, from $1,740,000 to $1,605,000 for
the 26 weeks ended July 4, 1998  compared  to the 26 weeks ended June 28,  1997.
The decrease in negative  contribution  was primarily  attributable to closing 8
stores and  franchising 11 stores during the 13 weeks ended July 4, 1998 and the
effect  of  closing  23 stores  during  the 26 weeks  ended  June 28,  1997.  In
addition,  31 stores were closed and 19 franchised  for the period June 29, 1997
to April 4, 1998 which  were in  operation  during  the 26 weeks  ended June 28,
1997.

         EBITDA. Earnings before interest, taxes, depreciation and amortization,
preferred stock accretion and dividends of subsidiaries,  minority  interest and
other income  (expense)  ("EBITDA")  is presented as  management  believes  that
certain  investors  find it to be a useful  tool for  measuring  the  ability to
service debt. EBITDA does not represent net income or cash flows from operations
as these terms are defined by generally accepted accounting  principles and does
not necessarily  indicate  whether cash flows have been or will be sufficient to
fund cash needs.  EBITDA  increased  by $14,000,  or 0.3%,  from  $4,647,000  to
$4,661,000  for the 26 weeks  ended July 4, 1998  compared to the 26 weeks ended
June 28, 1997 for the reasons  discussed  above. Had the New Year's holiday week
been in the first quarter of 1998, EBITDA would have been approximately $600,000
greater or $5,261,000.


Liquidity and Capital Resources

         General

         The  Company's  principal  sources  of  liquidity  are cash  flows from
operations,  cash on hand and available  borrowings under the Company's existing
revolving  credit  facilities.  At July 4, 1998, the Company had $8.3 million of
cash and $15.0 million of unused  borrowings  under its credit  facility.  It is
expected that the Company's  principal  uses of cash will be to provide  working
capital,  finance capital expenditures (including acquisitions and store closure
costs), meet debt service requirements and for other general corporate purposes.
The Company is highly  leveraged.  Based on current  operations and  anticipated
cost  savings,  the  Company  believes  that its  sources of  liquidity  will be
adequate  to meet its  anticipated  requirements  for working  capital,  capital
expenditures  (including  acquisitions and store closure costs),  scheduled debt
service  requirements  and other  general  corporate  purposes.  There can be no
assurance,  however,  that the Company's business will continue to generate cash
flows at or above current levels or that cost savings can be achieved.

         July 4, 1998 Compared to January 3, 1998

         As of July 4,  1998,  the  Company  had  liquid  assets  (cash and cash
equivalents  and accounts  receivable) of  $11,409,000,  a decrease of 42.9%, or
$8,589,000,  from  January 3, 1998 when  liquid  assets were  $19,998,000.  Cash
decreased  $8,021,000,  or 49.2%, to $8,266,000 at July 4, 1998 from $16,287,000
at  January  3,  1998.  This  decrease  was  primarily  the  result  of  capital
expenditures  of  $3,342,000  relating to store  remodels  and  renovations  and
interest payments of $5,370,000  primarily  relating to the $100,000,000 in high
yield  notes  which  were put into  place in  November  1997,  offset in part by
$417,000 in interest income earned during the period on excess cash.

         Current assets decreased by $9,352,000, or 32.4% to $19,471,000 at July
4, 1998 from  $28,823,000  at January 3, 1998.  This  decrease was primarily the
result of a decrease in cash of  $8,021,000,  accounts  receivable  of $568,000,
inventories of $240,000, and prepaids of $523,000.

         Long-term assets decreased $2,924,000, or 2.4%, to $117,937,000 at July
4, 1998 from  $120,861,000  at January 3, 1998.  This decrease was primarily the
result of normal recurring amortization of goodwill and deferred loan costs.

         Current liabilities decreased by $5,063,000, or 32.3% to $10,627,000 at
July 4, 1998 from  $15,690,000  at January 3, 1998.  This  decrease  is due to a
reduction in accounts  payable,  sales tax, lease  settlements and store closure
accruals offset by an increase in accrued salaries, wages and benefits.

     The  Company's  working  capital  decreased  by  $4,289,000,  or 32.7%,  to
$8,844,000 at July 4, 1998 from  $13,133,000 at January 3, 1998, for the reasons
described above.


<PAGE>




         The  Company  utilized  $3,306,000  of cash from  operating  activities
during the 26 weeks ended July 4, 1998,  primarily  from paying  interest on the
$100,000,000  in high  yield  notes and from  store  sales and  franchising  and
licensing  revenues less costs and expenses incurred to generate the store sales
and franchising and licensing revenues.

         The  Company  utilized  $4,270,000  of cash from  investing  activities
during the 26 weeks  ended  July 4, 1998,  primarily  for  capital  expenditures
relating to store remodels and renovations and for acquisition expenses.

         The Company utilized $445,000 of cash from financing  activities during
the 26 weeks ended July 4, 1998,  primarily for the payment of principal related
to various notes and capital lease obligations at Pretzel Time.

         The  specialty  cookie  and  pretzel  businesses  do  not  require  the
maintenance of  significant  receivables or  inventories;  however,  the Company
continually  invests in its  business by  upgrading  and  remodeling  stores and
adding new stores,  carts,  and kiosks as  opportunities  arise.  Investments in
these long-term assets,  which are key to generating  current sales,  reduce the
Company's  working capital.  During the 26 weeks ended July 4, 1998 and June 28,
1997, the Company expended  $3,342,000 and $2,268,000,  respectively for capital
assets  and  expects  to expend  approximately  $7,800,000  in 1998.  Management
anticipates  that these  expenditures  will be funded with cash  generated  from
operations and short-term borrowings under its credit facility as needed.


Inflation

         The impact of  inflation  on the  earnings of the business has not been
significant in recent years.  Most of Mrs.  Fields'  leases  contain  escalation
clauses  (however,  such leases are  accounted for on a  straight-line  basis as
required  by  generally   accepted   accounting   principles   which   minimizes
fluctuations in operating  income) and many of Mrs.  Fields'  employees are paid
hourly wages at the Federal  minimum wage level.  Minimum  wage  increases  will
negatively  impact Mrs.  Fields' payroll costs in the short term, but management
believes  such  impact  can be  offset  in the  long  term  through  operational
efficiency gains and, if necessary, through product price increases.


Seasonality

         The Company's  sales and store  contribution  are highly seasonal given
the significant impact of its mall-based locations.  The Company's sales tend to
mirror customer traffic flow trends in malls which increase significantly during
the fourth quarter (primarily  between  Thanksgiving and the end of the calendar
year).  Holiday gift purchases are also a significant  factor in increased sales
in the fourth quarter.

         The seasonality  effect on store  contribution is even more significant
than on sales.  The impact on store  contribution is more significant due to the
fixed  nature of certain  store  level costs  (occupancy  costs,  store  manager
salaries,  etc.).  Once these fixed costs are covered by store  sales,  the flow
through of sales to store contribution becomes greater.  Accordingly, the fourth
quarter is a key determinant to overall profitability for the year.


<PAGE>



                           PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

     In connection with the GACC acquisition discussions,  on or about September
12, 1997, nine  franchisees of GACC filed an action in the Superior Court of New
Jersey,  Mercer  County,  against the Company,  Capricorn and other  defendants,
challenging a possible acquisition of GACC by the Company.  Goldberg,  et al. v.
Great American  Cookie  Company,  et al.,  Docket No.  MER-L-3502-97  (Super Ct.
Mercer County).  The complaint asserts that the proposed sale violates Illinois,
Indiana,  Maryland,  New Jersey  and  Virginia  franchise  law,  violates  North
Carolina,  South Carolina and Texas unfair trade  practices  acts,  breaches the
plaintiffs'  franchise contracts and tortiously  interferes with the plaintiffs'
actual and prospective  contractual  relationships.  Management believes that it
has good and  meritorious  defenses to the action and intends to defend the case
vigorously.  Currently there are ongoing  negotiations  between the parties. The
parties have agreed to a stipulation  and proposed order  extending the time for
the defendants to answer,  otherwise plead or move with respect to the complaint
until September 15, 1998. See Item 5 - "Other Information."

         In the ordinary course of business,  the Company is involved in routine
litigation,  including  franchise  disputes.  The  Company is not a party to any
legal  proceedings  which,  in the opinion of management  of the Company,  after
consultation  with  legal  counsel,  is  material  to  the  Company's  business,
financial  condition or results of operations beyond amounts provided for in the
accompanying financial statements.

         The Company's stores and products are subject to regulation by numerous
governmental  authorities,  including,  without limitation,  federal,  state and
local  laws  and  regulations   governing  health,   sanitation,   environmental
protection, safety and hiring and employment practices.


Item 5.   Other Information

         On August 13, 1998,  the Company  entered  into a  Securities  Purchase
Agreement (the "Purchase  Agreement") with Cookies USA, Inc.  ("Cookies USA"), a
Delaware  corporation,  and the  individuals  and entities  identified  therein,
pursuant to which the Company will acquire all of the outstanding  capital stock
and subordinated  indebtedness of Cookies USA for an aggregate purchase price of
approximately  $18.4 million.  Cookies USA is the owner of Great American Cookie
Company,  Inc.  ("Great  American"),  a Delaware  corporation  that is a leading
operator and  franchisor of mall-based  specialty  retail cookie  outlets.  Upon
consummation of the  transactions  contemplated by the Purchase  Agreement,  the
Company  will cause  Cookies  USA to be merged with and into the  Company,  upon
which Great American will become a wholly-owned  subsidiary of the Company.  The
Company has also  entered  into  agreements  to purchase  the stock of two Great
American franchisees,  Deblan Corporation  (`Deblan") and Chocolate Chip Cookies
of Texas, Inc.  ("Chocolate Chip"),  together owning and operating a total of 29
Great American franchised stores, for total consideration of approximately $15.0
million  (including the repayment of approximately $0.6 million of debt), and an
agreement  to  purchase  eight Great  American  franchised  stores from  another
franchisee for a purchase price of approximately $1.75 million. The Company will
cause Deblan and Chocolate  Chip to be merged with and into Great  American upon
consummation of the Deblan and Chocolate Chip stock purchases.  The Company will
use the proceeds of an offering  (the  "Offering")  of $40.0  million  aggregate
principal amount of Series C 10 1/8% Senior Notes,  together with proceeds of an
offering of unit  securities of MFH, which will be contributed to the Company to
fund these  acquisitions.  The unit  securities of MFH consist of senior secured
discount notes and warrants to purchase common stock of MFH.
<PAGE>

         On August 14,  1998,  the Company  commenced a tender offer (the "Great
American  Tender Offer") for all of the  outstanding  $40.0 million in aggregate
principal  amount of Great American's 10 7/8% Senior Secured Notes due 2001 (the
"Great American Senior Notes").  The obligation of the Company to consummate the
acquisition of Great American is subject to satisfactory completion of the Great
American  Tender  Offer,  which  requires  that  holders  of not less than $30.0
million in  aggregate  principal  amount (the  "Minimum  Tender  Amount") of the
outstanding Great American Senior Notes shall have tendered,  and not withdrawn,
such notes to the Company for  purchase  and holders of not less than a majority
in aggregate  principal amount of Great American Senior Notes  outstanding shall
have consented to such amendments to or waivers under,  the indenture  governing
the Great American Senior Notes as the Company deems necessary to facilitate the
Offering.  The obligations of the parties to the Purchase  Agreement are subject
to certain other customary conditions.  The Company reserves the right to reduce
the Minimum  Tender  Amount to any amount  over $20.0  million,  representing  a
majority of the Great  American  Senior  Notes.  Once the  Company has  received
tenders and consents representing a majority of the Great American Senior Notes,
the Company may accept payment for all Great  American  Senior Notes tendered up
to that time and amend the indenture  governing the Great American  Senior Notes
but in such a case it will accept for payment all  subsequently  tendered  Great
American Senior Notes on the original expiration date, as it may be extended.

     The  Company   has  entered   into   Settlement   Agreements   and  Waivers
(collectively,  the "Franchisee  Agreement")  with the  Franchisees  selling the
Deblan  and  Chocolate   Chip   franchises  and  certain  other  Great  American
franchisees.  It is a condition to the  completion of the  acquisition  of Great
American that in addition to these franchisees,  a number of the remaining Great
American franchisees shall execute the Franchise Agreement so that, in total, at
least 80% of the Great  American  franchisees  will have  executed the Franchise
Agreement.  The Great  American  franchisees  that are parties to the  Franchise
Agreement  will  release,  subject to certain  exceptions,  all of their  claims
against the Company,  Great  American,  Capricorn and other  parties,  including
claims that Great  American  franchisees  brought in 1997 to prevent the sale of
Great American to the Company.  The Company will not complete the acquisition of
Great American  unless it receives such releases and the litigation is dismissed
with  prejudice.  As of August 14,  1998,  the Company has received the required
number of releases.  See "Legal  Proceedings." The Franchise  Agreement provides
"tag-along" rights to owners of at least five Great American  franchises in such
circumstances.




Item 6.  Exhibits and Reports on Form 8-K

(a)    Exhibits

Exhibit No.       Description
----------        -----------
    27            Financial data schedule (for SEC use only)


(b)    Forms 8-K

None



<PAGE>




                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.





MRS. FIELDS' ORIGINAL COOKIES, INC.




/s/Larry A. Hodges                      August 17, 1998
-------------------------------------   ---------------
Larry A. Hodges, President & CEO Date