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

                                   FORM 10-K 

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

For the fiscal year ended: January 2, 1999
                                       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)
<TABLE>
<S>                                                          <C>

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

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

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

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

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

 X  yes        no

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X]

         The Company  had 400 shares of common  stock  outstanding  at March 31,
1999.

         Documents incorporated by reference:   NONE



<PAGE>


                       MRS. FIELDS' ORIGINAL COOKIES, INC.


                                TABLE OF CONTENTS

<TABLE>
<S>       <C>                                                                                             <C>

PART I.

Item 1.   Business........................................................................................3

Item 2.   Properties......................................................................................12

Item 3.   Legal Proceedings...............................................................................12

Item 4.   Submission of Matters to a Vote of Security Holders.............................................12


PART II.

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters...........................13

Item 6.   Selected Financial Data.........................................................................13

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations...........15

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................25

Item 8.   Financial Statements and Supplementary Data.....................................................26

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............67


PART III.

Item 10.  Directors and Executive Officers of the Registrant..............................................67

Item 11.  Executive Compensation..........................................................................69

Item 12.  Security Ownership of Certain Beneficial Owners and Management..................................71

Item 13. Certain Relationships and Related Transactions...................................................72


PART IV.

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................74
</TABLE>


<PAGE>



                                     PART I

FORWARD-LOOKING INFORMATION

         This report contains  certain  forward-looking  statements based on our
current  expectations  and projections  about future events,  developed from the
information  currently available to us. The forward-looking  statements include,
among other things,  our  expectations and estimates about Mrs. Fields' Original
Cookies, Inc. ("Mrs. Fields) future financial  performance,  including growth in
net sales and earnings,  cash flows from operations,  capital expenditures,  the
ability to refinance indebtedness, and the sale of assets.

         These  forward-looking  statements are subject to risks,  uncertainties
and assumptions, including the following:

o    Our ability to combine the businesses of companies acquired during the year
     with Mrs. Fields and to realize the expected benefits and cost savings from
     our acquisitions;
o    Performance by franchisees and licensees;
o    Difficulties or delays in developing and introducing anticipated new 
     products or failure of customers to accept new product offerings;
o    Changes in consumer preferences and our ability to adequately anticipate 
     such changes;
o    The seasonal nature of our operations;
o    Changes in general economic and business conditions;
o    Actions by competitors, including new product offerings and marketing and 
     promotional successes;
o    Claims which might be made against Mrs. Fields, including product liability
     claims;
o    Changes in business strategy, new product lines, changes in raw ingredient
     and employee labor costs;
o    Changes in our relationships with our franchisees and licensees;
o    Changes in mall customer traffic and
o    The inability of our vendors, service providers and financial institutions
     to resolve Year 2000 issues in a timely manner.

     We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information,  future events or otherwise.
In light of these risks,  uncertainties  and  assumptions,  the  forward-looking
events discussed in this report may not occur.

Item 1.   Business

HISTORY

     Mrs.  Fields'  Original  Cookies,  Inc.  was  formed in  September  1996 in
connection  with the  acquisitions  of Mrs.  Fields,  Inc., The Original  Cookie
Company,  Inc.  ("Original  Cookie  Company") and Hot Sam's Inc,. ("Hot Sam") by
Mrs. Fields' Holding Company,  Inc. ("Mrs.  Fields'  Holding"),  a subsidiary of
Capricorn  Investors II, L.P.  ("Capricorn").  Capricorn  retained Mr. Hodges as
Chief Executive Officer of Mrs. Fields and as of January 2, 1999,  Capricorn had
invested more than $28 million in Mrs. Fields through Mrs. Fields' Holding.

     In November 1997, Mrs. Fields received as a contribution  from Mrs. Fields'
Holding,  all of the common stock of The Mrs. Fields' Brand, Inc. ("Mrs. Fields'
Brand").  On the same date Mrs. Fields' Holding also contributed the business of
Mrs.  Fields' Pretzel  Concepts and 56% of the shares of common stock of Pretzel
Time, Inc.  ("Pretzel  Time").  In January,  June and December 1998, Mrs. Fields
acquired  an  additional  4%,  10% and the final 30%,  respectively,  of Pretzel
Time's common stock.

         In August 1998, Mrs. Fields consummated an offering of 10 1/8% Series C
Senior Notes due 2004  resulting in net proceeds of $35.4 million and received a
capital contribution from Mrs. Fields' Holding of $29.1 million,  which were all
of the net proceeds of a concurrent  offering of notes by Mrs.  Fields' Holding.
Mrs. Fields used the proceeds from the offering,  the capital  contribution  and
other  available  cash to: 

o finance the  acquisition  of Cookies USA, Inc., the parent of Great American 
  Cookie Company,  Inc. ("Great  American") 
o finance the acquisition of the stock of two Great American franchisees, Deblan
  and Chocolate Chip
o finance a tender offer and consent solicitation for all the outstanding $40 
  million in total principal amount of Great American's 10 7/8% Senior Secured
  Notes due 2001

         In September  1998,  Mrs.  Fields,  in connection  with the purchase of
Great American,  purchased eight  additional  Great American  franchised  stores
("Karp") for $1.9 million.

         In October  1998,  Mrs.  Fields  purchased  all the  retail  cookie and
related  business and  operations  of eleven Great  American  franchised  stores
("Cookie Conglomerate") for $2.8 million.

         In November 1998, Mrs. Fields purchased all of the outstanding capital 
stock of Pretzelmaker Holdings,  Inc.  ("Pretzelmaker") for approximately $5.4 
million and assumed indebtedness of approximately $1.6 million.

GENERAL

     Today,  Mrs.  Fields  is one  of  the  largest  retailers  in  the  premium
snack-food industry (based on number of units), with cookies and pretzels as its
major product lines.  Mrs. Fields is the largest  retailer of baked  on-premises
cookies (based on the number of units) and the second largest  retailer of baked
on-premises  pretzels  (based on the number of units) in the United  States.  In
addition,  Mrs. Fields is one of the most widely  recognized and respected brand
names in the premium  cookie  industry.  Mrs.  Fields'  operates in two industry
segments  determined  by  revenue  source:  (1)  company-owned  stores  and  (2)
franchised and licensed stores

BUSINESS  STRATEGY.  Our objective is to increase sales and profitability at our
continuing  company-owned and franchised stores by implementing the key elements
of our long-term business strategy.  By the end of fiscal 2000, we plan to close
or franchise  approximately 59 company-owned  cookie stores and 23 company-owned
pretzel  stores that do not meet certain  financial  and  geographical  criteria
established  by  management.  The key elements of this business  strategy are as
follows:


o        Build the Mrs. Fields Brand in other Retail Venues
o        Grow concept and product licensing
o        Enhance Quality of Company-Owned Store Base
o        Improve Productivity of Continuing Company-Owned Stores
o        Capitalize on the Strong "Mrs. Fields" and "Pretzel Time" Brand Names
o        Develop the Great American Brand Name
o        Develop New Company-Owned and Franchised Stores
o        Pursue Further Strategic Acquisitions of Related Businesses
o        Perpetuate franchise growth in all core concepts

PRODUCT  OFFERINGS.  Our product  offerings consist primarily of (1) fresh baked
cookies,  brownies,  muffins,  and other  baked  goods and (2) fresh baked sweet
dough and "Bavarian"  style  pretzels.  During fiscal year 1998, our revenue mix
consisted of the following:
<TABLE>
         <S>                                                                              <C>

         Cookies and Brownies.............................................................56%.
         Pretzels.........................................................................21%
         Beverages........................................................................22%
         Other.............................................................................1%
</TABLE>

     Baked products are made using only pure, high quality, vanilla,  chocolate,
raisins, nuts and other ingredients. To maintain product quality and consistency
at both  company-owned  and franchised  stores,  Mrs. Fields and Original Cookie
stores use centrally manufactured frozen dough, which is manufactured by outside
suppliers  according to our  proprietary  formulas.  Great  American  stores use
refrigerated batter that is shipped daily from our Atlanta production  facility.
Pretzel  Time uses a dry mix batter that is shipped to the stores from  selected
distributors.  All products must pass strict quality assurance and control steps
at both the manufacturing plants and the stores.

         Mrs.  Fields  continually  reviews  its  product  mix in an  effort  to
maximize its  offerings  and  profitability.  For example,  new muffin  flavors,
bagels,  croissants and a revitalized  coffee program were introduced to enhance
morning offerings, as cookies begin selling primarily after mid-day.

PRODUCT  DEVELOPMENT.   We  maintain  a  product  development  department  which
continually  creates  and  tests new  products  to  attract  new  customers  and
revitalize the interest of current customers.  Once a new product is identified,
we develop  prototypes  to determine the initial  formula.  Once the product has
been successfully produced, ingredient specifications,  formulas,  manufacturing
processes, finished product specifications, shelf life, storage and distribution
procedures  are  established.  The new  product is either  immediately  launched
throughout  the  system,  as in the  case  of  seasonal  items  or  simple  line
extensions, or test marketed in a limited number of stores. After a trial period
to evaluate both consumer response and store  operations'  ability to handle the
new product, it is fully commercialized, modified or discontinued.

     Our product development efforts for the cookie stores are currently focused
on a fresh-baked, sugar-free cookie dough and other products, such as cheesecake
brownies, reduced-fat cookies and seasonal items that are designed to capitalize
on  consumer  trends  and  draw  interest  to  Mrs.   Fields'  store  locations.
Development efforts for the pretzel stores include jalapeno, cinnamon raisin and
garlic pretzels with a sweet dough base.

MARKETING AND ADVERTISING.  Our in-house  marketing  department markets products
emphasizing   product   sampling,   local   store   marketing   and  brand  name
identification.  We advertise at the store level, using the aroma of fresh-baked
cookies and the attractive  arrangement  of finished  products to create a store
ambiance  that is conducive to sales.  We cultivate  local  customer  loyalty by
offering  regular 20%  discounts  to employees in malls where stores are located
and occasional other discounts.  We historically have spent relatively little on
paid advertising,  relying mainly on in-store signage, promotions and the public
relations of Debbi  Fields,  who makes store visits and local media  appearances
throughout  the  country and  internationally  for Mrs.  Fields.  In addition to
posters  and  displays of  products,  we promote  products  by offering  special
packaging  and selling other  promotional  items.  We are  currently  working on
developing  catered  corporate  accounts for both  company-owned  and franchised
stores and will be  building  awareness  of  products  geared  toward  corporate
accounts  at the store level for the local  market  area and  through  catalogue
sales. We also promote our products as gifts, particularly at holiday time.

STORE OPERATIONS

COOKIES. We operate and franchise 1,020 retail cookie stores: 580 under the Mrs.
Fields  brand,  120 under the  Original  Cookie  brand,  and 320 under the Great
American brand.  The Great American stores are  concentrated in the southeastern
and south central states and Mrs. Fields and Original Cookie stores are strongly
represented  in the  western,  midwestern  and eastern  states.  There is little
overlap  between Mrs.  Fields,  Original Cookie and Great American stores with a
dual  presence  in 31 malls.  These  stores  offer  over 50  different  types of
cookies,  brownies and muffins,  which are baked  continuously  and served fresh
throughout the day.

         Management  believes  that Mrs.  Fields  and Great  American  have more
well-recognized  brand names than  Original  Cookie.  As a result,  we intend to
continue  selectively  converting our Original  Cookie stores to the Mrs. Fields
and Great  American  brand  stores.  We will also test the success of converting
selected Great American  company-owned  stores to Mrs.  Fields brand stores.  In
addition,  any Great  American  franchisee  will have the option to convert  its
stores to Mrs. Fields brand franchise  stores at its sole expense in areas where
there is no overlap with existing Mrs. Fields brand franchise stores.

PRETZELS.  We operate and franchise  518 retail  pretzel  stores:  233 under the
Pretzel  Time  name,  77 under the Hot Sam name and 208  under the  Pretzelmaker
name.  Pretzel  Time  and  Pretzelmaker's  primary  product  is an all  natural,
hand-rolled  soft  pretzel,  freshly baked at each store  location.  The Hot Sam
pretzel  stores  specialize  in the  Bavarian  style  pretzel.  This product has
declined in  popularity  in recent years as sweet dough pretzel sales have grown
dramatically.  We intend to continue  selectively  converting  Hot Sam stores to
Pretzel Time or Pretzelmaker stores, which we believe will result in an increase
in net sales, comparable store sales and store contribution.

         The retail  pretzel  business has grown more  quickly than the retail 
cookie  business in recent  years.  We believe that the retail pretzel business
has similar  operating  characteristics  to the retail cookie business that will
permit some co-branding of our products.

         Taking   the  impulse  nature  of  our  business  into   consideration,
locational  possibilities  include any high pedestrian traffic areas,  including
second  locations within malls,  airport  concourses,  office building  lobbies,
hospitals,  universities,  stadiums, and supermarket foyers, with easy proximity
to pedestrian traffic flow

CONFIGURATION.  We have developed a number of retail configurations,  which have
wide  application  and  adaptability  to a variety  of retail  environments.  In
addition to the stores that have been designed for prime mall locations, we have
developed  other formats  intended to extend its presence within and beyond mall
locations.

         All of the retail store configurations are executed to include the same
high-quality  marketing,  merchandising and design features which customers have
come to expect from Mrs. Fields.  The store designs are bright with high-profile
trademark  identity.  All products are baked  throughout the day on the premises
with ovens  located in full view of the  customer to support  the  "fresh-baked"
image.  All cookie  stores are uniformly  designed in  accordance  with the Mrs.
Fields,  Original  Cookie or Great  American  prototype.  All pretzel stores are
uniformly   designed  in  accordance  with  the  Pretzel  Time  or  Pretzelmaker
prototype.  Mrs. Fields and its franchisees also operate cookie kiosks and carts
in certain malls on a year-round  basis.  Through  licensed  locations,  we also
operate  kiosks and carts at airports,  universities,  stadiums,  hospitals  and
office building lobbies.  Because of their small size, carts and other kiosks do
not have baking equipment,  and are supplied cookie products by a fully equipped
store usually located in the same mall.

         Average store size based on square footage is as follows:

         Store Type                                       Average Square Footage
         Cookie Store                                       .........350 - 800
            Typical Company Owned Cookie Store              .........600 - 700
         Pretzel Store                                                     500
         Kiosks                                                      100 - 250
         Carts                                                       30 -   92

STORE BASE. As of January 2, 1999, Mrs. Fields' store portfolio consisted of 566
company-owned  stores,  695 domestic  franchised  locations,  113  international
franchised  locations  and 164 licensed  locations.  By product,  the stores are
distributed as follows:

<TABLE>
<S>                       <C>            <C>       <C>           <C>          <C>            <C>         <C>

                          Company-Owned
                                          To be         To be     Domestic    International
                           Continuing    Closed     Franchised   Franchised    Franchised    Licensed    Total
Mrs. Fields...............     135          5           7            187           82           164       580
Original Cookie..........      92          11           17           ---           ---          ---       120
Great American............     65          43           11           201           ---          ---       320
                               --          --           --           ---           ---          ---       ---

Cookie Subtotal...........     292         59           35           388           82           164      1,020
                               ---         --           --           ---           --           ---      -----

Pretzel Time..............     85           9          ---           139           ---          ---       233
Pretzelmaker..............      2           7          ---           168           31           ---       208
Hot Sam...................     58           7           12          ---            ---          ---        77
                               --           -           --          ----           ---          ---        --

Pretzel Subtotal..........     145         23           12           307           31           ---       518
                               ---         --           --           ---           --           ---       ---

Totals....................     437         82           47           695           113          164      1,538
                               ===         ==           ==           ===           ===          ===      =====
</TABLE>



<PAGE>


   As of January 2, 1999, our domestic stores were located in 48 states, Guam
and Washington DC as follows:

                       Mrs. Fields' Original Cookies, Inc.
                              Store Geography List
<TABLE>
<S>                                            <C>          <C>            <C>           <C>         <C>    
                                                                                                      % of
                                               Company-                                              Retail
                   State                         Owned      Franchised     Licensed      Total       Outlets
                   -----                         -----      ----------     --------      -----       -------
California.................................        80             85           15          180        12.6%
Texas......................................        47             58            5          110         7.7%
Florida....................................        27             41           14           82         5.8%
New York...................................        39             22           16           77         5.4%
Ohio.......................................        53              9           11           73         5.1%
Illinois...................................        32             21           12           65         4.6%
Michigan...................................        33             14            3           50         3.5%
Georgia....................................        17             25            3           45         3.2%
Missouri...................................         6             34            1           41         2.9%
Colorado...................................         9             23            8           40         2.8%
Pennsylvania...............................        17             11           12           40         2.8%
Virginia...................................        20             17            3           40         2.8%
Arizona....................................        14             17            5           36         2.5%
Utah .....................................          7             26            1           34         2.4%
North Carolina.............................         7             23            3           33         2.3%
New Jersey.................................        11             13            7           31         2.2%
Indiana....................................        14             11            4           29         2.0%
Iowa......................................          4             24           --           28         2.0%
Tennessee..................................         4             21            3           28         2.0%
Washington.................................         9             15           --           24         1.7%
Louisiana..................................        12              9            2           23         1.6%
Maryland...................................        10              9            4           23         1.6%
Massachusetts..............................        11              7            5           23         1.6%
Wisconsin..................................        17              6           --           23         1.6%
Connecticut................................         7             10            5           22         1.5%
Alabama....................................        --             18            3           21         1.5%
Minnesota.................................          4             17           --           21         1.5%
South Carolina.............................        12              7            2           21         1.5%
Nevada....................................          3              7            7           17         1.2%
Kansas....................................          5              9            1           15         1.1%
Oklahoma..................................          5              6            2           13         0.9%
Kentucky..................................          3              8            1           12         0.8%
Nebraska...................................         5              7           --           12         0.8%
West Virginia..............................         4              7            1           12         0.8%
Oregon....................................          1              8           --            9         0.6%
Hawaii....................................          1              7           --            8         0.6%
Idaho.....................................          3              5           --            8         0.6%
Arkansas..................................          4              3           --            7         0.5%
North Dakota..............................         --              7           --            7         0.5%
New Hampshire.............................          1              6           --            7         0.5%
New Mexico................................          2              3            2            7         0.5%
South Dakota..............................          1              5           --            6         0.4%
Alaska....................................         --              2            3            5         0.4%
Mississippi...............................         --              4           --            4         0.3%
Delaware..................................          2              1           --            3         0.2%
Guam......................................         --              2           --            2         0.4%
Maine......................................         1              1           --            2         0.1%
Montana....................................        --              2           --            2         0.1%
Washington DC..............................        --              2           --            2         0.1%
Wyoming....................................         1             --           --            1         0.1%
                                                    -             --           --            -
     Subtotal                                     565            695          164        1,424       100.0%
International Locations                             1            113           --          114
                                                    -            ---           --          ---

     TOTAL                                        566            808          164        1,538
                                                  ===            ===          ===        =====

</TABLE>


INGREDIENTS, SUPPLIES AND DISTRIBUTION

INGREDIENTS   AND  SUPPLIES.   We  rely  primarily  on  outside   suppliers  and
distributors  for the  ingredients  used in our  products as well as other items
used in our stores. Mrs. Fields' stores receive frozen products,  made according
to our proprietary recipes, from our primary supplier,  Pennant Food Corporation
who currently  supplies  approximately  98% of Mrs.  Fields and Original  Cookie
frozen bakery product. The majority of our Hot Sam stores receive frozen pretzel
dough from J&J Foods,  Inc.  Pennant and J&J use stringent  quality  controls in
testing  ingredients  and  manufacturing,  and  products  are not  released  for
distribution unless they pass all quality control steps, including an evaluation
of the finished baked product. Pennant's contract for making frozen products for
Mrs.  Fields is renewable  every three  years.  We have  identified  alternative
suppliers for frozen dough at Mrs. Fields, Original Cookie and Hot Sam.

         Pretzel  Time  stores  buy  a   proprietary   dry  mix  from   selected
distributors  and mix and bake pretzels at individual  stores.  Franchisees  buy
from various  distributors.  Pretzelmaker receives frozen pretzel dough from two
separate suppliers.

         Great American stores receive "ready to bake" refrigerated  batter from
our  batter  facility  in  Atlanta,  which we  acquired  in the  Great  American
acquisition.  The batter,  which has a shelf life of about 90 days, is stored at
the batter  facility for an average of one to three weeks,  depending on demand,
before being shipped.

         Most supplies  other than dough (such as beverages and paper  products)
are ordered from  distributors  by either Mrs.  Fields or the franchisee and are
directly  shipped to the store. We sell exclusively Coca Cola soft drinks in our
stores under an agreement with Coca-Cola USA Fountain.

DISTRIBUTION.  Regional  distributors  handle  distribution  of  perishable  and
non-perishable  items to Mrs.  Fields and Original  Cookie  stores  weekly.  The
regional distributors own and maintain all of the inventory,  but are authorized
to purchase  inventory  items only from  authorized  vendors at prices that have
been negotiated by Mrs. Fields. Hot Sam and Pretzelmaker  distribute  perishable
and  non-perishable  items  weekly  to  stores  through  selected   distribution
companies. Great American stores receive batter from the Atlanta batter facility
by  refrigerated  common carrier and Pretzel Time and  Pretzelmaker  franchisees
receive items from a variety of distributors.  We ship equipment  related items,
including smallwares equipment and oven parts, directly from public warehouses.


STORE MANAGEMENT

MANAGEMENT STRUCTURE.  We monitor all company-owned and franchised stores with a
regionally  based staff of regional sales managers.  District sales managers are
responsible  for monitoring  all cookie and pretzel  stores in their  territory.
Each regional  sales manager is  responsible  for  overseeing  approximately  30
company-owned  or franchised  cookie and pretzel stores within his or her region
and reports to one of the four regional vice-presidents of store operations. The
field staff is also  responsible  for  introducing new products and processes to
the stores,  ensuring proper  implementation and quality control. Each store has
an on-site management team consisting of a manager and an assistant manager. The
store  manager  is  responsible  for  hiring,   training  and  motivating  store
personnel.

MANAGEMENT  INCENTIVES.  Each manager of a  company-owned  store is eligible for
salary  increases  and bonuses based upon the  performance  of his or her store,
including sales, profits and store appearance. We believe that our incentive and
other  programs  for  management  have  achieved  a  strong  retention  rate for
managers, 72% of Mrs. Fields' regional sales managers have been with Mrs. Fields
for at least four years (67% for over five years), and 51% of Mrs. Fields' store
managers  have been with Mrs.  Fields for at least four years (40% for over five
years).

TRAINING.  We believe  store  managers  are a critical  component in creating an
effective retail environment, and accordingly have developed ongoing programs to
improve the  quality and  effectiveness  of our store  managers  and to increase
retention rates.  New store managers are required to attend a two-week  training
program at our Salt Lake City training  facility and ongoing training courses in
new products, standards, and procedures are available throughout the year to all
our personnel. New franchisees and store managers of Great American are required
to attend a one-week  training  program  at Great  American's  Atlanta  training
facility,  known as "Cookie  University."  In  addition,  training  courses  are
available throughout the year to all Great American and franchisee personnel.


FRANCHISE OPERATIONS

         In accordance  with our business  strategy,  we have been selling,  and
expect to continue to sell,  selected  company-owned  stores to  franchisees  to
reduce costs,  increase  profitability and provide for liquidity and development
of additional  stores in the future.  We are also actively  seeking to franchise
new stores.

COOKIES.  Each franchisee  pays Mrs. Fields an initial  licensing fee of $25,000
per Mrs. Fields and Great American store location and is responsible for funding
the  building-out  of the new store and purchasing  initial dough  inventory and
supplies, at a total cost of approximately  $200,000 and $164,000,  respectively
(including the initial franchise fee),  although the cost of opening a new store
can vary based on individual  operating  and location  costs.  Mrs.  Fields also
charges  franchisees  a fee to handle  equipment  purchases and to provide other
assistance in helping the franchisee to set up operations.  After a store is set
up, a Mrs.  Fields  franchisee  pays royalty fees to us of 6% of the  franchised
store's  annual  gross sales,  and a marketing  fee of 1% of annual gross sales.
Great  American  franchisees  pay royalty fees of 7% of the  franchised  store's
annual gross sales. We do not currently  anticipate  franchising Original Cookie
stores.

         Franchisees come from a wide variety of business  backgrounds and bring
with  them  different  operating  styles  and  business  objectives.  Among  our
franchisees  are  full-time  store   operators,   passive   investors,   retired
professionals and people seeking a second source of income.  The majority of our
franchisees  own one store.  As of January 2, 1999,  the 22 largest Mrs.  Fields
franchisees operated 164 stores, and the largest Mrs. Fields franchisee operated
14 stores.

PRETZELS.  Each franchisee pays Pretzel Time an initial licensing fee of $25,000
per  new  Pretzel  Time  store  location  and is  responsible  for  funding  the
building-out  of the new store and  supplies,  at a total cost of  approximately
$190,000 to $240,000 (including the initial franchise fee), although the cost of
opening a new store can vary based on individual  operating and location  costs.
Pretzel Time also charges franchisees a fee to handle equipment purchases and to
provide other assistance in helping the franchisee to set up operations. After a
store is set up, a  franchisee  pays  royalty  fees to Pretzel Time of 7% of the
franchised store's annual gross sales, and a marketing fee of 1% of annual gross
sales.

         Each  Pretzelmaker  franchisee pays an initial licensing fee of $20,000
per store location and is responsible  for funding the  building-out  of the new
store  and  supplies,  at a total  cost of  approximately  $90,000  to  $208,000
(including the initial franchise fee),  although the cost of opening a new store
can vary based on individual  operating and location costs. After a store is set
up, a franchisee pays royalty fees of 5% of the franchised  store's annual gross
sales, and a marketing fee of 1 1/2% of annual gross sales.
We do not franchise Hot Sam stores.

FRANCHISEE  RECRUITING  AND  TRAINING.  We have been  successful  in  recruiting
franchisees and completing  franchise  transactions and believe we will continue
to realize  significant cash flow from franchising by (1) emphasizing the use of
proprietary dough that minimizes product quality issues and ensures a consistent
product  across all  outlets,  (2)  frequent  quality,  service and  cleanliness
evaluations of franchised stores by operations support staff and (3) initial and
continuing  training of franchisees to improve their  financial and retail sales
skills.

         We believe  our  franchisees  are a critical  component  in creating an
effective retail environment, and accordingly make our ongoing training programs
available to franchisees to improve their quality and effectiveness. Franchisees
are  required  to attend a  two-week  training  program at our Salt Lake City or
Atlanta  training  facilities  and  ongoing  training  courses in new  products,
standards,  and procedures  are available  throughout the year to all franchisee
personnel.

LICENSING

         In the past few years, we have utilized a "branding" strategy which has
capitalized on the highly-recognized Mrs. Fields brand to build traffic,  expand
sales,  improve  market  share,  and to  increase  profits  through  cultivating
alternative  channels  of  distribution.  The  following  is A list of  branding
options, with examples of current licensees within Mrs. Fields' system:

CONCEPT  LICENSING.  We have developed a licensing  program for non-mall  retail
outlets that enables us to enter difficult-to-reach markets and facilitate brand
exposure through "presence" and "prestige"  marketing.  Our licensees  duplicate
the Mrs. Fields store concept and purchase dough from our various  distributors.
Several of these  licensees are contract  management  companies  that manage and
operate food  service in host  locations.  Our  licensees  and their  respective
distribution  channels  include  Host  Marriott  (airports  and travel  plazas),
ARAMark (stadiums and convention centers) and Holiday Inn Worldwide (hotels).

RETAIL  LICENSING.  We  plan  to  capitalize  on our  brand  awareness  and  the
perception  of quality  among  consumers  to expand the product  line to include
products  sold in  other  retail  environments,  including  refrigerated  dough,
dry-mix and non-food products, and other applications outside the original scope
of our retail cookie store concept.  A current  example is Legacy Brands,  which
has the exclusive  North American  rights to retail frozen dough and offers Mrs.
Fields cookies throughout the supermarket industry.  Another licensee is Wham-O,
Inc.,  which has a license to market the Mrs.  Fields  Baking Oven for  children
sold in most toy stores and through mass merchandisers.

SUPPLY  LICENSING.  We currently  have an agreement  with United  Airlines under
which our mail  order  division  sells  cookies to the  airlines  and allows the
airlines  to promote  the Mrs.  Fields  brand and  products  to its  first-class
customers.   We  are  pursuing  similar  relationships  to  compete  with  other
manufacturers' brands selling in this channel of business.

MAIL ORDER BUSINESS

         Our mail order division markets a variety of fresh-baked and other gift
items through its mail order gift catalogue  using toll free telephone  numbers,
including "1-800-COOKIES." We believe that there is significant potential in the
mail order business and are developing this division by targeting both corporate
customers and individuals with a history of purchases at Mrs. Fields stores. The
mail  order   division  had  $5.2  million  in  revenues  in  fiscal  year  1998
representing an increase of approximately 35.5% over sales for fiscal year 1997.

TRADEMARKS

         We are the  holder of  numerous  trademarks  that  have been  federally
registered in the United States and in other  countries  located  throughout the
world.  We are a party to disputes with respect to trademarks  none of which, in
the opinion of management of Mrs. Fields,  is material to Mrs. Fields' business,
financial condition or results of operations.

COMPETITION

         We compete for both  leasing  opportunities  and  customers  with other
cookie and pretzel retailers,  as well as other  confectionery,  sweet snack and
specialty food retailers,  including  cinnamon rolls,  yogurt,  ice cream, baked
goods and candy shops.  The specialty  retail food and snack  industry is highly
competitive with respect to price, service, location and food quality, and there
are many well-established  competitors with greater resources than those of Mrs.
Fields. We compete with these retailers on the basis of price, quality, location
and service. We face competition from a wide variety of sources,  including such
companies as Cinnabon,  Inc., TCBY Yogurt Inc.,  Auntie Anne's Soft Pretzels and
Baskin-Robbins 31 Flavors.

EMPLOYEES

         As of  January  2,  1999,  we  had  approximately  6,614  employees  in
company-owned  stores,  of  whom  approximately  943  were  store  managers  and
assistant  store  managers,  58 were full-time  sales  assistants and 5,613 were
part-time sales assistants. Our typical store employs 5 to 13 employees.  During
the period from November through February, we may hire as many as 750 additional
part-time  employees to handle additional mall traffic.  Most employees are paid
on an hourly basis, except store managers.  Our employees are not unionized.  We
have never  experienced  any  significant  work  stoppages  and believe that our
employee relations are good.

         Many of our  employees  are paid  hourly  rates  based upon the federal
minimum  wage.  As  of  January  2,  1999,  1,636  of  our  6,614  employees  in
company-owned stores earned the federal minimum wage. Minimum wage increases are
expected to  negatively  impact our labor costs,  but  management  believes this
impact can be negated in the long-term  through  increased  efficiencies  in its
operations and, as necessary, through retail price increases.

SEASONALITY

         Our sales and profitability in both the cookie business and the pretzel
business are subject to seasonal fluctuation and are traditionally higher during
the Thanksgiving and Christmas  holiday seasons and other  gift-giving  holidays
due to increased mall traffic and holiday gift purchases.

MANAGEMENT INFORMATION SYSTEMS

         We have made a  substantial  investment  in  developing  a  customized,
sophisticated   point-of-sale   management  information  system,  which  gathers
information  transmitted  daily to corporate  headquarters from most of the Mrs.
Fields brand continuing  company-owned  stores. The system tracks sales from the
point of purchase through a central  mid-range  computer to store,  district and
corporate  management,  allowing  management to track performance data and react
quickly to  developments  at the store level.  We are upgrading our  back-office
system to a Windows NT environment and are currently upgrading all our stores to
Pentium 333 machines. Completion of the upgrades is targeted for August 1999.

         We have assessed the Year 2000 issue and  determined  that all internal
information technology systems including financial software, corporate networks,
the  AS400  system  and all  other  systems  are Year  2000  compliant  with the
exception of: (1) systems used for collecting and communicating  sales data from
retail locations, and (2) internally developed plant production and distribution
software.  This  assessment  was based  primarily  on  independent,  third party
verification from our information technology vendors and suppliers.

         We are currently  replacing our sales collection  systems with software
and hardware that is Year 2000  compliant.  Programming  and  development of the
software is complete and has been installed in approximately  10% of our stores.
We project  installation  will be complete by August 1999. The estimated cost of
this  project is $1.9 million and includes  software  development  and new store
computers  and is included in the Mrs.  Fields'  1999  budget.  Funding for this
project is being provided by internal cash flow and by a lease finance company.

         Upgrades of the plant  production and  distribution  software will take
place in the first and second  quarters of 1999 at an estimated cost of $10,000.
To  date,  approximately  50% of the  upgrades  have  been  implemented,  we are
confident that this timetable  will be met. No information  technology  projects
have been deferred as a result of our Year 2000 efforts.

         We  are  neither  dependent  on  the  proper  operation  of  the  sales
collection systems nor the plant production and distribution software to run the
day-to-day  operations of the business.  Therefore,  failure or  malfunction  of
these  systems  due to  untimely  or  incomplete  remediation  would  not have a
material adverse effect on Mrs. Fields' results of operations.

         We are in the process of assessing Year 2000 issues with respect to our
significant vendors and financial  institutions as to their compliance plans and
whether any Year 2000 issues will impede the ability of such vendors to continue
providing  goods and services to Mrs.  Fields.  Failure of our key  suppliers to
remedy their own Year 2000 issues could delay  shipments of essential  products,
thereby  disrupting  our  operations.  Furthermore,  we rely on various  service
providers,  such as utility and telecommunication  service companies,  which are
beyond our control.  This  assessment is  approximately  60% complete with final
completion  anticipated by the second quarter of 1999. Based upon the results of
the assessment to date, we are not aware of any Year 2000 issues relating to our
significant vendors,  financial  institutions or our non-information  technology
systems.

         We do not  have a  contingency  plan in place to  address  untimely  or
incomplete remediation of Year 2000 issues, but we intend to develop such a plan
during the first half of 1999. These  contingency  plans are expected to address
issues related to significant vendors and financial institutions.

GOVERNMENT REGULATION

         Mrs.  Fields' 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 2.   Properties

         As of January 2, 1999, Mrs.  Fields leased 997 retail stores,  of which
391 were  subleased to  franchisees  under terms which cover all  obligations of
Mrs. Fields thereunder.  Under its franchise agreements, Mrs. Fields has certain
rights to gain control of a retail site in the event of default  under the lease
or the franchise  agreement.  Most of Mrs. Fields'  operating leases provide for
the payment of lease rents plus real estate taxes, utilities,  insurance, common
area  charges and certain  other  expenses,  as well as  contingent  rents which
generally range from 8% to 10% of net retail store sales in excess of stipulated
amounts.

         Mrs. Fields currently leases approximately 50,000 square feet of office
space  in  Salt  Lake  City,  Utah  for  its  corporate  headquarters,   product
development,  training and mail order operations. Mrs. Fields also owns a 40,000
square  foot  batter  facility in  Atlanta,  Georgia.  Substantially  all of the
equipment used in  company-owned  retail  outlets,  the batter  facility and the
corporate headquarters are owned by Mrs. Fields.


Item 3.   Legal Proceedings

         In the ordinary course of business,  Mrs. Fields is involved in routine
litigation,  including franchise disputes and trademark disputes. Mrs. Fields is
not a party to any legal proceedings which, in the opinion of management of Mrs.
Fields,  after  consultation  with legal  counsel,  is material to its business,
financial condition or results of operations.


Item 4.   Submission of Matters to a Vote of Security Holders

         Not applicable.





<PAGE>


                                     Part II


Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

         Market Information and Number of Stockholders. Mrs. Fields' Original  
Cookies, Inc. is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc.
("Mrs.  Fields'  Holding").  There is no established  trading market for Mrs.  
Fields or Mrs. Fields' Holding's common stock.

         Dividends.  For the  period  from  inception  (September  18,  1996) to
December 28, 1996, and for the fiscal years ended January 3, 1998 and January 2,
1999,  Mrs.  Fields did not declare or pay cash  dividends.  Mrs.  Fields has no
history of declaring and paying cash  dividends to its common  stockholders  and
has no intention of declaring such dividends into the foreseeable future.


Item 6. Selected Financial Data

     The following  table presents  historical  financial data for Mrs.  Fields'
Original  Cookies,  Inc. and subsidiaries  and its  predecessors;  namely,  Mrs.
Fields Inc. and subsidiaries,  The Original Cookie Company, Incorporated and the
pretzel business of Hot Sam, Inc. as of the dates and for the periods indicated.
The results of operations  for the periods  December 31, 1995 through  September
17, 1996 and September 18, 1996 through  December 28, 1996 are not indicative of
the results for the full fiscal year. The selected historical financial data has
been  derived  from the  audited  financial  statements  of Mrs.  Fields and its
predecessors.  Due to the  acquisitions  of the net assets of Mrs.  Fields Inc.,
Original  Cookie and Hot Sam on September 17, 1996,  the  financial  data is not
comparable  for all  periods.  However,  in order  for the  presentations  to be
meaningful  for  the  periods   presented,   certain   statement  of  operations
information for the predecessors has been reclassified to be consistent with the
Mrs. Fields historical financial statement presentation. The selected historical
financial data should be read in conjunction with  "Management's  Discussion and
Analysis of Financial  Condition and Results of  Operations"  and the historical
financial  statements and the related notes to it,  contained  elsewhere in this
Form 10-K.

<TABLE>
<CAPTION>

                                                                    Predecessors
                                                                                    The Original Cookie
                                                                                   Company, Incorporated
                                                                             and the Carved-out Portion of Hot
                                                Mrs. Fields Inc. and           Sam Company, Inc. (Combined)(1)
                                                 Subsidiaries(1)
<S>                                      <C>         <C>         <C>          <C>         <C>        <C>
                                                                  December                            December
                                                                  31, 1995                            31, 1995
                                           52 Weeks Ended(2)       through      52 Weeks Ended(2)      through
                                          December    December    September    December    December   September
                                         31, 1994    30, 1995   17,1996(2)     31, 1994   30, 1995   17,1996(2)
                                         ----------  ---------- ------------   ---------  ---------- ----------
Statement of Operations Data:                                     (Dollars in thousands)
                                   
Net store and food sales............... $    87,863 $   59,956 $     31,115  $    89,648   $ 85,581   $ 54,366
Net store contribution(3)..............       8,083      6,591        3,747       13,912     13,063      5,854
Franchising and licensing, net........        7,241      5,993        3,836          --         --         --
General and administrative expenses....      16,379     15,612        8,984       12,546      9,216      7,538
Income (loss) from operations..........      (1,691)    (3,526)      (1,742)        (750)     2,435     (2,772)
Net loss...............................      (5,320)    (2,368)      (2,304)      (5,355)    (2,096)    (5,645)
Other Data:
Interest expense.......................       2,155         51           80        4,381      4,356      2,895
Total depreciation and amortization....       4,415      3,525        1,911        7,423      6,902      4,937
Capital expenditures...................       4,895      4,146        1,054        3,779        568      1,200
Store contribution for stores in the
process of                              $       319  $    (802) $      (695)  $     (542)  $ (1,542)  $ (1,751)
  being closed or franchised(3)........
Ratio of earnings to fixed charges(4).          --         --            --           --         --         --
Balance Sheet Data:
Working capital (deficit).............. $    (1,067) $  (3,114) $   (21,704)  $      (46)  $     128   $ (3,640)
Total assets...........................      30,128     23,033        19,144       74,490     66,282     59,024
Debt and capital lease obligations,
including                                    22,850     21,226        21,224       36,956     32,357     30,977
  current portion......................
Total stockholders' equity (deficit)...     (25,419)   (28,017)      (30,318)      24,684     22,588     16,943
 
</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                                                                     Mrs. Fields(1)
<S>                                                               <C>            <C>            <C>          
                                                                  September 18,    53 Weeks      52 Weeks
                                                                   1996 through     Ended         Ended
                                                                  December 28,   January 3,     January 2,
                                                                    1996(2)        1998(2)       1999(2)
                                                                    ---------      --------      -------
                                                                            (Dollars in thousands)  
Statement of Operations Data:
Net store and food sales.......................................  $       40,849   $  127,845   $  140,235
Net store contribution(3)......................................           9,707       25,044       20,166
Franchising and licensing, net.................................           1,267        6,563       14,001
General and administrative expenses............................           4,035       16,192       19,017
Store closure provision........................................             --           538        7,303
Income (loss) from operations..................................           5,649        8,415       (5,389)
Net income (loss)..............................................           1,961         (974)     (19,143)
Other Data:
Interest expense...............................................           1,867        7,830       13,197
Total depreciation and amortization............................           2,344       10,403       19,820
Capital expenditures...........................................           1,638        4,678        8,235
Store contribution for stores in the process of being closed or  $          513   $   (1,798) $    (2,054)
franchised(3)..................................................
Ratio of earnings to fixed charges(4)..........................            2.85x        --           --
Balance Sheet Data:
Working capital (deficit)......................................  $       (2,889) $    13,133   $  (12,727)
Total assets...................................................         110,055      149,684      231,906
Mandatorily redeemable cumulative preferred stock of subsidiaries         3,597          902        1,261
 .
Debt and capital lease obligations, including current portion.           67,563      101,081      150,989
Total stockholder's equity.....................................          16,961       30,765       40,678

</TABLE>



(1) On  September  17,  1996,   Mrs.  Fields   completed  the   acquisitions  of
    substantially  all of the  assets and  assumed  certain  liabilities  of the
    predecessors.  As a result of purchase accounting adjustments related to the
    acquisitions,   the  Mrs.  Fields  financial  statements  are  not  directly
    comparable to the predecessors' financial statements.
(2) Mrs. Fields and its predecessors operate using a 52/53-week year ending near
    December 31.
(3) Store contribution is determined by subtracting all store operating expenses
    including   depreciation  from  net  store  sales.   Management  uses  store
    contribution  information  to  measure  operating  performance  at the store
    level.  Store  contribution  for stores in the  process  of being  closed or
    franchised  as a  separate  caption  is not  in  accordance  with  generally
    accepted accounting principles.  Store contribution may not be comparable to
    other similarly titled measures.
(4) For purposes of computing the ratio of earnings to fixed  charges,  earnings
    consist of income  before  income taxes plus fixed  charges.  Fixed  charges
    consist of interest expense on all indebtedness (whether paid or accrued and
    net of  debt  premium  amortization),  including  the  amortization  of debt
    issuance costs and original issue discount,  noncash interest payments,  the
    interest  component  of  any  deferred  payment  obligations,  the  interest
    component of all payments associated with capital lease obligations,  letter
    of credit  commissions,  fees or discounts  and the product of all dividends
    and  accretion  on  mandatorily   redeemable   cumulative   preferred  stock
    multiplied by a fraction,  the numerator of which is one and the denominator
    of  which is one  minus  the  current  combined  federal,  state  and  local
    statutory tax rate.  For fiscal years 1994 and 1995 and the period  December
    31, 1995 through  September  17, 1996,  Mrs.  Fields Inc. and  subsidiaries'
    earnings were insufficient to cover fixed charges by $5,129,000,  $2,127,000
    and $2,099,000,  respectively. For fiscal years 1994 and 1995 and the period
    December 31, 1995 through  September 17, 1996,  Original  Cookie and Hot Sam
    (combined)  earnings were insufficient to cover fixed charges by $5,131,000,
    $1,833,000 and $5,645,000,  respectively.  For the 53 weeks ended January 3,
    1998,  and the 52 weeks ended January 2, 1999,  Mrs.  Fields'  earnings were
    insufficient   to  cover  fixed   charges  by  $319,000   and   $18,827,000,
    respectively.


<PAGE>


Item 7.  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. formed Mrs.
Fields' Original Cookies,  Inc. and The Mrs. Fields' Brand, Inc. as subsidiaries
of Mrs. Fields' Holding Company, Inc.

     On September 17, 1996, Mrs. Fields  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 and the pretzel
business of Hot Sam Company, Inc.

     Mrs. Fields 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.  In some of our tables we refer to stores
not planned to be  franchised  or closed as "core"  stores,  meaning  continuing
company-owned stores.  Continuing  company-owned stores will be operated by Mrs.
Fields into the foreseeable  future. As a result of converting certain stores to
franchises,  royalty  revenues  are expected to increase and net store sales and
overhead  expenses  associated  with  operating  those stores are expected to be
reduced.

         As Mrs.  Fields  exits  stores it has  identified  for closure  through
closing or franchising,  results from operations are expected to improve on both
a short-term and long-term  basis.  With respect to these  specific  stores both
ongoing operating losses and negative cash flows are expected to cease.

         Cash payments to landlords for early lease termination costs negatively
impact our immediate liquidity position. However, our overall financial position
is expected to be strengthened over time as cash flows from operating activities
increase.  As cash is used to fund the store closure plans,  corresponding store
closure  reserves are reduced which has a neutral impact on working  capital and
financial position. Should Mrs. Fields' cost estimates for exiting the remaining
stores not prove  sufficient,  it would have a negative impact on both liquidity
and results of operations.

     Mrs. Fields believes that it has sufficient liquidity to complete its store
closure  plans.  A complete  analysis of Mrs.  Fields'  store  closure plans are
included in Note 5 to the Consolidated Financial Statements.

     Mrs.  Fields 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 Mrs. Fields'
Holding, Mrs. Fields' Pretzel Concepts,  Inc., acquired substantially all of the
assets and assumed  certain  liabilities  of H&M Concepts  Ltd. Co., the largest
franchisee  of Pretzel Time,  Inc. On September 2, 1997,  Mrs.  Fields'  Holding
acquired 56% of the common stock of Pretzel Time,  the franchisor of the Pretzel
Time concept.

     On November 26, 1997,  Mrs.  Fields  received as a  contribution  from Mrs.
Fields'  Holding all of the common stock of The Mrs.  Fields'  Brand,  Inc., the
business of Mrs.  Fields' Pretzel Concepts and 56% of the shares of common stock
of Pretzel Time. On January 2, 1998 and June 12, 1998,  Mrs.  Fields acquired an
additional 4% and 10%, respectively,  of Pretzel Time common stock, bringing its
total ownership to 70%. On December 9, 1998, Mrs. Fields purchased three percent
of Pretzel  Time common  stock for $0.5 million in cash and on December 30, 1998
Mrs. Fields completed the acquisition of the remaining  outstanding common stock
of  Pretzel  Time under a stock  purchase  agreement,  for a  purchase  price of
approximately $4.7 million.

     On August 24, 1998, Mrs.  Fields  acquired all of the  outstanding  capital
stock and subordinated  indebtedness of Cookies USA, the parent company of Great
American Cookie Company, Inc., for a total purchase price of $18.4 million. Mrs.
Fields also retired  approximately  $38.9 million of outstanding  Great American
notes. Concurrently,  Cookies USA was merged with and into Mrs. Fields, at which
time Great American became a wholly owned subsidiary of Mrs. Fields. At the same
time Mrs.  Fields also  purchased the stock of two Great  American  franchisees,
Deblan  Corporation and Chocolate Chip Cookies of Texas,  Inc.,  together owning
and operating 29 Great American  franchised stores,  for total  consideration of
$14.4  million.  Deblan  and  Chocolate  Chip were  merged  with and into  Great
American at that time. On September 9, 1998,  Mrs.  Fields  acquired eight Great
American  franchise  stores  (Karp)  from a  Great  American  franchisee,  for a
purchase price of $1.9 million.

     On October 5, 1998,  Mrs.  Fields  purchased  all of the retail  cookie and
related  business and  operations  of eleven  Great  American  franchise  stores
(Cookie  Conglomerate)  from a Great  American  franchisee  for a total purchase
price of $2.8 million.

     On November 19, 1998, Mrs. Fields,  under a stock purchase  agreement among
Pretzelmaker  Holdings,  Inc.,  holders  of all  outstanding  capital  stock  of
Pretzelmaker,  and Mrs. Fields, acquired all of the outstanding capital stock of
Pretzelmaker for $5.4 million and assumed liabilities of $1.6 million related to
severance payments in lieu of outstanding stock options and other liabilities.


YEAR 2000

     Management  has  assessed the Year 2000 issue and has  determined  that all
internal information technology systems including financial software,  corporate
networks,  the AS400 system and all other systems are Year 2000  compliant  with
the exception of:

          (1) systems  used for  collecting  and  communicating  sales data from
              retail locations, and

          (2) internally developed plant production and distribution software.

     This   assessment   was  based   primarily  on   independent,   third-party
verification from our vendors and suppliers.

     We are currently  replacing our sales collection  systems with software and
hardware  that  is Year  2000  compliant.  Programming  and  development  of the
software is complete and has been installed in approximately  20% of our stores.
We project  installation  will be complete by August 1999. The estimated cost of
this  project is $1.9 million and includes  software  development  and new store
computers and registers. The costs to complete this project are included in Mrs.
Fields' 1999 budget. Funding for this project is being provided by internal cash
flow and by a lease finance company.

     Upgrades of the plant production and distribution  software will take place
in the first and second  quarters of 1999 at an  estimated  cost of $10,000.  To
date, approximately 50% of the upgrades have been implemented.  We are confident
that this time table will be met. No information  technology  projects have been
deferred as a result of our Year 2000 efforts.

     We are neither  dependent on the proper  operation of the sales  collection
systems nor the plant production and distribution software to run the day-to-day
operations of the business.  Therefore,  failure or malfunction of these systems
due to  untimely or  incomplete  remediation  would not have a material  adverse
effect on our results of operations.

     We are in the process of  assessing  Year 2000  issues with  respect to our
significant vendors and financial  institutions as to their compliance plans and
whether any Year 2000 issues will impede the ability of such vendors to continue
providing goods and services to us. Failure of our key suppliers to remedy their
own Year 2000 issues  could  delay  shipments  of  essential  products,  thereby
disrupting our operations.  Furthermore,  we rely on various service  providers,
such as utility and  telecommunication  service companies,  which are beyond our
control.  This assessment is  approximately  60% complete with final  completion
anticipated by the end of the second quarter of 1999.  Based upon the results of
the assessment to date, we are not aware of any Year 2000 issues relating to our
significant vendors,  financial  institutions or our non-information  technology
systems.

     We do  not  have a  contingency  plan  in  place  to  address  untimely  or
incomplete  remediation of Year 2000 issues, but we intend to develop such plans
during the first half of 1999. These  contingency  plans are expected to address
issues related to significant vendors and financial institutions.


RESULTS OF OPERATIONS OF MRS. FIELDS AND ITS PREDECESSORS

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
information  relating  to the  operations  of Mrs.  Fields and its  predecessors
expressed in thousands of dollars and percentage  changes from period to period.
Annual data in the table reflects the combined results of the predecessors  (for
the period  December 31, 1995 through  September 17, 1996) and Mrs.  Fields (for
the period  September 18, 1996 through  December 28, 1996) and the  consolidated
results of Mrs.  Fields for the 53 weeks  ended  January 3, 1998  ("fiscal  year
1997") and for the 52 weeks ended January 2, 1999 ("fiscal year 1998"). In order
for the presentations to be comparable,  certain historical  financial statement
information for the predecessors has been reclassified to be consistent with the
Mrs. Fields historical financial statement presentation.
<TABLE>
<S>                                                     <C>           <C>          <C>        <C>           <C>                    
                                                                      For the 53     % of                    % of
                                                         For the 52     Weeks       Change     For the 52   Change
                                                        Weeks Ended     Ended        from     Weeks Ended    from
                                                        December 28,  January 3,   1996 to     January 2,   1997 to
                                                           1996          1998        1997        1999        1998
                                                       ------------- -----------   --------    ----------- ------
STATEMENT OF OPERATIONS DATA:                                              (dollars in thousands)
Revenues:
  Net store and food sales............................  $   126,330  $  127,845         1.2%      $140,235     9.7%
  Franchising, net....................................        3,447       4,535        31.6         12,464   174.8
  Licensing, net......................................        1,656       2,028        22.5          1,537   (24.2)
                                                        -----------  ----------              -------------
    Total revenues....................................      131,433     134,408         2.3        154,236    14.8
Operating costs and expenses:
  Selling and store occupancy costs...................       69,209      66,832        (3.4)        75,003   12.2
  Cost of sales.......................................       31,340      32,028         2.2         38,482    20.2
  General and administrative expenses.................       20,557      16,192       (21.2)        19,017    17.4
  Store closure provision.............................          ---         538        ---           7,303  1257.4
  Depreciation and amortization.......................        9,192      10,403        13.2         19,820   90.5
                                                        -----------  ----------              -------------
    Total operating costs and expenses................      130,298     125,993        (3.3)       159,625    26.7
Interest expense......................................       (4,842)     (7,830)       61.7        (13,197)   68.5
Interest income.......................................          141         246        74.4            623   153.3
Other income (expense)................................       (2,422)     (1,805)      (25.5)        (1,180)  (34.6)
                                                        ------------ -----------             --------------
Net loss..............................................  $    (5,988) $     (974)      (83.7)%     $(19,143) 1865.4%
                                                        ============ ===========             ==============
SUPPLEMENTAL INFORMATION:
CONTINUING COMPANY-OWNED STORES:
  Net store and food sales............................  $    95,635  $  108,174        13.1% $       122,713  13.4%
                                                        -----------  ----------              ----------------
Operating costs and expenses:
  Selling and store occupancy costs...................       44,963      50,858        13.1         60,900    19.7
  Cost of sales.......................................       24,499      26,578         8.5         33,621    26.5
  Depreciation and amortization.......................        4,932       3,896       (21.0)         5,972    53.3
                                                        -----------  ----------              -------------
    Total operating costs and expenses................       74,394      81,332         9.3        100,493    23.6
                                                        -----------  ----------              -------------
Continuing company-owned store contribution...........  $    21,241  $   26,842        26.4% $      22,220   (17.2)%
                                                        ===========  ===========             =============
STORES IN THE PROCESS OF BEING CLOSED OR FRANCHISED:
Net store  and food sales.............................  $    30,695  $    19,671      (35.9)%$      17,522   (10.9)%
                                                        -----------  -----------             -------------
Operating costs and expenses:
  Selling and store occupancy costs...................       24,246      15,974       (34.1)        14,103   (11.7)
  Cost of sales.......................................        6,841       5,450       (20.3)         4,861   (10.8)
  Depreciation and amortization.......................        1,541          45       (97.1)           612  1260.0
                                                        -----------  ----------              -------------
    Total operating costs and expenses................       32,628      21,469       (34.2)        19,576    (8.8)
Stores in the process of being closed or franchised loss $   (1,933) $   (1,798)       (7.0) $      (2,054)   14.2%
                                                        =========== ===========             =============
</TABLE>




<PAGE>




52 Weeks Ended January 2, 1999 Compared to the 53 Weeks Ended January 3, 1998

   Company-owned and Franchised or Licensed Store Activity

     As of  January  2,  1999,  there  were  566  company-owned  stores  and 972
franchised or licensed stores in operation.  The store activity for the 53 weeks
ended  January 3, 1998  ("fiscal  1997") and the 52 weeks ended  January 2, 1999
("fiscal 1998") is summarized as follows:
<TABLE>

                                                                                              
                                                                      Fiscal 1997              Fiscal 1998
                                                                 ----------------------   ----------------------
<S>                                                              <C>        <C>           <C>        <C>    
                                                                   Company-  Franchised   Company-    Franchised
                                                                    owned   or Licensed     Owned    or Licensed
Stores open as of the beginning of the fiscal year.............       482        418          481         553
Stores opened (including relocations and acquisitions).........        86        217          128         504
Stores closed (including relocations)..........................        (7)       (89)         (20)        (78)
Non-continuing company-owned (exit plan) stores closed                     
   (September 18, 1996 forward)................................       (73)        --          (30)         --
Stores sold to franchisees.....................................        (3)         3          (11)         11
Non-continuing company-owned (exit plan) stores franchised                 
   (September 18, 1996 forward)................................        (9)         9          (15)         15
Stores acquired from franchisees...............................         5         (5)          33         (33)
                                                               ---------- -----------  ----------  -----------
Stores open as of the end of the fiscal year...................       481        553          566         972
                                                               ========== ==========   ==========  ==========
</TABLE>


   REVENUES

     NET STORE AND FOOD SALES.  Total net store and food sales,  which  includes
sales from stores and the mail order facility,  increased $12,390,000,  or 9.7%,
from  $127,845,000  to  $140,235,000  for the 52 weeks  ended  January  2,  1999
compared to the 53 weeks ended January 3, 1998.

     Net  store  sales  from  continuing  company-owned  stores  and mail  order
increased  $14,539,000,  or 13.4%,  from $108,174,000 to $122,713,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.  The
increase in net store sales from continuing  company-owned  stores was primarily
attributable to:

          (1) the operation of 85 Pretzel Time continuing  company-owned  stores
              acquired in  connection  with the  acquisition  of H&M and Pretzel
              Time in July 1997,

          (2) the operation of 65 Great American  stores  acquired in connection
              with the acquisitions of Great American,  Deblan,  Chocolate Chip,
              and Karp in August and September 1998,

          (3) a 35.5% increase in mail order sales.

     This increase in net store sales from continuing  company-owned  stores was
offset in part by the negative effect of a calendar shift. Mrs. Fields' 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 fiscal  1997 and again in the fourth
quarter of fiscal 1997.  The first  quarter of 1998 did not benefit from the New
Year's holiday sales.

     The  increase in net store  sales was also offset in part by negative  same
store  sales.  Based on  stores  that  have  been  open for at least  two  years
(adjusted for the calendar shift),  system-wide  continuing  company-owned store
sales were down 1.8% during the 52 weeks ended  January 2, 1999  compared to the
same  period in fiscal  1997.  Additionally,  there were only 52 weeks in fiscal
1998 compared to 53 weeks in fiscal 1997.

     Net store sales from stores in the  process of being  closed or  franchised
decreased $2,149,000, or 10.9%, from $19,671,000 to $17,522,000 for the 52 weeks
ended  January 2, 1999  compared  to the 53 weeks  ended  January 3, 1998.  This
decrease results from closing or franchising 45 stores during the 52 weeks ended
January 2, 1999 and the effect of closing or franchising 82 stores during the 53
weeks ended January 3, 1998.

     FRANCHISING REVENUES. Franchising revenues increased $7,929,000, or 174.8%,
from  $4,535,000 to $12,464,000  for the 52 weeks ended January 2, 1999 compared
to the 53 weeks ended January 3, 1998. The increase in franchising  revenues was
primarily  attributable  to royalties  earned from 141 Pretzel  Time  franchised
stores  obtained in connection  with the  acquisition of H&M and Pretzel Time in
1997, the 211 Great American  franchised  stores obtained in connection with the
acquisitions  of Great American,  Deblan,  Chocolate Chip and Karp in August and
September 1998 and the 199 Pretzelmaker  franchised  stores acquired in November
1998.

     LICENSING REVENUES.  Licensing revenues decreased $491,000,  or 24.2%, from
$2,028,000 to $1,537,000  for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended January 3, 1998. The decrease in licensing revenues was primarily
attributable to reduced concept licensing royalties.

     TOTAL REVENUES.  Total revenues  increased by $19,828,000,  or 14.8%,  from
$134,408,000 to $154,236,000  for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998 due to the reasons discussed above.


   OPERATING COSTS AND EXPENSES

     SELLING AND STORE OCCUPANCY COSTS.  Total selling and store occupancy costs
increased $8,171,000, or 12.2%, from $66,832,000 to $75,003,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.

     Selling  and store  occupancy  costs for  continuing  company-owned  stores
increased by $10,042,000,  or 19.7%,  from $50,858,000 to $60,900,000 for the 52
weeks ended  January 2, 1999  compared  to the 53 weeks  ended  January 3, 1998.
Within this overall  increase,  selling  expenses for  continuing  company-owned
stores  increased by $4,836,000,  or 21.9%,  from $22,094,000 to $26,930,000 for
the 52 weeks ended  January 2, 1999  compared  to the 53 weeks ended  January 3,
1998.  The increase in selling  expenses was  primarily  attributable  to the 85
Pretzel Time  continuing  company-owned  stores  acquired in connection with the
acquisitions  of H&M and Pretzel Time in 1997, the 65 Great American  continuing
company-owned  stores  acquired in  connection  with the  acquisitions  of Great
American,  Deblan,  Chocolate Chip and Karp in August and September  1998, the 2
Pretzelmaker  stores  acquired in November  1998,  and the effect of the minimum
wage increasing to $5.15 from $4.75 on September 1, 1997.  Store occupancy costs
for  continuing  company-owned  stores  increased  $5,206,000,  or  18.1%,  from
$28,764,000  to  $33,970,000  for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998.  The increase in store  occupancy  costs was
primarily  attributable to the increase in the number of stores discussed above,
Mrs.  Fields'  reacquiring 33 continuing  company-owned  stores from franchisees
during the 52 weeks ended January 2, 1999,  rent  escalations in existing leases
and lease renewal increases.

     Selling and store occupancy costs for stores in the process of being closed
or franchised  decreased  $1,871,000,  or 11.7%, from $15,974,000 to $14,103,000
for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. This decrease was primarily the result of closing or franchising 45 stores
during  the 52  weeks  ended  January  2,  1999 and the  effect  of  closing  or
franchising 82 stores during the 53 weeks ended January 3, 1998.

     COST OF SALES.  Total cost of sales increased  $6,454,000,  or 20.2%,  from
$32,028,000  to  $38,482,000  for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998.

     Cost of sales for continuing company-owned stores increased $7,043,000,  or
26.5%,  from  $26,578,000 to $33,621,000 for the 52 weeks ended January 2, 1999.
This  increase  was  primarily  the result of the  addition  of 85 Pretzel  Time
continuing  company-owned  stores in July  1997,  65 Great  American  continuing
company-owned  stores  acquired in  connection  with the  acquisitions  of Great
American,  Deblan,  Chocolate  Chip and Karp in August and September  1998 and 2
Pretzelmaker  stores acquired in November 1998. Cost of sales also increased due
to the  addition  of the Great  American  batter  facility  in August 1998 which
produces  batter  for the Great  American  stores,  food costs  associated  with
increased mail order sales and the increasing  cost of butter.  Butter is one of
the main  ingredients  in a variety of our products and is a condiment for other
products.  The price of butter has increased from $0.78/lb.  at the beginning of
fiscal 1997 to a peak of $2.92/lb. in September 1998. Additionally, distribution
costs  increased  during  the 52 weeks  ended  January  2, 1999 as Mrs.  Fields'
changed  distributors  to improve  product  availability  and the reliability of
service to the stores.

     Cost of sales  for  stores in the  process  of being  closed or  franchised
decreased  $589,000,  or 10.8%,  from  $5,450,000 to $4,861,000 for the 52 weeks
ended  January 2, 1999  compared  to the 53 weeks  ended  January 3, 1998.  This
decrease was primarily the result of closing or franchising 45 stores during the
52 weeks  ended  January 2, 1999 and the effect of  closing  or  franchising  82
stores during the 53 weeks ended January 3, 1998.

     GENERAL AND ADMINISTRATIVE  Expenses.  General and administrative  expenses
increased $2,825,000, or 17.4%, from $16,192,000 to $19,017,000 for the 52 weeks
ended  January 2, 1999  compared  to the 53 weeks  ended  January  3, 1998.  The
increase in general and  administrative  expenses was primarily  attributable to
the  acquisitions  of H&M and Pretzel Time in 1997,  the  acquisitions  of Great
American, Deblan, Chocolate Chip, Karp and Pretzelmaker in 1998.

     STORE  CLOSURE  PROVISION.  During the fourth  quarter of 1998,  management
reassessed its strategy with respect to acceptable  levels of contribution  from
certain existing stores. This resulted in management setting out a plan to close
or franchise 54 existing stores.  The Company recorded an additional  $7,303,000
in store closure  reserves to cover early lease  termination  costs.  Management
believes that the level of store closure reserves is adequate to provide for all
closure costs for these stores.

     DEPRECIATION AND AMORTIZATION EXPENSE.  Total depreciation and amortization
expense  increased by $9,417,000,  or 90.5%, from $10,403,000 to $19,820,000 for
the 52 weeks ended  January 2, 1999  compared  to the 53 weeks ended  January 3,
1998.   This  increase  was  primarily   attributable   to  increased   goodwill
amortization  from the  acquisitions  of H&M and Pretzel Time in fiscal 1997 and
the acquisitions of Great American,  Deblan,  Chocolate Chip and Pretzelmaker in
fiscal 1998.

     For stores with negative  contribution that were determined to be closed or
franchised,  the  Company  wrote  down  the  related  long-lived  assets  to net
realizable  value.  This expense is included in depreciation and amortization in
the 1998  statement  of  operations  and totaled  $3,098,000.  The Company  also
assessed the  realization of goodwill  associated with these stores and recorded
an impairment of goodwill totaling $1,033,000 during fiscal 1998.

     Depreciation and amortization  expense for continuing  company-owned stores
increased $ 2,076,000,  or 53.3%, from $3,896,000 to $5,972,000 for the 52 weeks
ended  January 2, 1999  compared  to the 53 weeks  ended  January 3, 1998.  This
increase in depreciation and amortization expense was primarily  attributable to
the addition of 85 Pretzel Time continuing company-owned stores in July 1997, 65
Great American continuing  company-owned stores in August and September 1998 and
the acquisition of 2 Pretzelmaker continuing company-owned stores in 1998.

     TOTAL  OPERATING  COSTS AND EXPENSES.  Total  operating  costs and expenses
increased by $33,632,000, or 26.7%, from $125,993,000 to $159,625,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998,  for
the reasons discussed above.

     INTEREST  EXPENSE.  Interest expense increased  $5,367,000,  or 68.5%, from
$7,830,000 to $13,197,000 for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended  January 3, 1998.  This increase was  primarily  attributable  to
interest expense on the  $100,000,000  senior notes that were placed in November
1997 and the $40,000,000 senior notes placed in August 1998.

     INTEREST  INCOME.  Interest  income  increased  $377,000,  or 153.3%,  from
$246,000 to $623,000 for the 52 weeks ended  January 2, 1999  compared to the 53
weeks ended January 3, 1998.  This increase was primarily the result of interest
earned on excess cash provided by the $100,000,000 senior notes that were placed
in November 1997 and the $40,000,000 senior notes placed in August 1998.

     OTHER  EXPENSES.   Other  expenses  decreased  $625,000,   or  34.6%,  from
$1,805,000 to $1,180,000  for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended  January 3, 1998.  This decrease was  primarily  attributable  to
minority  interest from the  acquisitions  of H&M and Pretzel Time in 1997 and a
decrease in the income tax provision during the 52 weeks ended January 2, 1999.

     NET LOSS. The net loss increased by $18,169,000,  or 1865.4%, from $974,000
to  $19,143,000  for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998 due to the combination of factors described above.

     INCOME  FROM  CONTINUING   COMPANY-OWNED  STORES.  Income  from  continuing
company-owned  stores  decreased by $4,622,000,  or 17.2%,  from  $26,842,000 to
$22,220,000  for the 52 weeks  ended  January 2, 1999  compared  to the 53 weeks
ended  January  3,  1998.  Income  from  continuing   company-owned  stores  was
negatively  impacted by a 1.8%  decline in sales from stores that have been open
at least two years and by the  increases in selling and store  occupancy  costs,
food cost of sales and  depreciation and  amortization  described above.  Income
from continuing  company-owned stores was also negatively impacted by a calendar
shift whereby Mrs.  Fields' year end was December 28 for fiscal 1996 and January
3, 1998 for fiscal 1997.  As a result,  the New Year's  holiday week fell in the
first  quarter of 1997 and again in the fourth  quarter  fiscal 1997.  The first
quarter  of fiscal  1998 did not  benefit  from the New  Year's  holiday  sales.
Additionally,  there were only 52 weeks in fiscal year 1998 compared to 53 weeks
in fiscal 1997.

     LOSS FROM STORES IN THE  PROCESS OF BEING  CLOSED OR  FRANCHISED.  The loss
from stores in the process of being closed or franchised  increased by $256,000,
or 14.2%,  from  $1,798,000 to $2,054,000 for the 52 weeks ended January 2, 1999
compared to the 53 weeks ended January 3, 1998. The increased loss was primarily
attributable  to the  addition  of 65  stores  from  the  acquisitions  of Great
American,  Deblan,  Chocolate Chip and Karp in August and September 1998, offset
in part by closing or franchising 45 stores during the 52 weeks ended January 2,
1999.


53 Weeks Ended  January 3, 1998  ("Fiscal  Year 1997")  Compared to the 52 Weeks
Ended December 28, 1996 ("Fiscal Year 1996") (Comprised of the Mrs. Fields Inc.,
Original Cookie and Hot Sam Pre-Acquisition  Period of December 31, 1995 through
September 17, 1996 and the Mrs. Fields  Post-Acquisition Period of September 18,
1996 through December 28, 1996)

   COMPANY-OWNED AND FRANCHISED OR LICENSED STORE ACTIVITY

     As of  January  3,  1998,  there  were  481  company-owned  stores  and 553
franchised or licensed stores in operation.  The store activity for the 52 weeks
ended  December 28, 1996 and the 53 weeks ended January 3, 1998 is summarized as
follows:
<TABLE>

                                                                  Fiscal 1996              Fiscal 1997
<S>                                                            <C>       <C>           <C>      <C>    
                                                               Company-   Franchised   Company-   Franchised
                                                                owned    or Licensed    owned    or Licensed
Stores open as of the beginning of the fiscal year............     540         415         482         418
Stores opened (including relocations).........................       5         118           3          76
Stores acquired through business acquisitions.................      --          --          83         141
Stores closed (including relocations).........................     (39)       (122)         (7)        (89)
Non-continuing company-owned (exit plan) stores closed                                            
   (September 18, 1996 forward)...............................     (17)         --         (73)         --
Stores sold to franchisees....................................      (9)          9          (3)          3
Non-continuing company-owned (exit plan) stores franchised                                        
   (September 18, 1996 forward)...............................      (3)          3          (9)          9
Stores acquired from franchisees..............................       5          (5)          5          (5)
                                                              ---------  ----------  ----------  ----------
Stores open as of the end of the fiscal year..................     482         418         481         553

                                                              =========  ==========   =========  ==========
</TABLE>


   REVENUES

     NET STORE AND FOOD SALES.  Total net store and food sales,  which  includes
sales from stores and the mail order facility,  increased  $1,515,000,  or 1.2%,
from  $126,330,000  to  $127,845,000  for the 53 weeks  ended  January  3,  1998
compared to the 52 weeks ended December 28, 1996.

     Net  store  sales  from  continuing  company-owned  stores  and mail  order
increased  $12,539,000,  or 13.1%,  from  $95,635,000 to $108,174,000 for the 53
weeks ended  January 3, 1998  compared to the 52 weeks ended  December 28, 1996.
The  increase  in net store  sales  from  continuing  company-owned  stores  was
primarily attributable to the operation of Pretzel Time continuing company-owned
stores obtained in connection  with the  acquisitions of H&M and Pretzel Time in
July 1997 and an  increase in average  transaction  amounts  resulting  from the
introduction  of product line extensions and aggressive  marketing  initiatives,
offset in part by declining transaction counts in certain concepts.  Also, three
new  continuing  company-owned  stores were opened and five stores were acquired
from franchises during the 53 weeks ended January 3, 1998.

     Based on stores  that have been open for at least two years  (adjusted  for
the calendar shift),  system-wide  continuing  company-owned store sales were up
0.8%  during the 53 weeks ended  January 3, 1998  compared to the 52 weeks ended
December 28, 1996.

     Net store sales from stores in the  process of being  closed or  franchised
decreased  $11,024,000,  or 35.9%,  from  $30,695,000 to $19,671,000  for the 53
weeks ended  January 3, 1998  compared to the 52 weeks ended  December 28, 1996.
This  decrease  results  from the  partial  year effect of closing 73 stores and
franchising  7 (net) stores  during fiscal year 1997 and the full year effect of
closing 56 stores and franchising 7 (net) stores during fiscal year 1996.

     FRANCHISING REVENUES.  Franchising revenues increased $1,088,000, or 31.6%,
from $3,447,000 to $4,535,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996.  The increase in franchising  revenues was
primarily  attributable to royalties earned from Pretzel Time franchised  stores
obtained in  connection  with the  acquisitions  of H&M and Pretzel Time coupled
with new franchise  openings in fiscal year 1997 and the full year effect of new
franchise openings in fiscal year 1996.

     LICENSING REVENUES.  Licensing revenues increased $372,000,  or 22.5%, from
$1,656,000 to $2,028,000  for the 53 weeks ended January 3, 1998 compared to the
52 weeks  ended  December  28,  1996.  The  increase  in  licensing  revenues is
primarily  attributable  to  licensing  fees  earned on new  license  agreements
entered into during the 53 weeks ended January 3, 1998, and increased  royalties
received from existing licensees.

     TOTAL  REVENUES.  Total  revenues  increased by $2,975,000,  or 2.3%,  from
$131,433,000 to $134,408,000  for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996, for the reasons discussed above.

   OPERATING COSTS AND EXPENSES

     SELLING AND STORE OCCUPANCY COSTS.  Total selling and store occupancy costs
decreased $2,377,000,  or 3.4%, from $69,209,000 to $66,832,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.

     Selling  and store  occupancy  costs for  continuing  company-owned  stores
increased by $5,895,000,  or 13.1%,  from  $44,963,000 to $50,858,000 for the 53
weeks ended  January 3, 1998  compared to the 52 weeks ended  December 28, 1996.
Within this overall  increase,  selling  expenses  increased by  $4,029,000,  or
15.7%,  from  $25,650,000 to $29,679,000  for the 53 weeks ended January 3, 1998
compared  to the 52 weeks  ended  December  28,  1996.  The  increase in selling
expenses was  primarily  attributable  to an increase in the minimum wage during
the third  quarter of 1996 from $4.15 to $4.75 an hour and an  increase in labor
hours to  support  the  increase  in  sales.  Store  occupancy  costs  increased
$1,866,000,  or 9.7%,  from  $19,313,000 to  $21,179,000  for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended  December 28, 1996.  The increase
in store occupancy  costs was primarily  attributable to the addition of Pretzel
Time  continuing  company-owned  stores in July 1997,  and the  opening of three
continuing company-owned stores and acquiring five stores from franchises during
the 53 weeks ended January 3, 1998 coupled with lease renewal increases.

     Selling and store occupancy costs for stores in the process of being closed
or franchised  decreased  $8,272,000,  or 34.1%, from $24,246,000 to $15,974,000
for the 53 weeks ended January 3, 1998  compared to the 52 weeks ended  December
28,  1996.  This  decrease  is  primarily  the  result of  closing 73 stores and
franchising  seven (net) stores during fiscal year 1997 and the full year effect
of closing 56 stores and franchising seven (net) stores during fiscal year 1996.

     COST OF  SALES.  Total  cost of sales  increased  $688,000,  or 2.2%,  from
$31,340,000  to  $32,028,000  for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996.

     Cost of sales for continuing company-owned stores increased $2,079,000,  or
8.5%,  from  $24,499,000 to $26,578,000  for the 53 weeks ended January 3, 1998.
This  increase is  primarily  the result of the addition in July 1997 of Pretzel
Time  continuing  company-owned  stores,  offset by an aggressive  product waste
control  program which was  uniformly  applied to all product lines early in the
year.  Additionally,  Mrs.  Fields  re-negotiated  certain  vendor  contracts to
capitalize on Mrs. Fields' economies of scale.

     Cost of sales  for  stores in the  process  of being  closed or  franchised
decreased  $1,391,000,  or 20.3%, from $6,841,000 to $5,450,000 for the 53 weeks
ended  January 3, 1998  compared to the 52 weeks ended  December 28, 1996.  This
decrease  is  primarily  the result of closing 73 stores and  franchising  seven
(net)  stores  during  fiscal  year 1997 and the full year  effect of closing 56
stores and franchising seven (net) stores during fiscal year 1996.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
decreased $4,365,000, or 21.2%, from $20,557,000 to $16,192,000 for the 53 weeks
ended  January 3, 1998  compared to the 52 weeks ended  December 28,  1996.  The
decrease in expenses was primarily  attributable to the cost savings achieved by
combining the operations of Mrs. Fields Inc. and subsidiaries,  Original Cookie,
Hot Sam and Pretzel Time which resulted in:

     (1)  reduced  headcount  with  corresponding  decreases  in  administrative
          salaries and benefits;  
     (2)  decreased  professional service fees, including
          legal and accounting services; and
     (3)  decreased corporate office expenditures,  including general insurance,
          repairs and  maintenance  and  utilities as a direct result of closing
          the Original Cookie and Hot Sam  headquarters in Cleveland,  Ohio, the
          Pretzel Time  headquarters  in  Harrisburg,  Pennsylvania  and the H&M
          headquarters in Boise, Idaho.

     DEPRECIATION AND AMORTIZATION EXPENSe.  Total depreciation and amortization
expense  increased by $1,211,000,  or 13.2%,  from $9,192,000 to $10,403,000 for
the 53 weeks ended January 3, 1998  compared to the 52 weeks ended  December 28,
1996.

     Depreciation and amortization  expense for continuing  company-owned stores
decreased  $1,036,000,  or 21.0%, from $4,932,000 to $3,896,000 for the 53 weeks
ended  January 3, 1998  compared to the 52 weeks ended  December 28,  1996.  The
decrease in depreciation and amortization expense was primarily  attributable to
Mrs. Fields recording the acquired assets of Mrs. Fields Inc. and  subsidiaries,
Original  Cookie and Hot Sam at their  fair  values at the time of  purchase  on
September  17, 1996,  resulting in an overall  reduction to the store asset base
and the  corresponding  depreciation.  This  decrease  is  partially  offset  by
additional  depreciation  expense  resulting  from the  addition of Pretzel Time
continuing  company-owned  stores in July 1997,  three newly  opened  continuing
company-owned  stores and five stores  acquired  from  franchises in fiscal year
1997.

     TOTAL  OPERATING  COSTS AND EXPENSES.  Total  operating  costs and expenses
decreased by $4,305,000,  or 3.3%, from  $130,298,000 to $125,993,000 for the 53
weeks ended  January 3, 1998  compared to the 52 weeks ended  December 28, 1996,
for the reasons discussed above.

     INTEREST  EXPENSE.  Interest expense increased  $2,988,000,  or 61.7%, from
$4,842,000 to $7,830,000  for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. This increase is primarily  attributable to an
increase  in  interest  expense  as a result  of the debt  incurred  to fund the
purchase of the assets of Mrs. Fields Inc. and subsidiaries, Original Cookie and
Hot Sam on September 17, 1996.

     OTHER  EXPENSES.   Other  expenses  decreased  $617,000,   or  25.5%,  from
$2,422,000 to $1,805,000  for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. This decrease was primarily  attributable to a
decrease in income tax provision, offset in part by an increase in accretion and
dividends on preferred stock of subsidiaries.

     NET LOSS. The net loss decreased by $5,014,000,  or 83.7%,  from $5,988,000
to  $974,000  for the 53 weeks  ended  January 3, 1998  compared to the 52 weeks
ended December 28, 1996. The net loss equaled 0.7% of total revenues  during the
53 weeks ended January 3, 1998 compared to 4.6% of total revenues  during the 52
weeks ended December 28, 1996. The decrease in net loss is primarily due to cost
savings   achieved  by  combining  the  operations  of  Mrs.   Fields  Inc.  and
subsidiaries,  Original  Cookie and Hot Sam,  cost savings  associated  with the
acquisitions of H&M and Pretzel Time and improved store operations.

     INCOME FROM  CONTINUING  COMPANY-OWNED  STORES.  The income from continuing
company-owned  stores  increased by $5,601,000,  or 26.4%,  from  $21,241,000 to
$26,842,000  for the 53 weeks  ended  January 3, 1998  compared  to the 52 weeks
ended December 28, 1996 due to the combination of the factors described above.

     LOSS FROM STORES IN THE  PROCESS OF BEING  CLOSED OR  FRANCHISED.  The loss
from stores in the process of being closed or franchised  decreased by $135,000,
or 7.0%,  from  $1,933,000 to $1,798,000  for the 53 weeks ended January 3, 1998
compared to the 52 weeks  ended  December  28,  1996.  The  decrease in negative
income was primarily  attributable  to closing 73 stores and  franchising  seven
(net)  stores  during  fiscal  year 1997 and the full year  effect of closing 56
stores and franchising seven (net) stores during fiscal year 1996.


LIQUIDITY AND CAPITAL RESOURCES

   GENERAL

     Mrs. Fields' principal sources of liquidity are cash flows from operations,
cash on hand and available  borrowings  under Mrs.  Fields'  existing  revolving
credit facility. At January 2, 1999, Mrs. Fields had $4,751,000 of cash and cash
equivalents and $15,000,000 of available  borrowings  under its credit facility.
However, at January 2, 1999, this availability was limited by the bond indenture
to $4,777,000.  It is expected that Mrs. Fields'  principal uses of cash will be
to provide working capital, finance capital expenditures, including acquisitions
and store  closure  costs,  meet debt  service  requirements  and other  general
corporate purposes. Mrs. Fields is highly leveraged. Based on current operations
and anticipated cost savings, Mrs. Fields believes that its sources of liquidity
will be  adequate to meet its  anticipated  requirements  for  working  capital,
capital   expenditures   and  store  closure   costs,   scheduled  debt  service
requirements and other general  corporate  purposes.  There can be no assurance,
however,  that Mrs.  Fields' business will continue to generate cash flows at or
above current  levels or that cost savings can be achieved.  In addition,  given
borrowing  restrictions on the bond indenture and  maintenance  covenants in the
revolving  credit  facility,  the  ability  for Mrs.  Fields to make  additional
borrowings  is limited.  Accordingly,  Mrs.  Fields may choose to defer  capital
expenditure   plans  and  extend  vendor   payments  for  additional  cash  flow
flexibility.

   JANUARY 2, 1999 COMPARED TO JANUARY 3, 1998

     As of January  2,  1999,  Mrs.  Fields  had  liquid  assets  (cash and cash
equivalents  and accounts  receivable) of  $13,962,000,  a decrease of 30.2%, or
$6,036,000,  from January 3, 1998 when liquid assets were $19,998,000.  Cash and
cash equivalents  decreased  $11,536,000,  or 70.8%, to $4,751,000 at January 2,
1999 from $16,287,000 at January 3, 1998. This decrease was primarily the result
of cash used for the acquisitions of Great American,  Deblan and Chocolate Chip,
and Karp in August and  September  1998,  the  acquisition  of  Pretzelmaker  in
November 1998, the acquisition of 30% of Pretzel Time's common stock in November
and December 1998, capital expenditures of $8,235,000 relating to store remodels
and renovations and interest payments of $12,440,000  primarily  relating to the
$140,000,000 total principal amount of senior notes, offset in part, by $623,000
in interest income earned during the year from excess cash investments.

     Current assets  decreased by $4,480,000 or 15.5%, to $24,343,000 at January
2, 1999 from  $28,823,000  at January 3, 1998.  This  decrease was primarily the
result of a decrease in cash and cash  equivalents of $11,536,000,  offset by an
increase in accounts  receivable of  $5,500,000,  an increase in  inventories of
$2,403,000 and a decrease in the current portion of deferred income tax assets.

     Long-term  assets  increased  $86,702,000,  or 71.1%,  to  $207,563,000  at
January  2, 1999 from  $120,861,000  at  January  3,  1998.  This  increase  was
primarily  the result of an increase  in property  and  equipment  and  goodwill
related to the acquisitions of Great American,  Deblan, Chocolate Chip, Karp and
Pretzelmaker.

     Current liabilities increased by $21,380,000,  or 136.3%, to $37,070,000 at
January 2, 1999 from  $15,690,000 at January 3, 1998. This increase is due to an
increase in accounts  payable,  accrued  interest  payable,  current  portion of
long-term debt, accrued salaries, wages and benefits, store closure reserves and
accrued liabilities offset by a decrease in deferred income.

     Mrs.  Fields' working capital  decreased by  $25,860,000,  or 196.9%,  to a
negative $12,727,000 at January 2, 1999 from $13,133,000 at January 3, 1998, for
the reasons described above.

     Mrs. Fields generated  $9,429,000 of cash from operating  activities during
the 52 weeks ended January 2, 1999,  primarily from store sales and  franchising
and licensing  revenues  less costs and expenses  incurred to generate the store
sales and  franchising  and  licensing  revenues,  and less interest paid on the
$140,000,000 senior notes.

     Mrs. Fields utilized  $40,894,000 of cash from investing  activities during
the 52 weeks  ended  January 2, 1999,  primarily  for the  acquisition  of Great
American, Deblan, Chocolate Chip, Karp and Pretzelmaker and capital expenditures
relating to store remodels and renovations.

     Mrs. Fields generated  $19,929,000 of cash from financing activities during
the 52 weeks ended  January 2, 1999,  primarily  from the issuance of new senior
notes and a capital  contribution  from Mrs. Fields'  Holding,  net of principal
payments to retire  Great  American  long-term  debt and payment of  acquisition
costs.

     The specialty cookie and pretzel  businesses do not require the maintenance
of significant  receivables or inventories;  however,  Mrs.  Fields  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 Mrs. Fields' working
capital.  During  the 52 weeks  ended  January  2, 1999,  Mrs.  Fields  expended
$8,235,000 for capital assets and expects to expend approximately $7,000,000 for
all of 1999. Management  anticipates that these expenditures will be funded with
cash  generated  from  operations  and  short-term  borrowings  under its credit
facility as needed.  As of March 31, 1999,  the Company had drawn  $3,000,000 on
its credit facility leaving $5,700,000 available for future use.

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.  In addition,  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

      Mrs.  Fields' sales and income from store  operations are highly  seasonal
given the significant  impact of its mall-based  locations.  Mrs.  Fields' 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  income  from  store  operations  is even more
significant than the effect on sales. The impact on income from store operations
is more  significant due to the fixed nature of certain store level costs,  such
as  occupancy  costs and store  manager  salaries.  Once these  fixed  costs are
covered  by  store  sales,  the flow  through  of sales  to  income  from  store
operations becomes greater. Accordingly, the fourth quarter is a key determinant
to overall profitability for the year.


Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

     The Company's major market risk exposure is changing  interest  rates.  The
Company  does not hedge  against  changes in  interest  rates.  The table  below
provides  information  about  the  Company's  financial   instruments  that  are
sensitive  to changes  in  interest  rates  including  principal  cash flows and
related weighted average interest rates by year of expected  maturity dates. The
table does not  include  non-interest  bearing  notes  totaling  $4,740,000  and
unamortized discount of $566,000.
                                                                                
<TABLE>
<S>                                <C>       <C>        <C>        <C>        <C>      <C>         <C>      <C>
                                   1999      2000       2001       2002       2003     Thereafter  Total     Fair Value 
                                                       ($ in thousands)                                     As of 1/2/99
                                   
Long-term debt, including
 current portion (fixed rate)    $3,336       $638      $529       $573       $443     $140,000     $145,519    $140,619
Weighted average interest rate   10.58%      9.84%     9.18%      9.17%      9.17%       10.13%       10.12%
</TABLE>


<PAGE>


Item 8.   Financial Statements and Supplementary Data

                                                                                
Mrs. Fields' Original Cookies, Inc. and subsidiaries 
<TABLE>
<S>                                                                                                           <C>    
                                                                                                              Page
Report of Independent Public Accountants...................................................................   27
Consolidated Balance Sheets as of January 3, 1998 and January 2, 1999......................................   28
Consolidated Statements of Operations for the period from inception (September 18, 1996) to December 28, 1996
 and for the years ended January 3, 1998 and January 2, 1999................................................  30 
Consolidated Statements of Stockholder's Equity for the period from inception (September 18, 1996) to
 December 28, 1996 and for the years ended January 3, 1998 and January 2, 1999..............................  31
Consolidated Statements of Cash Flows for the period from inception (September 18, 1996) to December 28, 1996
 and for the years ended January 3, 1998 and January 2, 1999................................................  32
Notes to Consolidated Financial Statements.................................................................   35
</TABLE>





































<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Mrs. Fields' Original Cookies, Inc.:

We have audited the  accompanying  consolidated  balance sheets of Mrs.  Fields'
Original Cookies,  Inc. (a Delaware  corporation) and subsidiaries as of January
3,  1998 and  January  2,  1999,  and the  related  consolidated  statements  of
operations,  stockholder's  equity and cash flows for the period from  inception
(September  18,  1996) to December 28, 1996 and for each of the two years in the
period ended January 2, 1999. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of Mrs.
Fields'  Original  Cookies,  Inc.  and  subsidiaries  as of  January 3, 1998 and
January 2, 1999, and the consolidated results of their operations and their cash
flows for the period from  inception  (September  18, 1996) to December 28, 1996
and for each of the two years in the period ended  January 2, 1999 in conformity
with generally accepted accounting principles.




ARTHUR ANDERSEN LLP

Salt Lake City, Utah
April 1, 1999


<PAGE>





              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                  (Dollars in thousands, except per share data)

                                     ASSETS

<TABLE>
<S>                                                                                        <C>        <C>
                                                                                            January 3, January 2,
                                                                                              1998        1999
CURRENT ASSETS:
     Cash and cash equivalents..........................................................   $   16,287  $    4,751
     Accounts receivable, net of allowance for doubtful accounts of $32 and $74,
        respectively....................................................................        1,535       3,208
     Amounts due from franchisees and licensees, net of allowance for doubtful
        accounts of $582 and $1,078, respectively.......................................        2,176       6,003
     Inventories........................................................................        3,100       5,503
     Prepaid rent and other.............................................................        2,960       4,017
     Deferred income tax assets.........................................................        2,765         861
                                                                                           ----------   ---------
          Total current assets..........................................................       28,823      24,343
                                                                                          -----------  ----------
PROPERTY AND EQUIPMENT, at cost:
     Leasehold improvements.............................................................       21,099      29,914
     Equipment and fixtures.............................................................       14,100      17,108
     Land    .                                                                                    128         240
                                                                                          -----------  ----------
                                                                                               35,327      47,262
     Less accumulated depreciation and amortization.....................................       (6,125)    (15,465)
                                                                                          ------------ ----------
          Net property and equipment....................................................       29,202      31,797
                                                                                          -----------  ----------
DEFERRED INCOME TAX ASSETS..............................................................          734       2,638
                                                                                          -----------  ----------
GOODWILL, net of accumulated amortization of $4,980 and $11,231, respectively...........       68,501     145,782
                                                                                          -----------  ----------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated amortization of
   $1,409 and $2,615, respectively......................................................       15,193      14,296
                                                                                           ----------  ----------
DEFERRED LOAN COSTS, net of accumulated amortization of $70 and $1,320,
   respectively.........................................................................        5,906      11,718
                                                                                          -----------  ---------
OTHER ASSETS ..........................................................................         1,325       1,332
                                                                                          -----------  ----------
                                                                                          $   149,684  $  231,906
                                                                                          ===========   =========
</TABLE>













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


<PAGE>





              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                  (Dollars in thousands, except per share data)

                      LIABILITIES AND STOCKHOLDER'S EQUITY

<TABLE>
<S>                                                                                           <C>         <C>
                                                                                              January 3,  January 2,
                                                                                                1998        1999
CURRENT LIABILITIES:
     Current portion of long-term debt...................................................... $       472  $    8,046 
     Current portion of capital lease obligations...........................................         142         299 
     Accounts payable.......................................................................       3,805      10,723 
     Bank overdraft.........................................................................          --       4,133 
     Accrued liabilities....................................................................       2,826       3,597 
     Current portion of store closure reserve...............................................       3,664       4,577 
     Accrued salaries, wages and benefits...................................................       1,891       3,155 
     Accrued interest payable...............................................................       1,082       1,260 
     Sales taxes payable....................................................................         937         962 
     Deferred credits.......................................................................         871         318
                                                                                             -----------  ----------
          Total current liabilities.........................................................      15,690      37,070 
LONG-TERM DEBT, net of current portion and discount.........................................     100,284     141,647 
STORE CLOSURE RESERVE, net of current portion...............................................       1,802      10,134 
CAPITAL LEASE OBLIGATIONS, net of current portion...........................................         183         997
                                                                                             -----------  ----------
          Total liabilities.................................................................     117,959     189,848
                                                                                               ---------  ----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 7 and 8)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of Pretzel Time
   (a wholly owned subsidiary), aggregate liquidation preference of $1,437 and $1,495,
   respectively.............................................................................         902      1,261
                                                                                             -----------  ----------
MINORITY INTEREST...........................................................................          58        119
                                                                                             -----------  ----------
STOCKHOLDER'S EQUITY:
     Common stock, $.01 par value; 1,000 shares authorized and 400 shares outstanding
        (pledged as collateral for parent company debt).....................................          --          --  
     Additional paid-in capital.............................................................      30,843      59,899 
     Accumulated deficit....................................................................         (78)   (19,221)
                                                                                             ------------  ---------
          Total stockholder's equity........................................................      30,765      40,678
                                                                                             ------------  ---------

                                                                                                $149,684    $231,906
                                                                                             ===========   =========
</TABLE>




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


<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (Dollars in thousands)

<TABLE>
<S>                                                                       <C>             <C>         <C>
                                                                             Inception        53          52
                                                                          (September 18,    Weeks       Weeks
                                                                             1996) to       Ended       Ended
                                                                           December 28,   January 3,  January 2,
                                                                               1996         1998        1999
                                                                               -----        ------      ----
REVENUES:
     Net store and food sales...........................................    $     40,849    $127,845    $140,235
     Franchising, net...................................................             503       4,535      12,464
     Licensing, net.....................................................             764       2,028       1,537
                                                                            ------------   ---------   ---------
          Total revenues................................................          42,116     134,408     154,236
                                                                            ------------   ---------   ---------
OPERATING COSTS AND EXPENSES:                                                                                    
     Selling and store occupancy costs..................................          19,492      66,832      75,003
     Cost of sales......................................................          10,596      32,028      38,482
     General and administrative.........................................           4,035      16,192      19,017
     Store closure provision............................................              --         538       7,303
     Depreciation and amortization......................................           2,344      10,403      19,820
                                                                            ------------  ----------   ---------
          Total operating costs and expenses............................          36,467     125,993     159,625
                                                                            ------------  ----------   ---------
               Income (loss) from operations............................           5,649       8,415      (5,389)
                                                                            ------------  ----------  -----------
OTHER INCOME (EXPENSE), net:
     Interest expense...................................................          (1,867)     (7,830)    (13,197)
     Interest income....................................................              74         246         623
     Other expense......................................................              --        (368)       (409)
                                                                            ------------- ----------- -----------
          Total other expense, net......................................          (1,793)     (7,952)    (12,983)
                                                                            ------------  ----------   ---------
     Income (loss) before provision for income taxes, preferred stock
        accretion and dividends of subsidiaries and minority interest...           3,856         463     (18,372)
PROVISION FOR INCOME TAXES..............................................          (1,798)       (655)       (316)
                                                                            ------------  ----------  ----------
     Income (loss) before preferred stock accretion and dividends of
        subsidiaries and minority interest..............................           2,058        (192)    (18,688)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
   SUBSIDIARIES.........................................................             (97)       (644)       (444)
MINORITY INTEREST ......................................................             --         (138)        (11)
                                                                            ------------  ----------  ----------
          Net income (loss).............................................   $       1,961  $     (974)  $ (19,143)
                                                                           =============  ==========   =========
</TABLE>











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


<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                             (Dollars in thousands)

<TABLE>
<S>                                                          <C>      <C>       <C>            <C>           <C> 
                                                                                                  Retained
                                                                                                  Earnings
                                                                   Common Stock   Additional    (Accumulated
                                                                 Shares   Amount Paid-in Capital  Deficit)    Total
BALANCE, September 18, 1996..................................      --      $ --         $   --  $     --     $      --
     Issuance of common stock for cash.......................     400        --         15,000        --        15,000
     Net income..............................................      --        --            --      1,961         1,961
                                                              ------- ----------       -------  --------     ---------
BALANCE, December 28, 1996...................................     400        --         15,000     1,961        16,961
     Parent contribution of investment in Pretzel Time.......      --        --          4,200        --         4,200 
     Parent contribution of note receivable due from
        Pretzel Time's minority stockholder and founder......      --        --            500        --           500
     Parent contribution of investment in Mrs. Fields' Brand       --        --          6,500        --         6,500
     Conversion to equity of note payable to parent..........      --        --          4,643        --         4,643 
     Dividend paid to parent.................................      --        --             --    (1,065)       (1,065)
     Net loss................................................      --        --             --      (974)         (974)
                                                             -------- ----------       --------- -------     ---------
BALANCE, January 3, 1998.....................................     400        --         30,843       (78)       30,765
     Parent equity infusion..................................      --        --         29,056        --        29,056
     Net loss................................................      --        --             --   (19,143)      (19,143)
                                                             -------- ----------       -------- --------     ---------
BALANCE, January 2, 1999.....................................     400     $  --        $59,899  $ (19,221)   $  40,678
                                                             ========     ======       =======  =========    =========

</TABLE>


























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


<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<S>                                                                            <C>           <C>          <C>
                                                                                 Inception
                                                                                 (September    53 Weeks    52 Weeks
                                                                                18, 1996) to    Ended      Ended
                                                                                December 28,  January 3,  January 2,
                                                                                    1996         1998        1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..........................................................   $    1,961    $   (974)   $(19,143)
  Adjustments to reconcile net income (loss) to net cash provided
     by operating activities, net of effects from acquisitions:
    Depreciation and amortization............................................        2,344      10,403      19,820
    Amortization of discount on notes........................................           --          --       1,250
    Amortization of deferred loan costs......................................           --          --          32
    Loss on disposition of assets............................................           --         368         409
    Deferred income taxes....................................................        1,511         210          --
    In-kind interest expense on note payable to stockholder..................           97         338          --
    Preferred stock accretion and dividends of subsidiaries..................           97         644         444
    Minority interest........................................................           --         234          11
    Changes in assets and liabilities, net of effects from acquisitions:                                           
      Accounts receivable....................................................         (294)       (353)     (1,673)
      Amounts due from franchisees and licensees.............................         (339)       (514)       (866)
      Inventories............................................................         (159)        136        (822)
      Prepaid rent and other.................................................          (31)       (895)        932 
      Other assets...........................................................           39         427       1,437
      Accounts payable and accrued liabilities...............................          239      (6,651)      2,769
      Store closure reserve..................................................         (305)     (1,666)      5,196
      Accrued salaries, wages and benefits...................................          212          80       1,264
      Accrued interest payable...............................................        1,668        (586)       (713)
      Sales taxes payable....................................................          542         261         (80)
      Deferred credits.......................................................           27        (543)       (838)
                                                                                -----------   ---------   --------
        Net cash provided by operating activities............................        7,609         919       9,429
                                                                               ------------   ---------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                
  Net cash paid for acquisitions and related costs...........................      (19,508)    (10,949)    (32,835)
  Purchase of property and equipment, net of effects from acquisitions.......       (1,638)     (4,678)     (8,235)
  Proceeds from the sale of assets...........................................           15         122         176
                                                                               -------------  --------   ---------
        Net cash used in investing activities................................      (21,131)    (15,505)    (40,894)
                                                                               -------------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                
  Proceeds from issuance of long-term debt...................................           --     108,250     39,400
  Principal payments on long-term debt.......................................       (1,769)    (77,009)   (41,257)
  Payment of debt financing costs............................................           --      (5,976)    (7,062)
  Cash advance from Mrs. Fields' Holding.....................................           --       1,500         --
  Repayment of cash advance to Mrs. Fields' Holding..........................           --      (1,500)        --
  Payment of cash dividend to Mrs. Fields' Holding...........................           --      (1,065)        --
  Equity infusion from Mrs. Fields' Holding..................................           --          --     29,056   
  Principal payments on capital lease obligations............................           --         (36)      (123)
  Proceeds from the issuance of common stock.................................       15,000          --         --
  Proceeds from the issuance of mandatorily redeemable cumulative
    preferred stock of subsidiary............................................        3,500          --         --
  Reduction in preferred stock of Pretzel Time...............................           --          --        (85)
  Proceeds from the issuance of note payable to related party................        3,500          --         --
                                                                               ------------   --------   --------
        Net cash provided by financing activities............................       20,231      24,164     19,929
                                                                               ------------   ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.........................        6,709       9,578     (11,536)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD.........................           --       6,709      16,287
                                                                               ------------   --------  ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD...............................  $     6,709$     16,287  $    4,751   
                                                                               ============   ========  ==========
</TABLE>

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

              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS-- (Continued)
                             (Dollars in thousands)


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

     Cash paid for interest was approximately  $28, $8,416,  and $12,440 for the
period  ended  December 28,  1996,  and for the years ended  January 3, 1998 and
January 2, 1999, respectively.

     Cash paid for income taxes was  approximately  $0,  $217,  and $209 for the
period  ended  December 28,  1996,  and for the years ended  January 3, 1998 and
January 2, 1999, respectively.


SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

     On September  18, 1996,  the Company  acquired  certain  assets and assumed
certain  liabilities of Mrs. Fields Inc., Mrs. Fields  Development  Corporation,
Mrs. Fields  Cookies,  The Original  Cookie  Company,  Incorporated  and Hot Sam
Company,   Inc.  In  conjunction  with  the  acquisitions,   the  following  net
liabilities  were  assumed.   Additionally,  in  connection  with  the  purchase
accounting, certain other accruals were recorded (see Note 1).

<TABLE>
     <S>                                                                                     <C>     
     Fair value of assets acquired...................................................        $93,494 
     Net cash paid...................................................................        (19,508)
     Notes payable issued............................................................        (65,735)
                                                                                             -------
          Liabilities assumed........................................................        $ 8,251 
                                                                                             =======
</TABLE>

     On November 26, 1997, Mrs.  Fields' Holding  Company,  Inc. ("Mrs.  Fields'
Holding")  converted  to common  equity of the Company  $4,643  total  principal
amount of convertible  subordinated  notes and contributed to the Company all of
the common equity of Mrs.  Fields' Brands after  converting its preferred  stock
interests totaling $3,935 to common equity.

     On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc. 
("Pretzel Concepts") as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).

<TABLE>
     <S>                                                                                     <C>     
     Fair value of assets acquired..................................................         $15,780 
     Net cash paid..................................................................          (5,750)
     Notes payable issued...........................................................          (8,000)
                                                                                             -------
          Liabilities assumed.......................................................         $ 2,030
                                                                                             =======
</TABLE>

     On September  2, 1997,  56 percent of the shares of common stock of Pretzel
Time, Inc.  ('Pretzel  Time") were acquired by Mrs.  Fields' Holding as follows.
Additionally, in connection with the purchase accounting, certain other accruals
were recorded (see Note 1).
<TABLE>
     <S>                                                                                      <C>
          
     Fair value of assets acquired.................................................           $8,311
 .    Net cash paid.................................................................           (4,200)
                                                                                             -------
          Liabilities assumed......................................................           $4,111
                                                                                              ======
</TABLE>


     On November 26, 1997, Mrs.  Fields'  Holding  contributed all of the assets
and liabilities of Pretzel  Concepts,  Mrs. Fields'  Holding's 56 percent of the
shares of common stock of Pretzel Time and a $500 note  receivable  from Pretzel
Time's founder and minority  stockholder to the Company.  Mrs.  Fields'  Holding
also contributed all of the common stock of Mrs. Fields' Brands to Mrs.
Fields.

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

              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
                             (Dollars in thousands)


     During the period from the acquisition of the majority ownership of Pretzel
Time  (September  2,  1997) to  January  2, 1999,  Pretzel  Time  increased  its
mandatorily  redeemable  cumulative  preferred stock  liquidation  preference by
approximately $212, in lieu of paying cash dividends.  In addition, for the same
period,  Pretzel Time 's mandatorily  redeemable  cumulative preferred stock was
increased by approximately $538 for the accretion required over time to amortize
the original issue discount.

     In August 1998, the Company  acquired all of the outstanding  capital stock
and subordinated  indebtedness of Cookies USA, Inc.  ("Cookies USA") for a total
purchase price of approximately  $18,400.  During August and September 1998, the
Company also entered into agreements with three  franchisees of Cookies USA (the
"Great American  Franchisees")  under which the Company  purchased a total of 37
Great American  Cookies  franchises  for a total purchase price of $16,328.  The
total purchase price for all of these acquisitions of $34,728 was allocated,  on
a preliminary basis, as follows.  Additionally,  in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).

    <TABLE>
<S>                                                                                          <C>     
     Fair value of assets acquired................................................           $77,410 
     Net cash paid................................................................           (27,771)
                                                                                             --------
          Liabilities assumed.....................................................           $49,639
                                                                                             =======
</TABLE>

     In  October   1998,   the  Company   acquired  the  assets  of  the  Cookie
Conglomerate, Inc. ("Cookie Conglomerate") for a total purchase price of $2,800.
The total purchase price was allocated as follows:

<TABLE>
      <S>                                                                                     <C>   
      Fair value of assets acquired ..............................................            $2,800
      Net cash paid...............................................................                --
                                                                                              ------
          Liabilities assumed.....................................................            $2,800
                                                                                              ======
</TABLE>

     In November  1998,  the Company  acquired all of the  outstanding  stock of
Pretzelmaker  Holdings,  Inc.  ("Pretzelmaker")  for $5,419.  The total purchase
price was allocated as follows:
<TABLE>
        <S>                                                                              <C>

        Fair value of assets acquired ............................................          $  8,519
        Net cash paid.............................................................            (1,100)
                                                                                            --------
                 Liabilities assumed..............................................          $  7,419
                                                                                            ========
</TABLE>















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



<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.. Mrs. Fields'
Holding is a majority owned subsidiary of Capricorn Investors II, L.P. 
("Capricorn"). The Company has eight wholly owned operating subsidiaries; 
namely, Great American Cookie Company, Inc., The Mrs. Fields' Brand, Inc., 
Pretzel Time, Inc., Pretzelmaker Holdings, Inc., Mrs. Fields' Cookies Australia,
Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of Canada; and
three partially owned subsidiaries.

     The Company  primarily  operates  retail  stores which sell  freshly  baked
cookies, brownies, pretzels and other food products through six specialty retail
chains.  As of January 2, 1999,  the Company owned and operated 147 Mrs.  Fields
Cookies stores,  120 Original Cookie Company stores,  119 Great American Cookies
stores,  77 Hot Sam Pretzels  stores,  93 Pretzel Time  stores,  9  Pretzelmaker
stores in the United States and one Pretzel Time store in Canada.  Additionally,
the Company has  franchised  or licensed 859 stores in the United States and 113
stores in several other countries.  As of January 2, 1999, the Company owned and
operated 437 core stores and 129 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 2000.

     The Company holds legal title to certain  trademarks for the "Mrs.  Fields"
name and logo and licenses the uses of these trademarks to third parties for the
establishment  and operation of Mrs.  Fields'  cookie and bakery  operations and
other merchandising  activities.  In connection with these licensing activities,
the Company  authorizes  third-party  licensees to use certain business formats,
systems, methods, procedures, designs, layouts, specifications,  trade names and
trademarks in the United States and other countries.  Additionally,  the Company
markets and distributes  its products  through  catalogs,  other print media and
mail order.

     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.


Business Combinations

   Mrs. Fields, Inc. and Affiliates and Original Cookie Company and Affiliates

     The  Company  began  operations  on  September  18,  1996,   following  the
completion of two simultaneous but separate asset purchase  transactions wherein
the Company (i) acquired certain assets and assumed certain  liabilities of Mrs.
Fields Inc.,  Mrs.  Fields  Development  Corporation  and Mrs. Fields Cookies in
accordance with two Asset Purchase  Agreements dated August 7, 1996, among these
parties and  Capricorn,  and (ii) acquired  certain  assets and assumed  certain
liabilities of The Original  Cookie Company,  Incorporated  and Hot Sam Company,
Inc. in accordance  with an Asset  Purchase  Agreement  dated August 7, 1996, as
amended by the First  Amendment  dated as of  September  17,  1996,  among these
parties and Capricorn.

         The   combined   purchase   price  for  the  acquired  net  assets  was
approximately  $85,243,000.  The Company paid net cash of $19,508,000 and issued
approximately  $65,735,000  in  senior  and  subordinated  notes to the  selling
shareholders.  The  acquisitions  were  accounted  for as  purchases.  The total
purchase  price  was  allocated  to the net  assets  acquired,  based  on  their
estimated  fair values.  The  organization  of the Company and the  acquisitions
resulted in the  recording of  intangible  assets of  approximately  $49,942,000
principally  made  up  of  goodwill,   trademarks  and  organization  costs.  An
additional  $17,680,000 of goodwill and $4,520,000 of deferred income tax assets
(net of  valuation  allowances)  were  recorded in  connection  with the Company
recording certain other accruals totaling

              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$11,300,000 and providing  reserves  totaling  $10,921,000 for impaired property
and equipment (see Note 5) at  Company-owned  stores the Company intends to exit
through closing or franchising.  Goodwill and trademarks are amortized using the
straight-line  method over 15 years. The $11,300,000 of accruals  established at
the date of the acquisitions consisted of $5,060,000 for obligations incident to
store  closures  (see  Note  5),  $2,450,000  for  contingent  legal  and  lease
obligations  that were  firmed up  before  December  28,  1996,  $3,135,000  for
transaction and finders' fees and $655,000 for severance and related costs.  The
Company  terminated all of the Original Cookie Company and Affiliates  corporate
employees as planned.

     As of January 2, 1999,  approximately  $2,068,000 of the $2,450,000 accrual
for legal and lease  obligations has been utilized.  The remaining  amount as of
January 2, 1999 of approximately  $382,000 is expected to be utilized by the end
of 1999. All of the $3,135,000 accrual  established for transaction and finders'
fees and the $655,000  accrual for severance and related costs  associated  with
the  acquisitions  were fully utilized for the purposes  intended  during fiscal
1997.


   H & M Concepts Ltd. Co.

     On July 25,  1997,  Mrs.  Fields'  Pretzel  Concepts,  Inc., a wholly owned
subsidiary of Mrs. Fields' Holding, acquired substantially all of the assets and
assumed certain  liabilities of H & M Concepts Ltd. Co. and  subsidiaries  ("H &
M"). H & M owned and  operated  stores which engage in retail sales of pretzels,
toppings and beverages  under a franchise  agreement with Pretzel Time, Inc. The
total consideration of $13,750,000 consisted of (i) $5,750,000 of cash, financed
through an advance from Mrs. Fields' Holding of $1,500,000 and a $4,250,000 bank
loan to Pretzel  Concepts,  (ii) a $4,000,000  principal  amount  bridge note of
Pretzel Concepts and (iii) a $4,000,000  principal amount  subordinated  note of
Mrs.  Fields'  Holding  retained  by the  sellers  (all such  debt  collectively
referred to as the "H & M Debt").  The  acquisition  was accounted for using the
purchase  method of accounting  (based on the  estimated  fair values of the net
assets acquired) and resulted in recording approximately  $9,618,000 of goodwill
that is being amortized using the straight-line method over 15 years.

     Effective  November 26, 1997, Mrs.  Fields' Holding  contributed all of the
assets and liabilities of Pretzel  Concepts to the Company and, in consideration
thereof,  the Company  assumed the H & M Debt,  including all accrued but unpaid
interest.  Pretzel  Concepts  and the  Company  merged on the same date with the
Company  being the surviving  entity.  The  contribution  was accounted for in a
manner similar to that of pooling-of-interests  accounting. There was no step-up
in the historical basis of Pretzel  Concepts ' assets or liabilities.  Beginning
with July 25,  1997,  the Company  has  included  Pretzel  Concepts ' results of
operations in the Company's consolidated results of operations.


   Pretzel Time, Inc.

     On  September  2, 1997,  Mrs.  Fields'  Holding  acquired 56 percent of the
shares of common  stock of  Pretzel  Time for an total  cash  purchase  price of
$4,200,000,  $750,000  of which was paid to  Pretzel  Time for  working  capital
purposes,  and the  balance of which was paid to the  selling  shareholders.  In
connection with the  acquisition,  Mrs. Fields' Holding extended a $500,000 loan
to the founder of Pretzel Time who  continued to own 44 percent of the shares of
common stock of Pretzel Time.  The note bears  interest at an annual rate of ten
percent (see Note 8).  Pretzel Time is a franchisor  of hand rolled soft pretzel
outlets located in North America.  The outlets are primarily located in shopping
malls. The acquisition was accounted for using the purchase method of accounting
(based on the estimated fair values of the net assets  acquired) and resulted in
recording approximately $5,882,000 of goodwill that is being amortized using the
straight-line  method over 15 years.  The goodwill  recorded was $1,682,000 more
than the purchase price as the Company assumed more liabilities than it acquired
in assets at their fair values. Additionally,  severance and legal accruals were
established in accordance with EITF 95-3.



<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Effective  November 26,  1997,  Mrs.  Fields'  Holding  contributed  its 56
percent  of the  shares of common  stock of Pretzel  Time to the  Company.  Mrs.
Fields'  Holding  also  contributed  to the Company the  $500,000  note due from
Pretzel Time's founder and minority stockholder.  The contribution was accounted
for in a manner similar to that of pooling-of-interests accounting. There was no
step-up in the book basis of Pretzel Time's assets or liabilities.

     On January 2, 1998, the Company purchased an additional four percent of the
shares of common  stock of Pretzel  Time from the founder for  $300,000 in cash.
The purchase was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets  acquired) and resulted in recording
approximately  $311,000  of  goodwill.  In June 1998,  the  Company  acquired an
additional  ten percent of the shares of common  stock of Pretzel  Time from the
founder for $875,000 in cash. On December 9, 1998, Mrs.  Fields  purchased three
shares of Pretzel Time common stock for $500,000 in cash.  On December 30, 1998,
Mrs. Fields completed the acquisition of the remaining  outstanding common stock
of Pretzel Time under a stock purchase  agreement dated December 30, 1998, for a
purchase price of approximately $4,700,000, $2,500,000 of which was paid in cash
on January 5, 1999 and $2,000,000 of which is payable on or before  December 30,
1999.  The Company has included the  appropriate  percentage  of Pretzel  Time's
results of operations for each respective period in its consolidated  results of
operations.


   The Mrs. Fields' Brand, Inc.

     Prior to November 26, 1997, Mrs.  Fields' Holding owned 50.1 percent of the
shares of the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand holds legal
title to certain trademarks for the "Mrs. Fields" name and logo and licenses the
use of these trademarks to third parties for the  establishment and operation of
Mrs. Fields' cookie and bakery operations and other merchandising activities. In
connection  with these  licensing  activities,  Mrs.  Fields'  Brand  authorizes
third-party  licensees  to  use  certain  business  formats,  systems,  methods,
procedures, designs, layouts, specifications,  trade names and trademarks in the
United States and other countries.

     On November 26, 1997,  Mrs.  Fields'  Holding  acquired the remaining  49.9
percent of the shares of the common  stock of Mrs.  Fields'  Brand from  Harvard
Private Capital Holdings, Inc. for approximately  $2,565,000.  The consideration
consisted of  $1,065,000  in cash and  $1,500,000  in rights to common equity of
Mrs. Fields' Holding.  Mrs. Fields' Holding 's Board of Directors determined the
value of Harvard's  rights to the common equity based on a fair value  analysis.
This  analysis  appropriately  considered  a  discount  for lack of  controlling
interest  and  marketability  as Mrs.  Fields'  Holding 's common  equity is not
publicly traded.  The acquisition was accounted for using the purchase method of
accounting  (based on the estimated fair values of the net assets  acquired) and
resulted in recording  approximately  $2,565,000 of intangible assets (primarily
goodwill) that are being amortized using the straight-line method over 15 years.

     Effective  November 26, 1997, Mrs.  Fields' Holding  contributed all of the
common stock of Mrs.  Fields' Brand to the Company.  As a result of this capital
contribution,  Mrs.  Fields'  Brand  became a  wholly  owned  subsidiary  of the
Company.  The  contribution  was  accounted  for in a manner  similar to that of
pooling-of-interests  accounting. There was no step-up in the book basis of Mrs.
Fields' Brand 's assets or liabilities.  Although the Company owned 50.1 percent
of Mrs.  Fields'  Brand until  November 25,  1997,  the Company has included 100
percent  of Mrs.  Fields'  Brand 's  results of  operations  with the  Company's
consolidated results of operations for all periods presented as a result of Mrs.
Fields' Brand incurring net losses for these periods.


   Great American Cookie Company, Inc.

     On August 24, 1998,  the Company  acquired all of the  outstanding  capital
stock and  subordinated  indebtedness of Cookies USA, Inc., the sole stockholder
of  Great  American  Cookie  Company,  Inc.,  for  a  total  purchase  price  of
$18,400,000.  Great  American  is  an  operator  and  franchisor  of  mall-based
specialty  retail cookie  outlets and a  manufacturer  of cookie batter which is
distributed  to Great  American  operated  retail  stores and sold to franchised
retail  stores.  Concurrently  with the  acquisition of Cookies USA, the Company
entered into agreements with two
              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Great American franchisees under which the Company purchased a total of 29 Great
American  franchises  for a total  purchase  price of  $14,430,000.  The Company
acquired the  franchises  through the  acquisition of 100 percent of the capital
stock  of the  two  corporations  through  which  the  franchises  operated.  On
September  9,  1998,  the  Company  acquired  eight  additional  Great  American
franchised  retail  stores  from a Great  American  franchisee,  under  an asset
purchase agreement, for a total purchase price of $1,898,000. These acquisitions
will be collectively referred to as the "Great American Acquisitions."

     The Great American  Acquisitions have been accounted for using the purchase
method of accounting  (based on preliminary  estimates of fair values of the net
assets acquired) and resulted in recording approximately $69,390,000 of goodwill
that  is  being  amortized  using  the  straight-line   method  over  15  years.
Additionally,  the  Company  caused  Cookies  USA to be merged with and into the
Company and caused the acquired franchisees corporations and/or net assets to be
merged  with and into  Great  American.  Great  American  became a wholly  owned
subsidiary of the Company.  The acquired  entities'  results of operations  have
been  included  with  those  of  the  Company  since  the  applicable  dates  of
acquisition.

     The Great American  Acquisitions were financed by (i) the net proceeds from
the Company issuing  $40,000,000 Series C Senior Notes; (ii) the contribution of
the net proceeds  totaling  $29,056,000  from a Mrs. Fields' Holding offering to
the Company; and (iii) existing cash of the Company.

     On October 5, 1998,  Mrs.  Fields  purchased  all of the retail  cookie and
related  business and  operations  of eleven Great  American  stores for a total
purchase price of $2,800,000 under an asset purchase  agreement among The Cookie
Conglomerate,  Inc., The Cookie  Conglomerate,  LLP and two individuals who were
the  partners  of  Cookie  Conglomerate,  LLP and  the  shareholders  of  Cookie
Conglomerate,  Inc. The sellers were franchisees of Great American. The sellers'
rights  under  franchise  agreements  and  subleases  with Great  American  were
terminated upon closing of the  transaction.  The acquisition was funded through
borrowings.


   Pretzelmaker Holdings, Inc.

     On November 19, 1998, Mrs. Fields purchased all of the outstanding  capital
stock of  Pretzelmaker  Holdings,  Inc.  under an agreement  among Mrs.  Fields,
Pretzelmaker,  and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel  retail  company.  The  purchase  price was  approximately
$5,400,000 and Mrs. Fields assumed  indebtedness,  including severance payments,
totaling approximately $1,600,000.


   1-800-Cookies

     On October 10,  1997,  the Company  acquired  substantially  all of the net
assets of R&R Bourbon Street,  Inc. dba  1-800-Cookies for $653,000 in cash. The
acquisition was accounted for using the purchase method of accounting  (based on
the estimated fair values of the net assets  acquired) and resulted in recording
$600,000  of  goodwill  and  $53,000  of other  assets.  The  goodwill  is being
amortized using the straight-line method over 15 years.






<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Pro Forma Acquisition Information (Unaudited)

     The following unaudited pro forma information for the period from inception
(September  18, 1996) to December 28, 1996,  and for the years ended  January 3,
1998 and  January 2, 1999,  presents  the results of  operations  of the Company
assuming the H & M, Pretzel Time and Mrs.  Fields'  Brand  acquisitions  and the
Refinancing,  as  defined  in Note 3,  had  occurred  at the  date of  inception
(September  18,  1996)  and  that  the  Great  American   Acquisitions,   Cookie
Conglomerate  acquisition,  Pretzelmaker  acquisition and related  financing had
occurred at December 29, 1996. The results of operations  give effect to certain
adjustments, including amortization of intangible assets and interest expense on
acquisition  debt.  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 or the results which may occur in the future.
<TABLE>

<S>                                 <C>                 <C>                   <C>    
                                      Inception
                                    (September 18,                                                  
                                  1996) to December     53 Weeks Ended       52 Weeks Ended 
                                      28, 1996         January 3, 1998       January 2, 1999
                                  -----------------    ---------------       ---------------
(Unaudited)                            
Total revenues..................       $48,090,000         $200,574,000          $190,184,000
Store closure provision.........               ---             (538,000)          (7,303,000)
Depreciation and amortization...       (9,192,000)          (19,405,000)         (25,053,000)
Income (loss) from operations...         6,718,000           12,738,000           (4,380,000)
Net income (loss)...............         1,029,000           (3,638,000)         (21,339,000)
</TABLE>


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Accounting Periods

     The Company operates using a 52/53-week year ending near December 31.


   Principles of Consolidation

     The accompanying  consolidated financial statements include the accounts of
the  Company  and  its  wholly  owned  and  majority  owned  subsidiaries.   All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.


   Sources of Supply

     The Company  currently buys a significant  amount of its food products from
four suppliers.  Management  believes that other suppliers could provide similar
products with comparable terms.


   Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period.
Actual results could differ from those estimates.




              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Cash Equivalents

     The Company  considers  all highly  liquid  investments  purchased  with an
original maturity of three months or less to be cash equivalents.  As of January
2, 1999,  the  Company  had demand  deposits  at various  banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation. As of
January 2, 1999, the Company had restricted cash of $225,000.

   Inventories

     Inventories  consist of food,  beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.

   Pre-Opening Costs

     Pre-opening costs associated with new  Company-owned  stores are charged to
expense  as  incurred.  These  amounts  were  not  significant  for the  periods
presented in the accompanying  consolidated  financial  statements.  Pre-opening
costs  associated  with new  franchised  stores  are the  responsibility  of the
franchisee.


   Property and Equipment

     Property and equipment are stated at cost less accumulated depreciation and
amortization.  Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.

     Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized.  Routine  maintenance,  repairs
and renewal  costs are  expensed as  incurred.  Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.


   Intangible Assets

     Intangible  assets  consist  primarily of goodwill and  trademarks  and are
amortized using the straight-line  method over 15 years. Other intangible assets
such as covenants  not to compete are not  significant  and are being  amortized
using the straight-line method over two to five years.


   Deferred Loan Costs

     Deferred  loan  costs  totaling  $13,038,000  resulted  from  the  sale  of
$100,000,000  total principal amount of 101/8 percent Series A Senior Notes (the
"Series A Senior Notes") on November 26, 1997 and the sale of $40,000,000  total
principal  amount of 101/8  percent  Series C Senior Notes (the "Series C Senior
Notes") on August 24, 1998.  These costs are being amortized to interest expense
over the  approximate  seven-year life of the Series A Notes and the approximate
six-year life of the Series C Senior Notes (see Note 3).


   Discount on Series C Senior Notes

     The  Series  C  Senior  Notes  were  issued  at a  discount  which is being
amortized to interest expense over the approximate  six-year life of the related
notes.




<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Long-Lived Assets

         The Company reviews for impairment of long-lived  assets when events or
changes  in  circumstances  indicate  that the book value of an asset may not be
recoverable.  The Company evaluates,  at each balance sheet date, whether events
and circumstances have occurred that indicate possible  impairment.  The Company
uses an estimate of future  undiscounted  net cash flows of the related asset or
group of assets  over the  remaining  life in  measuring  whether the assets are
recoverable.  The Company assesses impairment of long-lived assets at the lowest
level for which there are identifiable  cash flows that are independent of other
groups of assets.

         During  the  year  ended  January  2,  1999,  the  Company  wrote  down
approximately  $4,131,000 of impaired long-lived assets. The write-down included
approximately   $3,098,000   of  equipment   and   leasehold   improvements   at
company-owned stores that the Company intends to close or franchise (see Note 5)
and approximately $1,033,000 of goodwill that had been allocated to the impaired
assets.  These assets have been  written-down  to their estimated net realizable
value. The impairment provision was included in depreciation and amortization in
the accompanying fiscal year 1998 statement of operations.

   Store Closure Reserve

     The Company  accrues an estimate  for the costs  associated  with closing a
nonperforming  store in the period the determination is made to close the store.
The accruals are for estimated store lease termination costs (see Note 5).

   Revenue Recognition

     Revenues generated from company-owned stores are recognized at the point of
sale.  Initial  franchising  and licensing fee revenues are recognized  when all
material  services or  conditions  relating to the sale have been  substantially
performed or satisfied.  Franchise and license  royalties,  which are based on a
percentage of gross store sales,  are  recognized  as earned.  Revenues from the
sale of batter that the Company produces and sales to franchisees are recognized
at the time of shipment and are classified in franchising  revenue.  The Company
receives rebates or other payments from suppliers based (directly or indirectly)
on sales to franchisees and company-owned stores. Rebates related to franchisees
are  recorded  as   franchising   revenue  when  earned.   Rebates   related  to
company-owned stores are recorded as a reduction to cost of sales when earned.

   Leases

     The Company has various operating lease  commitments on both  company-owned
and franchised store locations and equipment.  Expenses of operating leases with
escalating   payment  terms,   including   leases   underlying   subleases  with
franchisees,  are  recognized  on a  straight-line  basis  over the lives of the
related leases. The Company accrues contingent rental expense on a monthly basis
for those retail stores where contingent rental expense is probable.


   Income Taxes

     The  Company  recognizes  deferred  income  tax assets or  liabilities  for
expected  future tax  consequences  of events that have been  recognized  in the
financial  statements  or tax returns.  Under this method,  deferred  income tax
assets or  liabilities  are  determined  based upon the  difference  between the
financial and income tax bases of assets and liabilities using enacted tax rates
expected to apply when differences are expected to be settled or realized.



<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Foreign Currency Translation

     The  balance  sheet  accounts of the  Company's  foreign  subsidiaries  are
translated  into U.S.  dollars using the applicable  balance sheet date exchange
rates,  while  revenues and expenses are translated  using the average  exchange
rates for the periods presented.
Translation gains or losses are insignificant for the periods presented.

   Fair Value of Financial Instruments

     The Company  estimates  that the total fair market  value of its Series A/B
Senior  Notes  and  Series  C  Senior  Notes  (see  Note  3)  was  approximately
$101,250,000  and  $135,100,000  as of  January  3, 1998 and  January  2,  1999,
respectively. These estimates are based on quoted market prices. The book values
of  the  Company's  other  financial   instruments,   including  cash,  accounts
receivable,  accounts  payable,  accrued  liabilities  and other  long-term debt
obligations, approximate fair values at the respective balance sheet dates.

   Recent Accounting Pronouncement

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  established  accounting and
reporting  standards  requiring that every derivative  instrument be recorded in
the balance  sheet as either an asset or  liability  measured at its fair value.
The  statement  also  requires  that changes in the  derivative's  fair value be
recognized  currently in earnings unless specific hedge accounting  criteria are
met. This statement is effective for fiscal years  beginning after June 15, 1999
and is not  expected  to have a material  impact on the  Company's  consolidated
financial statements.

   Reclassifications

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


3.   LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

   Long-Term Debt

     Long-term debt consists of the following:
<TABLE>
<S>                                                                             <C>             <C>    
                                                                                January 3, 1998 January 2, 1999
Series  A/B  senior   unsecured   notes,   interest  at  101/8  percent  payable
   semi-annually in arrears on June 1 and December 1, commencing June 1,
   1998, due December 1, 2004.................................................     $100,000,000    $100,000,000 
Series C senior unsecured notes, interest at 101/8 percent payable semi-
   annually in arrears on June 1 and December 1, commencing December
   1, 1998, due December 1, 2004..............................................              --       40,000,000 
Discount related to the issuance of $40,000,000 Series C senior unsecured
   notes, net of accumulated amortization of $0 and $33,000, respectively.....              --         (566,000)
Notes payable to individuals or corporations with interest terms ranging                         
   from non-interest bearing to 15 percent, due at various dates from 1999
   through 2001, requiring monthly payments...................................          756,000      10,259,000
                                                                                ---------------   -------------
                                                                                    100,756,000     149,693,000 
Less current portion..........................................................         (472,000)     (8,046,000)
                                                                                ---------------   -------------
                                                                                   $100,284,000    $141,647,000
                                                                                ===============   =============

</TABLE>

<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     On November 26,  1997,  the Company  issued  $100,000,000  total  principal
amount of Series A Senior  Notes due  December 1, 2004  pursuant to an indenture
between  the Company  and the Bank of New York (the  "Indenture").  The Series A
Senior Notes were issued pursuant to a private  transaction that was not subject
to the  registration  requirements  of the  Securities  Act of 1933. On June 12,
1998, a majority of the Series A Senior Notes were  exchanged for 10 1/8% Series
B Senior  Notes due  December  1, 2004  (collectively,  the  "Series  A/B Senior
Notes"), which were registered under the Securities Act.

     On August 24, 1998, the Company issued  $40,000,000  total principal amount
of Series C Senior  Notes due  December  1,  2004 in  connection  with the Great
American Acquisitions. The Series C Senior Notes were issued under the Indenture
which  also  governs  the  terms of the  Series  A/B  Senior  Notes in a private
transaction  that  was  not  subject  to the  registration  requirements  of the
Securities  Act.  The Series A/B Senior Notes and the Series C Senior Notes will
be collectively referred to as the "Senior Notes."

     In connection  with the issuance of the Series C Senior Notes,  the Company
recorded a discount of approximately  $600,000. This discount is being amortized
to interest  expense over the  approximate  six-year life of the Series C Senior
Notes.

     The Senior Notes are general  unsecured  obligations  of the Company,  rank
senior in right of payment to all  subordinated  indebtedness of the Company and
rank  pari  passu in right  of  payment  with all  existing  and  future  senior
indebtedness of the Company.

     The Senior Notes are  redeemable at the option of the Company,  in whole or
in part, at any time on or after  December 1, 2001 in cash at redemption  prices
defined in the Indenture,  plus accrued and unpaid interest. In addition, at any
time prior to  December  1,  2001,  the  Company  may redeem up to a total of 35
percent of the principal  amount at a redemption  price equal to 110.125 percent
of the principal, plus accrued and unpaid interest.

     The Senior Notes contain certain covenants that limit,  among other things,
the ability of the Company and its subsidiaries to: (i) declare or pay dividends
or make any other payment or  distribution on account of the Company's or any of
its subsidiaries' equity interest (including without limitation,  any payment in
connection  with any  merger  or  consolidation  involving  the  Company);  (ii)
purchase,  redeem or otherwise acquire or retire for value  (including,  without
limitation,  in  connection  with any  merger  or  consolidation  involving  the
Company) any equity  interest of the Company or any direct or indirect parent of
the Company or other affiliate of the Company; (iii) make any payment on or with
respect to, or  purchase,  redeem,  defease or  otherwise  acquire or retire for
value any  indebtedness  that is  subordinated  to the Senior  Notes,  except as
payment of interest or principal at stated maturity; or (iv) make any restricted
investments except under conditions provided for in the Indenture.

    The total amount of principal  maturities  of debt at January 2, 1999 are as
follows:

    Fiscal Year
    1999........................................................     $ 8,046,000
    2000........................................................         648,000
    2001........................................................         539,000
    2002........................................................         583,000
    2003........................................................         443,000
    Thereafter..................................................     140,000,000
                                                                     -----------
                                                                    $150,259,000
                                                                    ============


<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Line of Credit

      On February  28,  1998,  the Company  entered into an amended and restated
line of credit  agreement  with a commercial  bank which  provides for a maximum
commitment of up to $15,000,000  secured by essentially all of the assets of the
Company.  The availability under the line of credit was limited by the Company's
Indenture to  $4,777,000 as of January 2, 1999.  Borrowings  under the agreement
bear interest,  at the Company's  option, at either the bank's prime rate or the
applicable  LIBOR  rate plus two  percent,  with  interest  payable  monthly  in
arrears.  The Company is also  obligated to pay the bank a commitment fee in the
amount of one quarter of one percent of the unused portion of the revolving loan
commitment.  As of January 2, 1999,  the Company had no  outstanding  borrowings
under the agreement,  which expires March 31, 2001.  The agreement  requires the
Company to maintain  certain  financial  ratios including a minimum debt service
coverage ratio. At January 2, 1999, the Company was in compliance with the terms
of the agreement.

   Capital Lease Obligations

     Future  minimum  lease  payments for  equipment  held under  capital  lease
arrangements as of January 2, 1999 are as follows:

          Fiscal Year
          1999....................................................   $  415,000
          2000....................................................      357,000
          2001....................................................      358,000
          2002....................................................      287,000
          2003....................................................      182,000
                                                                      ---------
     Total future minimum lease payments..........................    1,599,000
     Less amount representing interest............................     (303,000)
                                                                     ----------
                                                                      1,296,000 
     Less current portion.........................................     (299,000)
                                                                     ----------
                                                                      $ 997,000

     As of January 3, 1998 and January 2, 1999,  total assets held under capital
lease arrangements were  approximately  $376,000 and $1,024,000 with accumulated
amortization of approximately $59,000 and $108,000, respectively.


4.    INCOME TAXES

     The  components  of the  provision  for  income  taxes for the years  ended
     January 3, 1998 and January 2, 1999 are as follows:

<TABLE>
<S>                                                    <C>                 <C>              <C>    
                                                       December 28, 1996   January 3, 1998  January 2, 1999
     Current:
          Federal .                                          $ 207,000           $70,000        $    --- 
          State   .................................             75,000           228,000         245,000 
          Foreign .                                              5,000            57,000          71,000 
     Deferred:
          Federal .                                          1,112,000           367,000      (3,021,000)
          State   .................................            277,000            55,000        (469,000)
          Change in valuation allowance............            122,000          (122,000)      3,490,000 
                                                            ----------          --------      ----------
               Total provision for income taxes....         $1,798,000          $655,000      $  316,000
                                                            ==========          ========      ==========
</TABLE>



<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The  differences  between income taxes at the statutory  federal income tax
rate and income taxes reported in the consolidated  statements of operations are
as follows  for the  period  ended  December  28,  1996 and for the years  ended
January 3, 1998 and January 2, 1999:

<TABLE>
<S>                                                     <C>                 <C>    
                                                        December 28, 1996   January 3, 1998
     Federal statutory income tax rate.................        34.0%               34.0%
          Dividends paid by subsidiary.................         ---                34.5   
          Amortization of non-deductible goodwill......         ---                12.3   
          Net operating losses utilized................         ---                (3.9)  
          State income taxes, net of federal benefit...         5.3                 5.3   
          State franchise minimum taxes................         ---                44.0   
          Foreign taxes................................         ---                12.3   
          Change in valuation allowance................         3.2               (26.3)  
          Other........................................         4.1                29.3
                                                               ----                ----
     Effective income tax rate.........................        46.6%              141.5%
                                                               ====               =====
</TABLE>

      No rate reconciliation is provided for the year ending January 2, 1999 due
to the fact  that the  Company  incurred  a net loss  before  income  taxes  but
incurred a tax provision due to state franchise minimum taxes and foreign taxes.

     The significant  components of the Company's deferred income tax assets and
liabilities at January 3, 1998 and January 2, 1999 are as follows:

<TABLE>
<S>                                                           <C>                <C>              <C>            
                                                              December 28, 1996  January 3, 1998  January 2, 1999
Deferred income tax assets:
     Property and equipment reserve...........................       $3,501,000     $2,014,000   $   3,311,000
     Store closure reserve....................................        1,868,000      2,202,000       5,845,000
     Transaction cost accrual.................................          789,000        565,000         514,000
     Net operating loss carryforward..........................          782,000      4,875,000      12,268,000
     Legal reserve............................................          470,000        302,000         150,000
     Lease accrual............................................          403,000         92,000             ---
     Other reserves...........................................              ---         81,000         388,000
     Accrued expenses.........................................          334,000        230,000         529,000
     Alternative minimum tax credit carryforward..............          207,000        207,000         215,000
                                                                  -------------   ------------    ------------
        Total deferred income tax assets......................        8,354,000     10,568,000      23,220,000
     Valuation allowance......................................       (4,482,000)    (5,160,000)    (15,560,000)
                                                                   ------------   ------------    -------------
        Deferred income tax assets net of valuation allowance         3,872,000      5,408,000       7,660,000
                                                                   ------------   ------------    ------------
Deferred income tax liabilities:                                                               
     Accumulated depreciation and amortization................         (850,000)    (1,548,000)     (3,464,000)
     Other   .                                                          (13,000)      (361,000)       (697,000)
                                                                   ------------   ------------    ------------
        Total deferred income tax liabilities.................         (863,000)    (1,909,000)     (4,161,000)
                                                                   ------------   ------------    ------------
        Net deferred income tax assets........................       $3,009,000     $3,499,000    $  3,499,000
                                                                   ============   ============    ============
</TABLE>

     Management  has provided  valuation  allowances on portions of the deferred
income  tax  assets  arising  from  the  Company's  business  combinations.  The
valuation allowances  established in connection with purchase accounting are not
recorded through the provision for income taxes,  but rather,  as an increase to
goodwill.  During the years ended January 3, 1998 and January 2, 1999, valuation
allowances of $800,000 and $6,910,000, respectively, were recorded in connection
with  accounting for business  combinations.  As of January 2, 1999, the Company
had net operating  losses of $31,232,000  that can be carried  forward to reduce
federal income taxes. If not utilized,  the tax net operating loss carryforwards
begin to expire in 2009. As defined in Section 382 of the Internal Revenue Code,
the  Company has  acquired  companies  which have had a greater  than 50 percent
ownership  change.  Consequently,  a certain amount of these  companies' tax net
operating loss carryforwards available to offset future taxable income in
              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

any one year may be limited. The maximum amount of carryforwards  available in a
given year is limited to the  product of these  companies'  value on the date of
ownership  change and the federal  long-term  tax-exempt  rate, plus any limited
carryforwards  not  utilized in prior  years.  Although  realization  of the net
deferred  income tax assets of  $3,499,000 is not assured,  management  believes
that it is more likely than not that these assets will be  realized.  The amount
of net deferred tax assets considered  realizable,  however, could be reduced in
the near term based on changing conditions.


5.   STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES

     The Company's  management  reviews the historical  and projected  operating
performance of its stores on a periodic basis to identify underperforming stores
for impairment of net property investment or for targeted closing. The Company's
policy is to recognize a loss for that  portion of the net  property  investment
determined to be impaired. Additionally, when a store is identified for targeted
closing, the Company's policy provides for the costs of closing the store, which
are  predominantly  estimated lease termination  costs.  Lease termination costs
include both one-time  settlement  payments and continued  contractual  payments
over  time  under the  original  lease  agreements  where no  settlement  can be
resolved with the landlord.  No operating  losses are accrued for. If and when a
reserve  that  was  established  as part of  purchase  accounting  is not  fully
utilized,  the Company  reduces the reserve to zero and goodwill is adjusted for
the corresponding amount.


   Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates

     In  connection  with the Mrs.  Fields  Inc.  and  Original  Cookie  Company
acquisitions (see Note 1), the Company  formulated a plan to exit certain stores
that did not meet certain  financial and geographical  criteria.  In general the
plan entailed  closing stores that were not profitable  and  franchising  stores
that were  profitable  but  contributed  less than  $50,000 in store annual cash
contribution  for  cookie  stores  and less than  $35,000  in annual  store cash
contribution for pretzel stores.  Management  identified 138 stores to be closed
(13 of these  stores were closed  prior to the  acquisition  but had  continuing
lease obligations) and 64 stores to be franchised.  As of January 2, 1999, there
were 23 stores  remaining  to be exited.  The timing to  implement  the plan was
developed  based on  discussions  and  relationships  with major  shopping  mall
developers.

     At the date of the  acquisitions,  in accordance  with Emerging Issues Task
Force Issue 95-3 ("EITF 95-3"), the Company  established a store closure reserve
of $5,060,000 for the 138 stores the Company  intended to close. The reserve was
established  to  provide  for  estimated  early  lease   termination  costs  and
penalties.  There  was no  reserve  established  related  to the 64 stores to be
franchised. Management continued to refine the plan for closing the stores after
the date of the acquisitions which entailed further analysis of lease agreements
and meeting with  developers to assess timing and  estimated  lease  termination
costs.

     Management finalized the store closure plan in early September 1997, within
one year of the date of the acquisitions.  At that time, the Company recorded an
additional $1,357,000 to the store closure reserve to reflect the finalized plan
estimates  of lease  termination  costs and  adjusted  goodwill by a  comparable
amount under the provisions of purchase accounting.  The increase in the reserve
related solely to the 138 stores originally  identified to be closed. During the
year ended  January 2, 1999,  the Company  reassessed  the adequacy of the store
closure reserve  related to the remaining  stores left to be closed and recorded
an  additional  $1,693,000  to the reserve.  This  portion of the store  closure
reserve was expensed in the  Company's  statement of  operations  for the fiscal
year ended  January 2, 1999 as the  decision  to  increase  the reserve was made
subsequent to finalization of the original plan.
No other significant changes have been made to the plan.

     Pursuant  to the exit plan,  at the date of the  acquisitions,  the Company
established  an  impairment  reserve of  $10,921,000  against the  property  and
equipment  of the stores the Company  planned to exit,  in order to record those
assets at net realizable  value.  The property and equipment of 117 of the total
stores to be closed  were  recorded  at net  values of zero.  The  property  and
equipment  of 54 of the  total  stores to be  franchised  were  recorded  at the
estimated  net  realizable  amount  recoverable  through a franchise  sale.  The
property and equipment of the remainder of the stores to be closed or franchised
had already been reduced to net realizable value prior to the acquisitions.


<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   H&M

     In connection with the H&M acquisition (see Note 1), the Company formulated
a plan to exit certain  pretzel  stores that did not meet certain  financial and
geographical criteria.  Management identified 11 stores to be closed. All of the
stores identified for closure are planned to be closed by the end of fiscal year
1999. The timing to implement the plan was developed  based on  discussions  and
relationships with major shopping mall developers.

     At the date of the  acquisition,  in accordance with EITF 95-3, the Company
established a store closure  reserve of $1,000,000 for the 11 stores the Company
intended to close.  The reserve was  established to provide for estimated  early
lease termination costs and penalties.  Additionally, the Company established an
impairment  reserve of  $2,500,000  against the  property  and  equipment of the
stores the  Company  planned  to exit,  in order to record  those  assets at net
realizable value.

   Pretzel Time

     In connection with the Pretzel Time  acquisition  (see Note 1), the Company
formulated  a plan to exit  certain  pretzel  stores  that did not meet  certain
financial and  geographical  criteria.  Management  identified four stores to be
closed. All of the stores identified for closure are planned to be closed by the
end of fiscal year 1999. The timing to implement the plan was developed based on
discussions and relationships with major shopping mall developers.

     At the date of the  acquisition,  in accordance with EITF 95-3, the Company
established a store closure  reserve of $500,000 for the four stores the Company
intended to close.  The reserve was  established to provide for estimated  early
lease termination costs and penalties.

   Great American

     In  connection  with the Great  American  Acquisitions  (see  Note 1),  the
Company  formulated  a plan to exit  certain  cookie  stores  that  did not meet
certain financial and geographical criteria.  Management identified 54 stores to
be closed  and 11 stores to be  franchised.  All of the  stores  identified  for
closure are  planned to be closed by the end of fiscal year 2000.  The timing to
implement the plan was developed  based on discussions  and  relationships  with
major shopping mall developers.

     At the date of the acquisitions,  in accordance with EITF 95-3, the Company
established a store closure  reserve of $3,548,000 for the 54 stores the Company
intended to close.  The reserve was  established to provide for estimated  early
lease termination costs and penalties.  There was no reserve established related
to the 11 stores to be franchised. The Company established an impairment reserve
of  $2,150,000  against the  property  and  equipment  of the stores the Company
planned to exit, in order to record those assets at net realizable value.

   Pretzelmaker

     In connection with the  Pretzelmaker  acquisition (see Note 1), the Company
formulated  a plan to exit  certain  pretzel  stores  that did not meet  certain
financial and geographical  criteria.  Management  identified seven stores to be
closed. All of the stores identified for closure are planned to be closed by the
end of fiscal year 2000. The timing of  implementation of the plan was developed
based on discussion and relationships with major shopping mall developers.

     At the date of the  acquisition,  in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the seven stores the Company
intended to close.  The reserve was  established to provide for estimated  early
lease termination costs and penalties.  Additionally, the Company established an
impairment  reserve of $327,000 against the property and equipment of the stores
the Company  planned to exit in order to record those  assets at net  realizable
value.

              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Store Closure Reserves Established for Continuing Company-Owned and Franchised
 Stores

     During the fiscal year ended  January 3, 1998,  the Company  increased  its
store closure reserve by $538,000 for seven continuing company-owned stores that
were  closed  during  fiscal  year 1997 and for three  continuing  company-owned
stores  targeted for  closure.  This  portion of the store  closure  reserve was
expensed in the  Company's  consolidated  statement of  operations  for the year
ended January 3, 1998, as these stores were not  identified  for closure as part
of any of the  Company's  store  closure  plans  associated  with  the  business
combinations.

     During the fourth  quarter of fiscal year 1998,  the  Company's  management
approved  and  committed  the  Company  to a plan to exit 41 stores  across  all
concepts that are not meeting certain financial and geographical  criteria.  The
plan also  committed the Company to exit 13  underperforming  franchised  stores
that the Company determined to disenfranchise as of January 2, 1999.  The
identified stores to be exited under this  plan  are not  part of the  stores  
in the  process  of  being  closed  in connection with the various  business 
combination  exit plans discussed  above. These stores were originally  
identified as continuing  company-owned  stores at the date of acquisition, 
however, the stores have not performed as expected. The Company intends to exit
the stores primarily through closing and franchising. In connection  with this 
plan, the Company  increased the store closure  reserve by $5,610,000.  The 
charge  was  included  in the store  closure  provision  in the accompanying  
consolidated statement of operations for the year ended January 2, 1999.


<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Consolidated Analysis

     The following table presents a summary of the activity in the store closure
reserve for the periods indicated for stores to be closed and franchised:

<TABLE>
<S>                                          <C>          <C>         <C>        <C>          <C>          <C>
                                             Mrs. Fields
                                               Inc. and
                                              Original                    Pretzel     Great
                                              Cookie Co.       H&M          Time    American   Pretzelmaker Consolidated       
Inception, September 18, 1996.............    $5,060,000    $           $     --  $      --     $     --    $ 5,060,000
                                                                   --
Utilization from inception (September 18,
1996)to January 3, 1998...................      (305,000)          --         --         --           --       (305,000)
                                              ----------    ---------    -------  ----------   ---------    -----------
Balance, December 28, 1996................     4,755,000           --         --         --           --      4,755,000
To record obligations related to stores
   identified for closure upon
   acquisition, July 25, 1997.............            --    1,000,000         --         --           --      1,000,000
To record obligations related to stores
   identified for closure upon
   acquisition, September 2, 1997.........            --           --    500,000         --           --        500,000
Finalization of store closure plan for
   obligations related to stores
   originally identified..................     1,357,000           --       --           --           --      1,357,000
Provision for continuing company-owned 
   operating stores targeted for closure         538,000           --       --           --           --        538,000
Utilization from December 28, 1996 to
   January 3, 1998........................    (2,683,000)          --     (1,000)        --           --     (2,684,000)
                                             ------------   ---------   --------  ---------    ---------    -----------
Balance, January 3, 1998..................     3,967,000    1,000,000    499,000         --                   5,466,000
To record obligations related to stores
   identified for closure upon
   acquisition, August 24, 1998...........            --           --         --  3,548,000           --      3,548,000 
To record obligations related to stores
   identified for closure upon
   acquisition, November 19, 1999.........            --           --         --         --      500,000        500,000 
Additional reserves for stores originally
    identified for closure, January 2, 1999    1,693,000           --        --          --           --      1,693,000 
Additional reserves for continuing company-
   owned and franchised stores targeted for
   closure, January 2, 1999...............     4,674,000      367,000    264,000    305,000           --      5,610,000 
Utilization for the 52 weeks ended
   January 2, 1999........................    (1,932,000)     (19,000)    (6,000)  (149,000)          --     (2,106,000) 
                                              ----------    ---------     -----  ----------     --------      ---------
Balance, January 2, 1999..................    $8,402,000   $1,348,000   $757,000 $3,704,000     $500,000    $14,711,000 
                                              ==========   ==========   ======== ==========     ========    ===========
</TABLE>



<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The following  table  presents a summary of activity for stores  originally
identified to be closed or franchised in connection with the applicable business
combination for the periods indicated:

<TABLE>
<S>                 <C>    <C>         <C>    <C>         <C>     <C>        <C>    <C>        <C>    <C>          <C>      <C>
                     Mrs. Fields Inc.
                            and                                                     
                     Original Cookie        H&M           Pretzel Time       Great American     Pretzelmaker      Consolidated     
                     To Be     To Be    To Be    To Be    To Be    To Be     To Be    To Be    To Be    To Be     To Be    To Be
                    Closed  Franchised Closed  Franchised Closed Franchised Closed Franchised Closed Franchised  Closed  Franchised
Stores identified
 for closure or 
 franchise at 
 inception, September
 18, 1996              138      64        --       --       --        --      --        --       --      --        138        64 
Stores closed prior
 to Inception          (13)     --        --       --       --        --      --        --       --      --        (13)       --  
Stores closed or 
 franchised from
 Inception 
 (September 18, 1996)
 to December 28, 1996  (17)     (3)      --        --      --         --      --        --       --      --        (17)       (3)
                      ----    ----    -----     -----    ----       ----    ----      ----    -----   -----     ------        ---
Balance, December
  28, 1996             108      61       --        --      --         --     --         --       --      --        108        61 
Stores identified
 for Closure or
 franchise Upon 
 acquisition, July   
 25, 1997               --      --       11         --      --        --     --         --      --       --         11        --  
Stores identified
 for Closure or
 franchise upon 
 acquisition,           --      --       --         --       4        --     --         --      --       --          4        --  
 September 2,1997
Stores closed or
  franchised from
  December 28,
  1996 to January
  3, 1998.........     (70)     (9)      (3)       --       --        --     --         --      --       --        (73)       (9)
                      ----    ----    -----     -----   ------    ------   -----     -----    ----    -----       ----       ---  
Balance, January 3,
  1998............      38      52        8        --        4        --     --         --      --       --         50        52 
Stores identified
 for closure or 
 franchise upon 
 acquisition,           --      --       --        --       --        --     54         11      --       --         54        11  
 August 24, 1998.
Stores identified
 for closure or 
 franchise upon 
 acquisition,   
 November 19, 1998      --      --       --        --       --        --     --        --       7        --          7        --  
Stores closed or
 franchised for
 the 52 weeks ended    (15)    (16)      (2)       --       (1)       --    (11)       --      --        --       (29)       (16)
 January 2, 1999      ----   -----      ---     -----      ---     -----   ----      ----    ----     -----     -----       ----
Balance, January 2,
 1999                   23      36        6        --       3         --     43        11       7        --        82         47 
                    ======   =====    =====     =====     ===      =====   ====      ====    ====     =====     =====      =====  
                          
</TABLE>

    

<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


     The  following  table  presents a summary of  changes in the  property  and
equipment  impairment  reserves that were  established  in  connection  with the
applicable  business  combination  for the  periods  indicated  for stores to be
closed and franchised:
<TABLE>
<S>                                                   <C>             <C>       <C>         <C>          <C> 
                                                      Mrs. Fields,
                                                        Inc. and                  Great
                                                        Original       H&M       American   Pretzelmaker Consolidated
                                                      Cookie Co.
Inception, September 18, 1996.......................   $10,921,000  $       --  $       --  $       --  $10,921,000 
Utilization from inception (September 18, 1996) to
December 28,                                              (854,000)         --          --          --     (854,000)
  1996 related to stores to be closed...............
Utilization from inception (September 18, 1996) to
December 28, 1996 related to stores to be franchised      (215,000)         --          --          --     (492,000)
                                                      ------------   ---------   ---------  ----------  -----------
Balance, December 28, 1996..........................     9,852,000          --          --          --    9,852,000 
                                                                                                  
To record property and equipment impairment upon
  acquisition, July 25, 1997........................           --     2,500,000         --          --    2,500,000 
Utilization from December 28, 1996 to January 3, 1998
  related to stores to be closed....................    (3,299,000)    (208,000)        --          --   (3,507,000)
Utilization from December 28, 1996 to January 3, 1998
  related to stores to be franchised................      (492,000)          --         --          --     (492,000)
                                                      ------------    ---------  ---------  ----------    ---------
Balance, January 3, 1998............................     6,061,000    2,292,000         --          --    8,353,000 
To record property and equipment impairment upon
  acquisition, August 24, 1998......................           --            --  2,150,000          --    2,150,000 
To record property and equipment impairment upon
  acquisition, September 9, 1998....................           --            --    973,000          --      973,000 
To record property and equipment impairment upon
  acquisition, November 19, 1998....................           --            --         --     327,000      327,000 
Utilization for the 52 weeks ended January 2, 1999
related to                                              (1,782,000)     (93,000)  (246,000)         --   (2,121,000) 
  stores to be closed...............................
Utilization for the 52 weeks ended January 2, 1999
related to stores to be franchised................        (435,000)    (819,000)        --          --   (1,254,000)
                                                       -----------  ----------- ----------  ----------  -----------  
Balance, January 2, 1999............................   $ 3,844,000   $1,380,000 $2,877,000    $327,000   $8,428,000
                                                       ===========   ========== ==========    ========  ===========
                                                                                
</TABLE>


6.   MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC.

     The mandatorily  redeemable cumulative preferred stock of Pretzel Time (the
" Pretzel Time Preferred Stock") is nonvoting and the preferred stockholders are
entitled to  cumulative  preferred  dividends  of ten  percent for three  years,
accrued and payable upon  redemption.  The Pretzel Time Preferred  Stock must be
redeemed  at  $10,000  per share,  plus  unpaid and  accumulated  dividends,  on
September 1, 1999. The excess of the redemption price over the carrying value is
being  accreted  over the period from  issuance to September 1, 1999,  using the
effective  interest  method and is being charged to the  accumulated  deficit of
Pretzel  Time.  In the  event of a  liquidation  or sale of  Pretzel  Time,  the
preferred  stockholders  are  entitled to receive  payment of $10,000 per share,
plus accumulated dividends.

     During the period from the  acquisition of a majority  ownership in Pretzel
Time  (September  2,  1997) to  January  2, 1999,  Pretzel  Time  increased  the
liquidation  preference of the Pretzel Time Preferred Stock by $212,000, in lieu
of paying cash  dividends.  In addition,  the Pretzel Time  Preferred  Stock was
increased  by $538,000,  for the  accretion  required  over time to amortize the
original issue discount incurred at the time of issuance. As of January 2, 1999,
accrued dividends of $339,000, were unpaid.

     During the period from  September 2, 1997 to January 2, 1999,  Pretzel Time
repurchased  17.5 shares of the  Pretzel  Time  Preferred  Stock for an total of
$175,000  in cash,  or  $10,000  per  share,  plus  accrued  dividends  totaling
approximately  $20,200.  As of January 2, 1999,  there are 127 shares of Pretzel
Time Preferred Stock issued and outstanding with a total liquidation  preference
of approximately $1,495,000.


<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7.   COMMITMENTS AND CONTINGENCIES

   Stock Pledged as Collateral

     Mrs.  Fields'  Holding has pledged all of the  Company's  capital  stock as
collateral for Mrs.  Fields'  Holding's 14 percent Senior Secured Discount Notes
due December 1, 2005 (the " Mrs. Fields' Holding Discount Notes").  Mrs. Fields'
Holding issued the Mrs.  Fields'  Holding  Discount Notes on August 24, 1998, in
connection  with the Great American  Acquisitions  and the Mrs.  Fields' Holding
Equity Infusion (see Note 1). In connection with the issuance of the $55,000,000
principal  amount at maturity  of Mrs.  Fields'  Holding  Discount  Notes,  Mrs.
Fields'  Holding  recorded an total  original  issue  discount of  approximately
$24,136,000.  The principal  amount of the Mrs.  Fields' Holding  Discount Notes
will  accrete  at a rate  of 14  percent  compounded  semi-annually  to a  total
principal  amount of  $55,000,000  at  December  1, 2002.  Thereafter,  the Mrs.
Fields'  Holding  Discount  Notes will accrue  interest at the annual rate of 14
percent, payable semi-annually on June 1 and December 1 of each year, commencing
June 1, 2003.

     Mrs.  Fields'  Holding  is a  holding  company  and does not have  separate
operations from which it can generate cash flows. Under the circumstances,  Mrs.
Fields'  Holding would likely be dependent on its owners' and the Company's cash
flows to make  principal  and  interest  payments  when due.  Interest  payments
totaling  $7,700,000  per year  will  commence  in  2003.  The  Company  has not
guaranteed,  nor is it obligated to make principal or interest  payments related
to the Mrs.  Fields'  Holding  Discount Notes.  However,  in accordance with the
Company's  Indenture,  the Company may pay dividends to Mrs. Fields' Holding, in
order for Mrs.  Fields'  Holding to service the debt,  if no default or event of
default occurs under the Indenture and certain fixed charge  coverage ratios and
consolidated  net income tests are met. The Mrs.  Fields' Holding Discount Notes
are effectively subordinated to the Company's Senior Notes.

   Legal Matters

     The Company is the subject of certain  legal  actions,  which it  considers
routine to its business  activities.  Management,  after consultation with legal
counsel,  believes  that the  potential  liability to the Company under any such
actions is adequately  accrued for or will not  materially  affect the Company's
consolidated financial position or results of operations.

   Operating Leases

     The Company  leases  retail store  facilities,  office space and  equipment
under long-term noncancelable operating lease agreements with remaining terms of
one to ten years.  Certain of the retail  store  leases  provide for  contingent
rentals  based  on  gross  revenues.  Additionally,  as  part  of the  Company's
franchising program, certain locations have been subleased to franchisees.

     Rent expense was as follows for the periods presented:

<TABLE>
<S>                                                  <C>                   <C>                <C>             
                                                     Inception (September
                                                         18, 1996) to       53 Weeks Ended     52 Weeks Ended
                                                      December 28, 1996    January 3, 1998    January 2, 1999
                                                      -----------------    ----------------   ---------------

Minimum rentals.....................................       $8,216,000         $30,654,000       $36,834,000 
Contingent rentals. ................................          105,000             432,000           553,000 
Sub-lease rentals. .................................       (2,220,000)         (8,756,000)      (12,550,000)
                                                           ----------         -----------       -----------
                                                           $6,101,000         $22,330,000       $24,837,000 
                                                           ==========-        ===========       ===========
</TABLE>



<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     As of  January  2,  1999,  the  future  minimum  lease  payments  due under
operating  leases  (including  future  minimum lease  payments for stores in the
process of being closed or  franchised),  which include  required lease payments
for those stores that have been subleased, are as follows:

     Fiscal Year
     1999....................................................       $37,686,000
     2000....................................................        32,337,000
     2001....................................................        27,066,000
     2002....................................................        23,033,000
     2003....................................................        18,246,000
     Thereafter..............................................        33,504,000
                                                                     ----------
                                                                   $171,872,000

     As of January 2, 1999,  the future  minimum  sublease  payments  due to the
Company under these leases are as follows:

     Fiscal Year
     1999....................................................      $ 12,550,000
     2000....................................................        10,676,000
     2001....................................................         8,741,000
     2002....................................................         7,277,000
     2003....................................................         5,716,000
     Thereafter..............................................         8,717,000
                                                                   ------------
                                                                   $ 53,677,000


   Contractual Arrangements

     The Company  entered into a supply  agreement to buy frozen dough  products
through 2000. The agreement  stipulates  minimum annual purchase  commitments of
not less than 23,000,000 pounds of the products each year through the end of the
contract.  The Company also entered into two supply  agreements to buy chocolate
products through August 1999 and January 2000. The agreements  stipulate minimum
purchase commitments of which 1.9 million and 1.5 million pounds,  respectively,
had not been  purchased  as of January 2, 1999.  The terms the frozen  dough and
chocolate  purchase  agreements include certain volume incentives and penalties.
Under each,  the Company and the supplier may terminate the supply  agreement if
the other party defaults on any of the performance  covenants.  The Company also
entered into several other immaterial purchase agreements to buy products.

     The Company has assumed an agreement  with a third-party  lender to provide
financing to franchisees for the purchase of existing Company stores.  Under the
terms of the agreement,  a maximum of $5,000,000 may be borrowed from the lender
by  franchisees  of which the  Company  has  agreed to  guarantee  a maximum  of
$2,000,000.  Outstanding  franchisee  borrowings guaranteed by the Company under
this  agreement  at  January  3, 1998 and  January  2,  1999 were  approximately
$550,000  and  $295,000,  respectively.  Under the terms of the  agreement,  the
Company is required to assume any franchisee obligations which are in default as
defined.  As of January 2, 1999,  the Company has assumed  obligations  totaling
approximately  $54,000,  respectively,  which  are  included  in  capital  lease
obligations.

         The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996. The deferred  credits  represent  volume rebates  associated
with the  assumption  of a  long-term  marketing  and  supply  agreement  with a
supplier in connection  with the Mrs.  Fields Inc. and  affiliates  and Original
Cookie Company and affiliates business  combinations  discussed in Note 1. Under
terms of the agreement, the Company is obligated to purchase a minimum amount of
product from the  supplier.  The supplier  periodically  prepays  rebates to the
Company for  anticipated  purchases.  The Company  records  the  prepayments  as
deferred credits and amortizes them
              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ratably as purchases are made from the supplier.  This  agreement was amended in
January 1997 and an additional  $600,000 in deferred credits were recorded.  The
amended  agreement expires on the later of December 31, 2003 or when the Company
has met its revised  purchase  commitment.  In conjunction  with this amendment,
certain minimum commitments from the previous agreement were carried forward and
others were forgiven.  Additionally, in November 1997, Pretzel Time entered into
a long-term  marketing and supply agreement with a supplier.  Under terms of the
agreement, the Company is obligated to purchase a minimum amount of product from
the supplier.  An additional  $437,000 in deferred  credits were recorded  under
this  agreement.  The  termination  date of this  agreement will be the later of
December 31, 2003 or when Pretzel  Time has met its purchase  commitment.  Under
these  agreements,   the  Company  recognized  approximately   $1,393,000,   and
$812,000 primarily as a reduction to food cost of sales during the years ended
January 3, 1998 and January 2, 1999.

     In November  1996,  the Company  entered into a consulting  agreement  (the
"Consulting  Agreement")  with Debbi  Fields,  a director of the Company,  under
which Debbi  Fields  travels  and  performs  public  relations  and  advertising
activities  on  behalf of the  Company  for at least 50 days a year for a fee of
$250,000 per year,  with an option to perform  these  services for 20 additional
days a year for additional pay of $5,000 per day. The compensation  increases by
10 percent a year beginning on January 1, 1999. The Consulting Agreement expires
on December  31,  1999.  Under the  Consulting  Agreement,  Debbi Fields may not
disclose any confidential  information of the Company, such as recipes and trade
secrets, and may not, without the prior written consent of the Company,  compete
with the Company.

     The Company has entered into  employment  agreements with five key officers
with terms of two to three  years.  The  agreements  are for a total annual base
salary of $1,095,000. If the Company terminates employment without cause, or the
employee  terminates  employment  with good reason,  the employee can receive in
severance  pay the  amount  equal  to the  product  of his or her  then  current
semi-monthly  base salary by the greater of the number of  semi-monthly  periods
from the notice of termination or 36 to 48 semi-monthly  periods, plus a portion
of  any  discretionary  bonus  that  would  otherwise  have  been  payable.  The
agreements  have  customary  provisions  for  other  benefits  and also  include
noncompetition clauses.


8.   RELATED-PARTY TRANSACTIONS

     As of January 3, 1998 and January 2, 1999, the Company had  receivables due
from  franchisees  and  licensees,  primarily  related to prepaid rent which the
Company had paid on behalf of franchisees, totaling approximately $2,176,000 and
$6,003,000,  respectively.  These  amounts  are  included  in  amounts  due from
franchisees  and  affiliates  and are net of  allowance  for  doubtful  accounts
totaling $582,000 and $1,078,000, respectively.

     As of January 3, 1998 and January 2, 1999,  the Company had net payables of
approximately $105,000 and $150,000,  respectively, due to Mrs. Fields' Holding.
The amounts due to or from Mrs. Fields' Holding are recorded in prepaid rent and
other in the accompanying consolidated balance sheets.

     During the years  ended  January 3, 1998 and  January 2, 1999,  the Company
accrued approximately $441,000 and $0, respectively,  of interest expense due to
Mrs. Fields' Holding related to the convertible  subordinated notes Mrs. Fields'
Holding  purchased.  As part of the Refinancing,  Mrs. Fields' Holding converted
all of the  $4,643,000  convertible  subordinated  notes to equity and the notes
were cancelled (see Note 3).

     The Company paid fees to Korn/Ferry  International  ("Korn/Ferry") totaling
approximately  $157,000 and $70,600,  during the years ended January 3, 1998 and
January 2, 1999,  respectively.  Korn/Ferry is an executive search firm of which
one of the Company's directors is the Chairman.



<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     A director of the Company is a  consultant  and an advisor to Dillon Read &
Co., Inc.  ("Dillon  Read").  In 1997,  the Company paid to Dillon Read a fee of
approximately  $707,000 in connection with the  restructuring  of the Company in
September  1996. The  director's  company did not receive a fee from the Company
during the fiscal  year ended  January 2, 1999.  The Company  believes  that the
arrangements  were on terms that could have been obtained  from an  unaffiliated
third party.

     As of January 2, 1999,  the  Company  has a loan due from the  founder  and
minority stockholder of Pretzel Time totaling $567,000.  The note bears interest
at an annual  rate of ten  percent  and is payable in  monthly  installments  of
principal  and interest  beginning  January 1998 by setoff of, and to the extent
of, the founder's  bonus  payments and dividends  received by the founder in his
Pretzel Time stock; provided that in any calendar year no more than $100,000 may
be so  offset.  In  addition,  as  of  January  2,  1999,  the  Company  is  due
approximately  $526,000  from the  founder  in  connection  with  certain  lease
payments  related  to the  purchase  of  Pretzel  Time for which the  Company is
indemnified.  These amounts are recorded in accounts receivable and other assets
in the accompanying consolidated balance sheets.

     The Company and Mrs.  Fields'  Holding  expect to enter into a  tax-sharing
arrangement but as of the date of these  financial  statements no such agreement
has been finalized.


9.   EMPLOYEE BENEFIT PLAN

     The  Company  sponsors  the Mrs.  Fields'  Original  Cookies,  Inc.  401(k)
Retirement Savings Plan (the "Plan") for all eligible employees. Under the terms
of the Plan, employees may make contributions to the Plan, a portion of which is
matched by contributions  from the Company.  The total Company  contributions to
the  Plan for the  years  ended  January  3,  1998  and  January  2,  1999  were
approximately $97,900 and $171,000, respectively.


10.   REPORTABLE SEGMENTS

     Operating  segments  are  components  of the  Company  for  which  separate
financial  information  is available  that is  evaluated  regularly by the Chief
Operating  decision maker in deciding how to allocate resources and in assessing
performance.  This  information  is  reported  on  the  basis  that  it is  used
internally for evaluating  segment  performance.  Mrs. Fields has two reportable
operating  segments;  namely,  company-owned  stores and related  activity  and
franchising  and  licensing  activity.  The segments are  determined  by revenue
source;  direct sales or royalties and license fees.  The  company-owned  stores
segment  consists of both cookie and pretzel  stores  owned and operated by Mrs.
Fields.  The  franchising and licensing  segment  consists of cookie and pretzel
stores,  which are owned and  operated by third  parties who pay Mrs.  Fields an
initial  franchise or license fee and monthly royalties based on a percentage of
gross  sales and other  licensing  activity  not  related  to cookie or  pretzel
stores. The accounting policies for the segments are discussed in the summary of
significant  accounting  policies (see  Note 2). Sales  and  transfers  between
segments are eliminated in consolidation.



<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Mrs. Fields evaluates performance of each segment based on contribution 
margin.  Mrs. Fields does not allocate any interest income, interest expense, 
depreciation and amortization or assets to its reportable operating segments.  
Segment revenue and contribution margin are presented in the following table.

<TABLE>
<S>                              <C>                        <C>                          <C> 
                                 Company-owned Stores       Franchising and Licensing      Total
Period ended December 28, 1996
Revenue                                   $ 40,849,000               $1,267,000           $42,116,000
Contribution Margin                         10,761,000                1,267,000            12,028,000
Fiscal 1997
Revenue                                    127,845,000                1,563,000           134,408,000
Contribution Margin                         28,985,000                6,563,000            35,548,000
Fiscal 1998
Revenue                                    140,235,000               14,001,000            154,236,000
Contribution Margin                         30,337,000               10,414,000             40,751,000
</TABLE>

     The  reconciliation  of  contribution  margin  to net  income  (loss) is as
follows:

<TABLE>
<S>                                   <C>                           <C>                  <C> 
                                        Period Ended
                                      December 28, 1996             Fiscal 1997          Fiscal 1998
                                      -----------------             -----------          -----------

Contribution margin                      $ 12,028,000                $35,548,000         $  40,751,000
General and
   administrative expense                  (4,035,000)               (16,192,000)          (19,017,000)
Store closure provision                           ---                   (538,000)           (7,303,000)
Depreciation and amortization              (2,344,000)               (10,403,000)          (19,820,000)
Interest expense, net                      (1,793,000)                (7,584,000)          (12,574,000)
Other expense                              (1,895,000)                (1,805,000)           (1,180,000)
                                        --------------              ------------         -------------
Net income (loss)                       $    1,961,000              $   (974,000)        $ (19,143,000)
                                        ==============              =============        ==============
</TABLE>

     Geographic segment information is as follows:

<TABLE>
<S>                            <C>                       <C>              <C>                <C>    
                                                         International        Domestic       International
                               Domestic Company-owned    Company-owned    Franchising and     Franchising
                                       Stores                Stores           Licensing      and Licensing
Revenue
Period ended December 28, 1996        $  40,849,000       $        ---      $ 1,158,000           $109,000
Fiscal 1997                             127,736,000            109,000        6,150,000            413,000
Fiscal 1998                             140,018,000            217,000       13,738,000            263,000
</TABLE>


     Revenues  from  international  franchising  and  licensing are secured from
Canada and Ausralia  with no other  countries  having  material  representation.
Revenues from international company-owned stores are immaterial.

     There were no customers  who  accounted  for more than 10% of Mrs.  Fields'
total revenue or either segment's revenue.


11.   SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

     The Company's obligation related to its $140,000,000 total principal amount
of Senior Notes due 2004 (see Note 3) is guaranteed on a joint and several basis
and on a senior basis by four of the Company's  wholly owned  subsidiaries  (the
"Guarantors").  These  guarantees  are  general  unsecured  obligations  of  the
Guarantors,  rank senior in right of payment to all subordinated indebtedness of
the  Guarantors  and rank pari passu in right of payment  with all  existing and
future senior  indebtedness of the Guarantors.  There are no restrictions on the
Company's ability to obtain cash dividends or other  distributions of funds from
the   Guarantors,   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"),  Great American
Cookie Company, Inc., The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc.,
which are  Guarantors,  and Pretzel  Time,  Inc.,  which will become a Guarantor
(collectively, the "Guarantor Subsidiaries") and Mrs. Fields' Cookies Australia,
Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of Canada, and
three   partially  owned   subsidiaries,   (collectively,   the   "Non-guarantor
Subsidiaries").  The Company has not presented separate financial statements and
other disclosures  concerning the Guarantor  Subsidiaries because management has
determined that such information is not material to investors.



<PAGE>


              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
     FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
                             (Dollars in thousands)

<TABLE>
<S>                                                   <C>       <C>        <C>          <C>          <C>    
                                                                               Non-
                                                       Parent    Guarantor  Guarantor
                                                      Company   Subsidiary Subsidiaries Eliminations Consolidated
NET REVENUES .                                         $41,557   $    559  $        --    $      --  $   42,116
                                                       -------   --------  -----------    ---------  ----------
OPERATING COSTS AND EXPENSES:
     Selling and store occupancy costs..............    19,492         --           --           --      19,492 
     Cost of sales..................................    10,596         --           --           --      10,596 
     General and administrative.....................     3,871        146           18           --       4,035 
     Depreciation and amortization..................     2,027        317           --           --       2,344
                                                     ---------  ---------   ----------    ---------  ----------
          Total operating costs and expenses........    35,986        463           18           --      36,467
                                                      --------  ---------   ----------   ----------  ----------
          Income (loss) from operations.............     5,571         96          (18)          --       5,649 
INTEREST EXPENSE AND OTHER, net.....................    (1,410)      (383)          --           --      (1,793)
                                                     ---------  ---------   ----------   ---------- -----------

     Income (loss) before provision for income taxes,
        preferred stock accretion
        and dividends of subsidiaries and equity in net
        loss of consolidated subsidiaries...........     4,161       (287)         (18)          --       3,856 
PROVISION FOR INCOME TAXES..........................    (1,798)        --           --           --      (1,798)
                                                     ---------    -------  -----------   ----------  ----------

     Income (loss) before preferred stock
        accretion and dividends of subsidiaries and
        equity in net loss of consolidated
        subsidiaries................................     2,363       (287)         (18)          --       2,058 
PREFERRED STOCK ACCRETION AND
   DIVIDENDS OF SUBSIDIARIES........................        --        (97)          --           --         (97)
EQUITY IN NET LOSS OF CONSOLIDATED
   SUBSIDIARIES.....................................      (402)        --           --          402          --
                                                     ---------    -------   ----------  -----------  ----------

NET INCOME (LOSS)...................................  $  1,961   $   (384)  $      (18) $       402  $    1,961
                                                      ========   ========   ==========  ===========  ==========
</TABLE>


<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
     FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
                             (Dollars in thousands)

<TABLE>
<S>                                                       <C>       <C>        <C>         <C>          <C>    
                                                                                  Non-
                                                           Parent    Guarantor  Guarantor
                                                          Company   Subsidiary Subsidiarie Eliminations Consolidated
NET CASH PROVIDED BY OPERATING
   ACTIVITIES...........................................    $ 6,990      $ 589       $  30      $  --      $ 7,609
                                                            --------     ------      -----      ------     -------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Net cash paid for acquisitions and related
        expenses........................................    (12,508)    (7,000)         --          --     (19,508)
     Purchase of property and equipment, net............     (1,622)        (1)                             (1,623)
                                                           -------- ---------- -----------       -----     -------
                                                                                        --          --
          Net cash used in investing activities.........    (14,130)    (7,001)         --          --     (21,131)
                                                            ------- --- ------ -----------      ------    --------
 CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from the issuance of common stock.........     15,000        --           --          --      15,000 
     Proceeds from the issuance of mandatorily
        redeemable cumulative preferred stock of
        subsidiary......................................        --       3,500          --          --       3,500 
     Proceeds from the issuance of note payable.........        --       3,500          --          --       3,500 
     Principal payments on long-term debt...............     (1,769)        --          --          --      (1,769)
                                                           -------- ---------- -----------      ----------- ------
     Net cash provided by financing activities..........     13,231      7,000          --          --      20,231 
                                                            ------- ---- ----- -----------      ----------- ------
NET INCREASE IN CASH AND CASH
   EQUIVALENTS..........................................      6,091        588          30          --       6,709 
CASH AND CASH EQUIVALENTS, beginning of
   period...............................................         --         --          --          --          -- 
                                                         ---------- ---------- -----------     ------------ ------ 
CASH AND CASH EQUIVALENTS, end of
   period...............................................    $ 6,091      $ 588       $  30      $  --      $ 6,709 
                                                            =======-     =====       =====      ======     =======
SUPPLEMENTAL DISCLOSURE OF CASH
   FLOW INFORMATION:
     Interest paid......................................       $ 28 $       --      $  --       $  --       $  28 
</TABLE>
                                                                      


<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                              AS OF JANUARY 3, 1998
                             (Dollars in thousands)

                  ASSETS

<TABLE>
<S>                                                     <C>       <C>        <C>          <C>          <C>   
                                                                                 Non-
                                                         Parent    Guarantor   Guarantor
                                                        Company   Subsidiary Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
     Cash and cash equivalents.......................      $14,270     $ 725      $ 1,292      $  --      $ 16,287
     Accounts receivable, net........................        1,388       --           147         --         1,535
     Amounts due from (to) franchisees and
        licensees, net...............................        1,517       659          --          --         2,176
     Inventories.....................................        3,094       --             6         --         3,100
     Other current assets............................        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
INVESTMENT 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
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>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                       FOR THE YEAR ENDED JANUARY 3, 1998
                             (Dollars in thousands)

<TABLE>
<S>                                                     <C>      <C>          <C>          <C>          <C>                        
                                                        Parent     Guanantor  Non-Guarantor
                                                        Company    Subsidiary Subsidiaries Eliminations Consolidated
NET REVENUES .                                          $125,991     $2,004      $ 7,077      $ (664)   $ 134,408 
                                                        --------     ------      -------      ------    ---------
OPERATING COSTS AND EXPENSES:
     Selling and store occupancy costs..............      63,765         --        3,731        (664)      66,832 
     Cost of sales..................................      31,173         --          855          --       32,028 
     General and administrative.....................      14,215      1,066          911          --       16,192 
     Store closure provision........................         538         --           --          --          538 
     Depreciation and amortization..................       8,745      1,125          533          --       10,403 
                                                         -------    -------      -------      ------     --------
          Total operating costs and expenses........     118,436      2,191        6,030        (664)     125,993 
                                                         -------    -------      -------      ------     --------
          Income (loss) from operations.............       7,555       (187)       1,047          --        8,415 
INTEREST EXPENSE AND OTHER, net.....................      (6,329)    (1,230)        (393)         --       (7,952)
                                                         -------    -------      -------      ------     --------
     Income (loss) before provision for income taxes,  
        preferred stock accretion
        and dividends of subsidiaries and equity in
        net loss of consolidated subsidiaries.......       1,226     (1,417)         654         --           463 
PROVISION FOR INCOME TAXES..........................        (535)       (25)         (95)        --          (655)
                                                         -------     ------      -------      -----       -------
     Income (loss) before preferred stock
        accretion and dividends of subsidiaries
        and equity in net loss of consolidated
        subsidiaries................................         691     (1,442)         559         --          (192)
PREFERRED STOCK ACCRETION AND
   DIVIDENDS OF SUBSIDIARIES........................         --        (338)        (306)        --          (644)
EQUITY IN NET LOSS OF CONSOLIDATED
   SUBSIDIARIES.....................................      (1,665)        --           --       1,527         (138)
                                                          ------   --------       ------     -------      -------
NET INCOME (LOSS)...................................      $ (974)  $ (1,780)      $  253     $ 1,527      $  (974)
                                                          ======   ========       ======     =======      =======
</TABLE>


<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                       FOR THE YEAR ENDED JANUARY 3, 1998
                             (Dollars in thousands)

<TABLE>
<S>                                                     <C>       <C>        <C>          <C>         <C>
                                                                                 Non-
                                                         Parent    Guarantor   Guarantor
                                                        Company   Subsidiary Subsidiaries Elimination Consolidated
NET CASH (USED IN) PROVIDED BY
   OPERATING ACTIVITIES.............................       $ (766)     $ 387      $ 1,298      $  --       $  919 
                                                           ------      -----      -------      ------      ------
CASH FLOWS FROM INVESTING
   ACTIVITIES:
     Net cash paid for acquisitions and related
        expenses....................................      (10,949)       --            --          --     (10,949)
     Purchase of property and equipment, net........       (4,556)       --            --          --      (4,556)
                                                          -------      ----       -------       -----     -------
          Net cash used in investing activities.....      (15,505)       --            --          --     (15,505)
                                                          -------      ----       -------       -----     -------
CASH FLOWS FROM FINANCING
   ACTIVITIES:
     Proceeds from issuance of long-term debt.......      108,250        --           --           --     108,250 
     Principal payments on long-term debt and
        capital lease obligations...................      (76,759)     (250)         (36)          --     (77,045)
     Payment of debt financing costs................       (5,976)       --           --           --      (5,976)
     Payment of cash dividend to Mrs. Fields' Holding      (1,065)       --           --           --      (1,065)
                                                          -------     -----       ------         ----    --------
          Net cash provided by (used in)
             financing activities...................       24,450       (250)         (36)         --      24,164 
                                                          -------     ------      -------        ----    --------
NET INCREASE IN CASH AND CASH
   EQUIVALENTS......................................        8,179        137        1,262          --       9,578 
CASH AND CASH EQUIVALENTS, beginning
   of year.......................................... .      6,091        588           30          --       6,709 
                                                          -------     -------     -------        ----    --------
CASH AND CASH EQUIVALENTS, end of
   year ............................................      $14,270      $ 725      $ 1,292      $  --     $ 16,287 
                                                          =======      =====      =======      ======    ========
SUPPLEMENTAL DISCLOSURE OF CASH
   FLOW INFORMATION:
          Interest paid.............................       $7,607      $ 789        $  20       $  --     $ 8,416 
          Taxes paid................................          181         25           11          --         217 

</TABLE>

<PAGE>




              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                              AS OF JANUARY 2, 1999
                             (Dollars in thousands)

                  ASSETS

<TABLE>
<S>                                                  <C>       <C>         <C>          <C>          <C>   
                                                                              Non-
                                                      Parent    Guarantor  Guarantor
                                                     Company   Subsidiarie Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
     Cash and cash equivalents.....................$    3,539 $     1,134 $        7  $           $     4,751
     Accounts receivable, net......................     2,860         304         44          ---       3,208
     Amounts due from franchisees and                                      
        licensees, net.............................     1,297       4,706        ---          ---       6,003
     Inventories...................................     4,631         863          9          ---       5,503
     Other current assets and amounts due from
        (to) affiliates, net.......................    39,368     (33,898)      (592)         ---       4,878
                                                   ----------  ---------- ----------  ----------- -----------
          Total current assets.....................    51,695     (26,891)      (461)         ---      24,343
PROPERTY AND EQUIPMENT, net........................    29,900       1,654        243          ---      31,797
INTANGIBLES, net...................................    75,875      95,601        320          ---     171,796
INVESTMENT IN SUBSIDIARIES.........................    66,484          --         --      (66,484)        ---
OTHER ASSETS .                                          3,688         252         30          ---       3,970
                                                   ----------  ----------  ---------  -----------  ----------
                                                     $227,642  $    70,616 $     132    $ (66,484)   $231,906
                                                     ========  =========== =========    =========    ========

         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Current portion of long-term debt and
        capital lease obligations..................      $7,141     $1,204       $   -       $  --     $ 8,345
     Accounts payable..............................      14,223        564          69          --      14,856
     Accrued liabilities...........................      10,956      2,895          18          --      13,869
                                                        -------     ------       ------      -----    --------  
          Total current liabilities................      32,320      4,663          87          --      37,070
LONG-TERM DEBT AND CAPITAL LEASE
   OBLIGATIONS, net of current portion.............     142,367        216          61          --     142,644

OTHER ACCRUED LIABILITIES..........................      10,134         --          --          --      10,134
MANDATORILY REDEEMABLE
   CUMULATIVE PREFERRED STOCK......................          --      1,261          --          --       1,261
MINORITY INTEREST..................................          --         --          --         119         119
STOCKHOLDERS' EQUITY...............................      42,821     64,476         (16)    (66,603)     40,678
                                                      ---------   --------       -----     -------   ---------
                                                       $227,642    $70,616        $132    $(66,484)  $ 231,906
                                                      =========   ========       =====    ========   =========
</TABLE>


<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

                     FOR THE 52 WEEKS ENDED JANUARY 2, 1999
                             (Dollars in thousands)

<TABLE>
<S>                                                   <C>       <C>          <C>         <C>          <C>    
                                                                               Non-
                                                      Parent     Guarantor   guarantor
                                                      Company   Subsidiaries Subsidiarie Eliminations Consolidated
NET REVENUES .                                        $144,057     $13,939   $        37 $  (4,137)    $154,236
                                                    ----------     -------   ------------ ---------  ----------
OPERATING COSTS AND EXPENSES:
     Selling and store occupancy costs..............    76,437         ---         334    (1,768)      75,003
     Cost of sales..................................    37,165       3,587          99    (2,369)      38,482
     General and administrative.....................    21,213       5,107         ---       ---       26,320
     Depreciation and amortization..................    16,624       3,196         ---       ---       19,820
                                                    ----------  ----------  ---------- ---------   ----------
          Total operating costs and expenses........   151,439      11,890         433    (4,137)     159,625
                                                    ----------  ----------  ---------- ---------   -----------
     (Loss) income from operations..................    (7,382)      2,049         (56)      ---       (5,389)
INTEREST EXPENSE AND OTHER, net.....................   (13,064)         81         ---       ---      (12,983)
                                                    ----------- ----------  ---------- ---------   ----------
     (Loss) income before provision for income                               
        taxes, preferred stock accretion and         
        dividends of subsidiaries and equity in      
        net loss of consolidated subsidiaries.......   (20,446)      2,130         (56)      ---      (18,372)
PROVISION FOR INCOME TAXES..........................      (197)       (119)        ---       ---         (316)
                                                    ----------  ----------  ---------- ---------   ----------
     (Loss) income before preferred stock
        accretion and dividends of subsidiaries
        and equity in net loss of consolidated
        subsidiaries................................   (20,643)      2,011         (56)      ---      (18,688)
PREFERRED STOCK ACCRETION AND
   DIVIDENDS OF SUBSIDIARIES........................       ---        (444)        ---       ---         (444)
EQUITY IN NET LOSS OF CONSOLIDATED
   SUBSIDIARIES.....................................     1,500         ---         ---    (1,511)         (11)
                                                    ----------  ----------  ---------- ----------  -----------
NET (LOSS) INCOME...................................  $(19,143)     $1,567  $     (56)  $ (1,511)  $  (19,143)
                                                    =========== ==========  ========== ==========  ==========
</TABLE>
                                                                            



<PAGE>



              MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE 52 WEEKS ENDED JANUARY 2, 1999
                             (Dollars In thousands)

<TABLE>
<S>                                                  <C>         <C>          <C>         <C>          <C>  
                                                                                Non-
                                                       Parent     Guarantor   Guarantor
                                                       Company   Subsidiaries Subsidiarie Eliminations Consolidated
NET CASH PROVIDED BY (USED IN)
   OPERATING ACTIVITIES............................. $   (23,820 $    33,382  $    (133)- $     ---      $9,429
                                                     ----------- -----------  ----------  ---------    --------
CASH FLOWS FROM INVESTING
   ACTIVITIES:
     Net cash paid for acquisitions and related
        expenses.................................... $   (39,873)      7,038         ---        --- $   (32,835)
     Purchase of property and equipment, net........      (8,228)         (7)        ---        ---      (8,235)
     Proceeds for asset sales........................        176         ---         ---        ---         176
                                                     ----------- ----------- ----------- ---------- -----------
          Net cash (used in) provided by
             investing activities...................     (47,925)      7,031         ---        ---     (40,894)
                                                     ----------------------- ----------- ---------- ------------
CASH FLOWS FROM FINANCING
   ACTIVITIES:
     Proceeds from long-term debt...................      39,400         ---         ---        ---      39,400
     Payment of debt financing costs................      (7,062)        ---         ---        ---      (7,062)
     Equity infusion from Mrs. Fields' Holding......      29,056         ---         ---        ---      29,056
     Principal payments on long-term debt and
        capital lease obligations...................        (257)    (41,000)        ---        ---     (41,257)
     Capital lease repayments                               (123)        ---         ---        ---        (123)
     Reduction in preferred stock of Pretzel Time...         ---         (85)        ---        ---         (85)
                                                     ----------- ----------------------- ---------- ------------
          Net cash provided by (used in)
             financing activities...................      61,014     (41,085)        ---        ---      19,929
                                                     ----------- ----------------------- ---------- -----------
NET (DECREASE) INCREASE IN CASH
   AND CASH EQUIVALENTS.............................     (10,731)       (672)       (133)       ---     (11,536)
CASH AND CASH EQUIVALENTS, beginning
   of period .......................................      14,270       1,806         211        ---      16,287
                                                     ----------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of
   Period    ....................................... $      3,539 $    1,134 $       78 $       -- $      4,751
                                                     ============ ======================= ========= ============
SUPPLEMENTAL DISCLOSURE OF CASH
   FLOW INFORMATION:
          Interest paid.............................      $12,405       $ 35         $  --      $  --   $ 12,440
          Taxes paid................................          141         68            --         --        209
</TABLE>



<PAGE>


Item 9.   Changes in and Disagreements with Accountants on Accounting and 
          Financial Disclosures

     None.


                                    PART III

Item 10.   Directors and Officers of the Registrant

     The following table sets forth certain information regarding the executive
officers and directors of Mrs. Fields as of January 2, 1999. The directors are 
also directors of Mrs. Fields' Holding.

<TABLE>
<S>                           <C>    <C>   
  Name                        Age    Title
Larry A. Hodges............    50    Director, President and Chief Executive Officer
L. Tim Pierce..............    47    Senior Vice President, Chief Financial Officer and Secretary
Pat W. Knotts..............    44    Senior Vice President of Operations
Garry Remington............    48    Senior Vice President of Real Estate
Michael R. Ward............    41    Vice President of Administration and Legal Department
Herbert S. Winokur, Jr.....    55    Chairman of the Board of Directors
Richard Ferry..............    61    Director
Debbi Fields...............    42    Director
Nat Gregory................    50    Director
Walker Lewis...............    54    Director
Peter Mullin...............    58    Director
Gilbert Osnos..............    69    Director
</TABLE>

                    Mr. Hodges has been President and Chief Executive Officer of
               Mrs. Fields Inc. and Mrs. Fields since March 1994, and a Director
               of Mrs.  Fields and Mrs.  Fields'  Holding since April 1993. From
               1992 to 1994, Mr. Hodges was the Chief Executive  Officer of Food
               Barn Stores, Inc. (Kansas City, Missouri). Earlier Mr. Hodges was
               a  consultant  to various  manufacturers  and  retailers.  For 25
               years,  Mr.  Hodges was with  American  Stores  Company  where he
               served as President of two of its subsidiaries  ranging in annual
               sales from $600 million to $2.3  billion.  Mr. Hodges has over 32
               years of  experience  in the retail field serving as president of
               four supermarket chains and consultant and director to large food
               companies.  Mr. Hodges is a director of Ameristar  Casinos,  Inc.
               and Coinstar, Inc.

                    Mr.  Pierce has been Senior Vice  President  of Mrs.  Fields
               Inc. and Mrs.  Fields since December  1991,  and Chief  Financial
               Officer since August 1993. He was appointed  Corporate  Secretary
               in April 1995.  Since joining Mrs.  Fields Inc. in 1988 and prior
               to becoming Senior Vice President,  Mr. Pierce had served as Vice
               President of Finance.  He was also an Audit  Manager and a Senior
               Audit Manager with Price  Waterhouse in Salt Lake City, Utah, and
               New York, New York. Mr. Pierce is a certified  public  accountant
               and has also served on the Board of Directors of Mountain America
               Credit Union and currently serves as a Director of Pretzel Time.

                    Mr.  Knotts has been Senior Vice  President  of Mrs.  Fields
               since  October 1996.  Mr.  Knotts'  responsibilities  include all
               aspects  of  store  operations  and  related  support  functions.
               Between  January  1992 and October  1996,  Mr.  Knotts  served as
               Executive Vice  President of Operations  for Original  Cookie and
               Hot  Sam,  where  he  was  responsible   for  store   operations,
               marketing, purchasing,  construction and store design. Mr. Knotts
               also held the position of Regional  Vice  President of Stores for
               Silo Inc., a $1 billion consumer  electronics and major appliance
               chain.

                    Mr.  Remington has been Senior Vice President of Real Estate
               of Mrs. Fields since July 1997. Mr. Remington's  responsibilities
               include all aspects of real estate, store construction,  remodels
               and lease  negotiations.  Between October 1996 and July 1997, Mr.
               Remington  served as Vice  President  of Real  Estate for Sbarro,
               Inc. From 1994 to 1996, Mr. Remington held the position of Senior
               Vice  President of Leasing for the  Woolworth  Corporation,  with
               responsibilities   for   Footlocker,   Champ   Sports,   Northern
               Reflections,  Afterthoughts, and seven other divisions. From 1992
               to 1994, Mr. Remington was Vice President and Director of Leasing
               for the Woolworth Corporation, which he joined in 1972.

                    Mr. Ward has been Vice President of Administration  for Mrs.
               Fields since September 1996. Mr. Ward's responsibilities  include
               management of the Human  Resources  Department,  Benefits and the
               Legal   Department.   Between   1991   and   1996,   Mr.   Ward's
               responsibilities  were  overseeing  the Legal  Department and the
               Human Resources Department for Mrs. Fields Inc. He is admitted to
               practice law in the State of Utah.

                    Mr.  Winokur has been  Chairman of the Board of Directors of
               Mrs.  Fields and Mrs.  Fields'  Holding since their  inception in
               September  1996.  Mr.  Winokur is  managing  member of  Capricorn
               Holdings,  L.L.C., the General Partner of Capricorn.  Mrs. Fields
               is  owned  by  Mrs.  Fields'  Holding,  a  portfolio  company  of
               Capricorn  which  owns the  majority  of Mrs.  Field's  Holding's
               stock.  Mr.  Winokur is President of Winokur  Holdings,  Inc. (an
               investment  company)  and Managing  General  Partner of Capricorn
               Investors,  L.P. and Capricorn,  private investment  partnerships
               concentrating on investments in restructure situations, organized
               by Mr.  Winokur  in 1987  and  1994,  respectively.  Prior to his
               current  appointment,  Mr.  Winokur  was  Senior  Executive  Vice
               President and Director of Penn Central  Corporation.  Mr. Winokur
               is also a Director of NAC Re  Corporation,  The WMF Group,  Ltd.,
               C.C.C.  Information  Services Corp.,  Inc.,  DynCorp.,  and Enron
               Corp.

                    Mr.  Ferry  has been a  Director  of Mrs.  Fields  since its
               inception in September 1996. Mr. Ferry is co-founder and Chairman
               of Korn/Ferry International, the world's leading executive search
               firm.  Mr. Ferry is on the Board of Directors of Avery  Dennison,
               Dole Food Company and Pacific Life Insurance Company.

                    Debbi  Fields has been a Director of Mrs.  Fields  since its
               inception in September  1996.  Debbi Fields founded a predecessor
               to  Mrs.  Fields  in 1977  and  served  as  President  and  Chief
               Executive  Officer until 1993. She currently  serves on the Board
               of several non-profit  organizations and lectures  throughout the
               United  States  to  Fortune  500  companies.  Debbi  Fields  is a
               director of Outback Steakhouse, Inc.

                    Mr.  Gregory  has been a Director of Mrs.  Fields  since its
               inception in September  1996.  Since 1993, Mr. Gregory has served
               as   Chairman   and  Chief   Executive   Officer  of  NATCO,   an
               international supplier of oilfield production equipment, which is
               a  portfolio  company  of  Capricorn.  Prior to that he served as
               Managing  Director of Smith Barney from 1991 to 1993. Mr. Gregory
               is a member and managing director of Capricorn Holdings,  L.L.C.,
               the  General  Partner  of  Capricorn,  and a  director  of Marine
               Drilling Companies, Inc.

                    Mr.  Lewis  has been a  Director  of Mrs.  Fields  since its
               inception in September  1996.  Mr. Lewis is the Chairman of Devon
               Value  Advisers.  Mr.  Lewis  served  as  Chairman  of  Strategic
               Planning   Associates,    specializing   in   shareholder   value
               strategies.  Mr. Lewis was a Senior Advisor at Dillon Read & Co.,
               Inc. and his company, Devon Value Advisors, continues to act as a
               consultant to Dillon Read. He was a Managing  Director of Kidder,
               Peabody  &  Co.,  Inc.,  President  of  Avon  North  America  and
               Executive  Vice  President of Avon  Products,  Inc. Mr. Lewis has
               served  on the  Board of  Directors  of Owens  Corning,  American
               Management   Systems,   Incorporated,   Jostens,   Inc.,  Marakon
               Associates and London Fog.

                    Mr.  Mullin has been a  Director  of Mrs.  Fields  since its
               inception  in  September   1996.   Mr.  Mullin   founded   Mullin
               Consulting,  Inc.  in Los  Angeles  in 1969,  and  serves  as its
               Chairman  and  Chief  Executive   Officer.   He  also  co-founded
               Strategic  Compensation  Associates and serves as Chairman of the
               firm's Executive  Committee.  Mr. Mullin is a member of the Board
               of Directors of Avery  Dennison  Corporation,  1st Business Bank,
               Process Technology Holdings,  Inc., Golden State Vintners, M Life
               Insurance Company and the Board of Advisors of CMS Companies.

                    Mr.  Osnos  has been a  Director  of Mrs.  Fields  since its
               inception in September  1996.  Mr. Osnos has served since 1992 as
               Chairman of Osnos & Company, which provides interim management to
               companies. He has served as Interim  President/CEO/COO to a large
               array of companies in manufacturing,  distribution, retailing and
               service  industries.  In 1979 he joined the predecessor  firm and
               became a partner in 1981. He has been Chairman of the  Turnaround
               Management  Association  and a member of its Board since prior to
               1993.  He is also on the Board of Directors  of  Furr's/Bishop's,
               Inc. and Dunham's Athleisure Corp.




<PAGE>


Item 11.   Executive Compensation

     The following table sets forth  information with regard to compensation for
services  rendered  in all  capacities  to Mrs.  Fields by its  Chief  Executive
Officer and the four other most highly  compensated  executive  officers of Mrs.
Fields other than the CEO who were  serving as executive  officers at the end of
the last  completed  fiscal year.  Information  described in the table  reflects
compensation  earned by such  individuals  for services with Mrs.  Fields or its
subsidiaries.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<S>                       <C>      <C>       <C>            <C>          <C>            <C>              <C>
                                                                                
                                                                 
                                           Annual Compensation          Long Term Compensation Awards
                                                               Other       Restricted     Securities
 Name and Principal                                            Annual         Stock        Underlying     All Other
     Position               Year    Salary       Bonus      Compensation    Award(s)    Options/SARS(7) Compensation
     ----------             -----   -----       --------       -------     --------        --------     ------------
                                    ($)          ($)           ($)           ($)             (#)           ($)
                                    -----        -----         -----         -----           -----         ---
Larry Hodges                1998    $339,583   $ 150,000       $ 4,833   $    --               --     $471,000(8)
  President and CEO         1997     300,000     185,412         2,177      50,000(6)          --          --     
                            1996     262,834         --          1,656        --          229,992          --     
L. Tim Pierce               1998     193,430      70,000         2,634        --               --          --     
  Senior Vice President     1997     175,000     103,607         1,287        --               --        71,867(8)
  and CFO                   1996     167,723         --          1,107        --           32,856        33,000(1)
Pat Knotts                  1998     191,699      70,000            --        --               --          --     
  Senior Vice President     1997     162,500      27,321            --        --               --        23,920(3)
  Operations                1996     172,490     267,212(2)         --        --           32,856         2,912(4)
Michael Ward                1998     135,385      50.000         1,370        --               --          --     
  Vice President            1997     109,904      56,393           619        --               --        39,488(8)
  Legal and Administration  1996      83,020         --            526        --           24,642          --     
Garry Remington             1998     180,000      33,945            --        --               --          --     
  Senior Vice President     1997      82,859         --             --        --           24,642        46,707(5)
  Real Estate               1996          --         --             --        --               --          --     
</TABLE>

(1) Represents forgiveness of a loan made by Mrs. Fields Inc. in 1993.
(2) Represents payments under retention and employment  agreements from Original
    Cookie/Hot Sam.
(3) Represents payment of relocation expenses of $20,920 and a grant of $3,000 
    under the Original Cookie 401(k) plan.
(4) Represents a grant under the Original Cookie 401(k) plan.
(5) Represents payment of relocation expenses.
(6) 50% of the restricted shares vested on January 1, 1999 and the other 50% 
    vest on January 1, 2000.
(7) The stock  options for common  stock of Mrs.  Fields'  Holding have 10-year
    terms and were granted as of September  1996,  with the  exception of Garry
    Remington's,  which  were  granted  as of July 1997.  All  options  have an
    exercise   price  of  $10.00  per  share,   with  the  exception  of  Garry
    Remington's, which have an exercise price of $13.00 per share.
(8) Represents payment under Mrs. Fields Inc.'s Management Value Creation Plan.


Option Grants and Exercises

     The Board of  Directors  of Mrs.  Fields'  Holding  recently  approved  the
provisions of a director stock option plan (the  "Director  Stock Option Plan"),
providing for the issuance of common stock,  par value $.001 per share,  of Mrs.
Fields'  Holding to directors of Mrs.  Fields'  Holding,  and an employee  stock
option plan (the  "Employee  Stock Option Plan" and,  together with the Director
Stock  Option  Plan,  the  "Plans"),  providing  for the  issuance of options to
purchase common stock of Mrs. Fields' Holding to officers and other employees of
Mrs.  Fields' Holding and its  subsidiaries,  including Mrs.  Fields.  The Plans
provide for the  issuance  of options to  purchase a total of 542,840  shares of
common stock of Mrs.  Fields'  Holding to directors of Mrs.  Fields' Holding and
officers and employees of Mrs. Fields'  Holding's  subsidiaries,  including Mrs.
Fields.  Of  the  total  542,840  option  shares   available,   375,840  shares,
representing approximately 10% of the total common stock of Mrs. Fields' Holding
on a fully diluted basis, after giving effect to the issuance of stock under the
warrants to purchase  common stock of Mrs.  Fields'  Holding and to issuances of
stock under options currently issued to directors and employees under the Plans,
have been issued. See "Beneficial Ownership of Capital Stock."


Board Compensation

     The Board of Directors of Mrs. Fields meets regularly on a quarterly basis 
and more often as required. Board members, other than officers of Mrs. Fields 
and Mr. Winokur, Mr. Gregory and Ms. Fields, are compensated for services 
rendered annually as follows:

          (1) $12,000 cash; and
          (2)  grants  of  options  to  purchase  common  stock of Mrs.  Fields'
Holding, under the Director Stock Option Plan.

     The  Board of  Directors  of Mrs.  Fields'  Holding  approved  the award of
options under the Director  Stock Option Plan to purchase 3,350 shares of common
stock of Mrs. Fields' Holding to each of Messrs.  Ferry,  Gregory,  Lewis, Osnos
and Winokur as of January 1, 1997, at an exercise price of $10.00 per share, and
the award of options to purchase  1,792 shares of common  stock of Mrs.  Fields'
Holding as of January 1,  1998,  at an  exercise  price of $16.74 to each of the
same directors,  with the options of Messrs. Gregory and Winokur being issued to
Capricorn.

     The Board  members were also offered an  opportunity  to acquire  shares of
common stock of Mrs.  Fields'  Holding under a director stock purchase plan (the
"Director  Stock  Purchase  Plan").  Such  compensation  in shares that would be
payable or issuable to Messrs.  Winokur and Gregory will be paid to Capricorn. A
total of 51,667 vested shares of common stock of Mrs. Fields' Holding and 28,333
restricted  shares of common stock of Mrs.  Fields'  Holding have been issued to
directors and officers of Mrs. Fields under the Director Stock Purchase Plan.


Board Committees

     Three functioning committees of the Board have been organized: an Executive
Committee, a Compensation Committee and an AuditCommittee. Following is a brief 
description of each of these committees.

     Executive Committee.   The Executive Committee is composed of Messrs. 
Winokur (Chairman), Gregory and Hodges. The purpose of this committee is to act
 on behalf of the entire Board of Directors between Board meetings.

     Compensation Committee.   The Compensation Committee is composed of Messrs.
Gregory (Chairman), Mullin and Lewis. The purpose of this committee is to ensure
that Mrs. Fields has a broad plan of executive compensation that is competitive
and motivating to the degree that it will attract, hold and inspire performance
of managerial and other key personnel of a quality and nature that will enhance
the growth and profitability of Mrs. Fields.

     Audit Committee.   The Audit Committee is comprised of Messrs. Ferry 
(Chairman) and Osnos. The purpose of the Audit Committee is to provide oversight
and review of Mrs. Fields' accounting and financial reporting process in 
consultation with Mrs. Fields' independent and internal auditors.


Indemnification and Compensation

     Mrs. Fields' By-Laws authorize Mrs. Fields to indemnify its present and 
former directors and officers and to pay or reimburse expenses for such 
individuals in advance of the final disposition of a proceeding upon receipt 
of an undertaking by or on behalf of such individuals to repay such amounts if 
so required.


Employment Agreements

     All of the  executive  officers are parties to employment  agreements  with
Mrs. Fields.  Each employment  agreement  provides for a period of employment of
two years (or three  years,  in the case of Larry  Hodges)  from the date of the
agreement,  subject to termination  provisions and to automatic extension of the
agreement.  Each employment agreement permits the employee to participate in any
incentive  compensation  plan adopted by Mrs.  Fields to replace the Fiscal 1994
Incentive   Compensation  Plan  of  Mrs.  Fields  Inc.,  benefit  plans  and  an
equity-based plan or arrangement. If Mrs. Fields terminates employment for cause
or if the employee terminates employment without good reason, Mrs. Fields has no
further  obligation to pay the employee.  If Mrs. Fields  terminates  employment
without  cause,  or the employee  terminates  employment  with good reason,  the
employee can receive in severance  pay the amount equal to the product of his or
her then  current  semi-monthly  base  salary by the  greater  of the  number of
semi-monthly periods from the notice of termination or 36 semi-monthly  periods,
plus a  portion  of any  discretionary  bonus  that  would  otherwise  have been
payable.  The employment  agreement prohibits the employee,  for a year from the
date of  termination  of  employment  under  the  agreement,  from  becoming  an
employee,  owner,  officer,  agent or director of a firm or person that directly
competes  with Mrs.  Fields in a line or lines of business  of Mrs.  Fields that
accounts  for 10% or more of Mrs.  Fields'  gross  sales,  revenues  or earnings
before taxes.  An exception is made for  investments  of not more than 3% of the
equity of a company  listed or traded on a national  securities  exchange  or an
over-the-counter  securities exchange.  The employment agreements have customary
provisions  for vacation,  fringe  benefits,  payment of expenses and automobile
allowances.  The  employees  who have  employment  agreements,  and  their  base
salaries, are: Larry Hodges, President and Chief Executive Officer, $350,000, L.
Tim Pierce,  Senior  Vice  President,  Chief  Financial  Officer and  Secretary,
$200,000,  Pat Knotts,  Senior Vice President of Operations,  $215,000,  Michael
Ward, Vice President of  Administration  and Assistant  Secretary,  $140,000 and
Garry Remington, Senior Vice President of Real Estate, $190,000.


Item 12.   Security Ownership of Certain Beneficial Owners and Management

     As of the date of this report,  all of the capital stock of Mrs.  Fields is
owned by Mrs.  Fields' Holding,  whose address is 2855 East Cottonwood  Parkway,
Suite 400, Salt Lake City,  Utah 84121.  The following  table sets forth certain
information,  as of January  2, 1999,  believed  by us to be  accurate  based on
information  provided to us concerning the beneficial  ownership of common stock
by each stockholder who is known by Mrs. Fields to own beneficially in excess of
5% of the outstanding  common stock,  and by each director,  Mrs.  Fields' Chief
Executive  Officer,  each of Mrs.  Fields'  other four most  highly  compensated
executive  officers and all officers and directors as a group,  as of January 2,
1999. The stockholders listed below are deemed beneficial owners of common stock
of Mrs.  Fields as a result of their  ownership of common stock of Mrs.  Fields'
Holding,  the  owner of 100% of the  capital  stock of Mrs.  Fields.  Except  as
otherwise  indicated,  all persons  listed  below have (1) sole voting power and
investment  power  with  respect  to their  shares,  except to the  extent  that
authority  is shared  by  spouses  under  applicable  law,  and (2)  record  and
beneficial  ownership with respect to their shares.  The shares and  percentages
described  below  include  shares of common  stock  which  were  outstanding  or
issuable  within 60 days upon the exercise of options  outstanding as of January
2, 1999 and give  effect to the  exercise  of  warrants  issued by Mrs.  Fields'
Holding. See "Executive  Compensation" and "--Board Compensation," As of January
2, 1999,  there  were  eight  record  holders  of common  stock of Mrs.  Fields'
Holding.
<TABLE>
<S>                       <C>                                                            <C>         <C>    
                                                                                              Common Stock
                                                                                         Number of  Percentage
Title of Class            Name of Beneficial Owner                                          Shares   Of Class
  
Common stock, par         Capricorn Investors II, L.P.(1)(2)(3)                           3,080,094     86.1%
                          .
value $0.001 per share,   Larry Hodges(2)(3)...................                              89,141      2.5%
of Mrs. Fields' Holding   Peter Mullin(2)(3)...................                              17,323      0.5%
                          Richard Ferry(2)(3)..................                              12,323      0.3%
                          Walker Lewis(2)(3)...................                               9,823      0.3%
                          Gilbert Osnos(2)(3)..................                               9,823      0.3%
                          L. Tim Pierce(3).....................                              14,785      0.4%
                          Pat Knotts(3)........................                              14,785      0.4%
                          Michael Ward(3)......................                              11,500      0.3%
                          Garry Remington(3)...................                               6,435      0.2%
                          All executive officers and directors as a group (11 persons)    3,266,032     91.3%
                          (2)(3)(4)
</TABLE>

(1)  The address of Capricorn is 30 East Elm Street, Greenwich, CT 06830.
(2)  Larry Hodges, Peter Mullin, Richard Ferry, Walker Lewis and Gilbert Osnos 
     are directors of the Company. Herbert Winokur and Nat Gregory are managing
     member and member, respectively, of Capricorn Holdings, L.L.C., the General
     Partner of Capricorn, and are
     directors of Mrs. Fields. See "Management."
(3)  The shares and  percentages  include shares  subject to options  granted to
     directors  and  officers  of Mrs.  Fields that are  currently  vested as of
     January 2, 1999, as follows:  Capricorn,  4,246 shares; Mr. Hodges,  45,998
     shares; Mr. Mullin, 2,323 shares; Mr. Ferry, 2,323 shares; Mr. Lewis, 2,323
     shares;  Mr. Osnos,  2,323 shares;  Mr. Pierce,  11,500 shares; Mr. Knotts,
     11,500 shares; Mr. Ward, 9,857 shares; and Mr. Remington, 4,792 shares; all
     executive officers and directors as a group, 97,185.
(4) Includes shares beneficially owned by Capricorn.

Item 13.   Certain Relationships and Related Transactions

     Agreements with Debbi Fields and Affiliates.  In November 1996, Mrs. Fields
entered  into a  consulting  agreement  with Debbi  Fields,  a director  of Mrs.
Fields,  under which Debbi Fields  travels and  performs  public  relations  and
advertising  activities on behalf of Mrs. Fields for at least 50 days a year for
a fee of $250,000 per year,  with an option to perform 20 additional days a year
for additional pay of $5,000 per day. The  compensation  increased by 10% a year
beginning on January 1, 1999. The consulting  agreement  expires on December 31,
1999.  Mrs.  Fields may terminate the  consulting  agreement for cause and Debbi
Fields may terminate the consulting  agreement at any time. Under the consulting
agreement,  Debbi Fields may not disclose any  confidential  information of Mrs.
Fields,  such as  recipes  and trade  secrets,  and may not,  without  the prior
written consent of Mrs. Fields, compete with Mrs. Fields.

     In addition, Mrs. Fields has a license agreement with FSG Holdings, Inc., a
Delaware Corporation, under which Debbi Fields has a nonexclusive license to use
certain trademarks,  names, service marks and logos of Mrs. Fields in connection
with book and  television  series  projects.  Debbi Fields is required to pay 50
percent of any gross  revenues in excess of $200,000  that she receives from the
book and television series projects to Mrs. Fields as a license fee.

     Mrs. Fields leased certain office space to an entity which is owned in part
by Debbi Fields. Billings to the entity for the period from inception (September
18,  1996) to December  28,  1996,  the fiscal  years ended  January 3, 1998 and
January 2, 1999 totaled approximately $60,000, $274,000 and $0, respectively, of
which approximately  $29,000,  $23,000 and $0 is included in accounts receivable
as of December 28, 1996, January 3, 1998 and January 2, 1999, respectively.  The
lease was  terminated  in the first  quarter of fiscal  year 1998.  Mrs.  Fields
believes that the arrangements  were on terms that could have been obtained from
an unaffiliated third party.

     Arrangements with Walker Lewis.   Mr. Lewis, a director of Mrs. Fields, 
acts as a consultant and an advisor to Dillon Read. Mr. Lewis' company, Devon 
Value Advisers, received a fee of $250,000, plus expenses, from Mrs. Fields in 
the first quarter of 1998 under an agreement to provide advisory acquisition and
consulting services to Mrs. Fields. Mrs. Fields believes that the arrangement 
was on terms that could have been obtained from an unaffiliated third party.

     Korn/Ferry Agreement.   Mrs. Fields has paid fees of approximately $70,600
during the year January 2, 1999 to Korn/Ferry International, an executive search
firm of which Richard Ferry, a director of Mrs. Fields, is the Chairman, in 
connection with the hiring of employees for Mrs. Fields. Mrs. Fields believes 
that the arrangements are on terms that could have been obtained from an 
unaffiliated third party.

     Arrangements With Mrs. Fields' Holding.   As of December 28, 1996, January
3, 1998 and January 2, 1999, Mrs. Fields had net payables of $98,000, $105,000 
and $150,000 due to Mrs. Fields' Holding, respectively. The receivables stem 
primarily from goods sold and an allocation of payroll and other operating 
expenses. Mrs. Fields believes that the terms of the sale and allocations are
essentially equivalent to the terms that would have been obtained from an 
unaffiliated third party in a similar transaction.

     Incentive Arrangements.   Under a senior management value creation plan
that was adopted by Mrs. Fields Inc. and assumed by Mrs. Fields at the time of
its formation in September 1996, the following payments were made in 1998: $471,
484 to Mr. Hodges; $71,867 to Mr. Pierce; $39,488 to Mr. Ward; and $71,078 to a
vice president of Mrs. Fields Inc. Mr. Hodges used $250,000, representing 
substantially all of this payment after his payment of related taxes, to 
purchase 25,000 shares of common stock of Mrs. Fields' Holding at $10.00 per 
share.

     Director Stock Purchase Plan.   Each of the directors of Mrs. Fields was 
offered an opportunity to purchase common stock of Mrs. Fields' Holding under 
the Director Stock Purchase Plan. Under the Director Stock Purchase Plan, shares
of common stock of Mrs. Fields' Holding, either restricted or vested, can be 
issued to outside directors of Mrs. Fields' Holding and its subsidiaries,
including Mrs. Fields. Restricted shares vested 50% on January 1, 1999 and will
 vest 50% on January 1, 2000, or earlier, upon a change of control of Mrs. 
Fields' Holding or Mrs. Fields. A total of 51,667 vested shares of common stock 
of Mrs. Fields' Holding and 28,333 restricted shares of common stock of Mrs. 
Fields' Holding have been issued to directors and officers of Mrs. Fields under 
the Director Stock Purchase Plan.

     The Plans.  Under the Employee  Stock Option Plan, a committee of the Board
is authorized to  administer  the Employee  Stock Option Plan and has the power,
among other  things,  to grant  awards to officers  and other  employees of Mrs.
Fields'  Holding and its  subsidiaries,  including Mrs.  Fields,  of options for
common stock of Mrs.  Fields'  Holding.  The Employee Stock Option Plan provides
for the  issuance of three types of options.  Performance  vested  options  were
deemed to be vested 20% for fiscal year 1997 and vest an additional 20% per year
for each subsequent  fiscal year in which there is a 10% increase in the implied
valuation  of Mrs.  Fields,  which is equal to the excess of 5.5 times  Adjusted
EBITDA for such fiscal year over net debt at the end of such fiscal  year.  Time
vested options vest 25% per year on the anniversaries of the dates on which they
are granted,  and vest in full upon a change of control of Mrs.  Fields' Holding
or Mrs. Fields.  Upside options vest upon the earlier to occur of the expiration
of such option and a change of control, in accordance with certain internal rate
of return targets:

     (1) if the IRR through the vesting  date is less than 20%,  the option will
not vest;

     (2)  if the IRR is from 20% to 24.99%, the option will vest one-third;

     (3)  if the IRR is from 25% to 29.99%, the option will vest two-thirds; and

     (4) if the IRR is at least 30%, the option will vest in full.

     IRR means,  as of any date,  the  internal  rate of return,  determined  in
accordance  with generally  accepted  practice,  on one share of common stock of
Mrs. Fields' Holding  calculated from September 18, 1996, through the date as of
which the determination is being made, using

     (1)  a value of $10.00 per share at September 18, 1996 (subject to certain 
          adjustments),

     (2)  if the  relevant  date is the date of a change of  control,  the value
          paid  under or  implicit  in the  change of  control  transaction  (as
          determined  in good faith by a committee  of the Board of  Directors),
          and

     (3)  if the  relevant  date  of  determination  is the  expiration  of such
          option,  the  value  determined  in good  faith  based on the  implied
          valuation for the four most recent fiscal quarters for which financial
          statements are available.

         An total of 492,840 shares of common stock of Mrs. Fields' Holding have
been reserved for issuance  under the Employee  Stock Option Plan.  Stock issued
under the Employee  Stock Option Plan is subject to  customary  restrictions  on
transfer.

     Under  the  Director  Stock  Option  Plan,  a  committee  of the  Board  is
authorized to administer the Director Stock Option Plan and has the power, among
other  things,  to grant  awards of  options  for common  stock of Mrs.  Fields'
Holding to outside  directors  of Mrs.  Fields'  Holding  and its  subsidiaries,
including Mrs. Fields.  The Director Stock Option Plan provides for the issuance
of time  vested  options,  which vest 25% per year on the  anniversaries  of the
dates on which  they are  granted,  and vest in full upon a change of control of
Mrs. Fields' Holding or Mrs. Fields. A total of 50,000 shares of common stock of
Mrs.  Fields'  Holding are reserved for issuance under the Director Stock Option
Plan.  Common stock of Mrs.  Fields'  Holding  issued  under the Director  Stock
Option Plan is subject to customary restrictions on transfer.  Options have been
awarded under the Director Stock Option Plan to each of Messrs.  Ferry, Gregory,
Lewis,  Osnos and  Winokur  to  purchase  3,350  shares of common  stock of Mrs.
Fields' Holding as of January 1, 1997, at an exercise price of $10.00 per share,
and to  purchase  1,792  shares of common  stock of Mrs.  Fields'  Holding as of
January 1, 1998, at an exercise  price of $16.74 per share,  with the options of
Messrs. Gregory and Winokur being issued to Capricorn.

     The  Stockholders'  Agreement.  Mrs.  Fields'  Holding has  entered  into a
stockholders' agreement with its stockholders. The stockholders' agreement gives
rights of first  refusal to Mrs.  Fields'  Holding if any Mrs.  Fields'  Holding
stockholder  receives an offer to purchase common stock of Mrs.  Fields' Holding
and, if Mrs.  Fields' Holding does not exercise its rights,  gives the rights of
first refusal to other Mrs. Fields' Holding stockholders. In the event of a sale
to a third party  approved by Capricorn,  Capricorn has the right to require the
other Mrs.  Fields'  Holding  stockholders  to sell their  common  stock of Mrs.
Fields' Holding (the "Drag Along").  If Capricorn sells any common stock of Mrs.
Fields'  Holding,  the other Mrs.  Fields'  Holding  stockholders  will have the
opportunity to sell their common stock of Mrs.  Fields' Holding in proportion to
their holdings (the "Tag Along"). The stockholders'  agreement also provides for
piggyback  registration  rights for all Mrs. Fields' Holding  stockholders,  and
gives one Mrs.  Fields' Holding  stockholder  demand  registration  rights.  The
stockholders' agreement gives Mrs. Fields' Holding the option to purchase all of
the common stock of Mrs.  Fields'  Holding  held by an officer or director  that
holds  common  stock of Mrs.  Fields'  Holding if such  officer or  director  is
terminated.  If an officer or director is terminated  other than for cause,  the
officer or director has the right to sell shares to Mrs.  Fields'  Holding.  The
stockholders'  agreement  provides  for  customary  restrictions  on transfer of
common stock of Mrs. Fields' Holding. The holders of warrants to purchase common
stock of Mrs. Fields' Holding will be subject to the Drag Along and benefit from
the Tag Along.


                                     PART IV

Item 14.   Exhibits, Financial Statement Schedule and Reports on Form 8-K

(a)      Financial Statements

(1)      See Item 8 "Financial Statements and Supplementary Data" for a list of 
         the financial statements filed as part of this report.

(2)      The following financial statement schedule for Mrs. Fields' Original 
         Cookies, Inc. is filed as a part of this report

                                                                            Page
          Schedule II - Valuation and Qualifying Accounts.....................83

(3)      Exhibits Index

                  The exhibits filed with or  incorporated  by reference in this
                  report are listed in the Exhibit Index beginning on page 75.

(b)      Reports filed on Form 8-K during the fourth quarter

              Form 8-K dated October 20, 1998
              Form 8-K/A dated November 4, 1998,  originally  filed September 8,
              1998 Form 8-K/A dated November 4, 1998,  originally  filed October
              20, 1998 Form 8-K dated December 4, 1998 Form 8-K/A dated February
              1, 1999, originally filed December 4, 1998




<PAGE>



                                  EXHIBIT INDEX

Exhibit
Number   .........                                   Description
------                                               -----------

 2.1    Securities  Purchase  Agreement  by and among  Cookies  USA,  Inc.,  the
        Individuals  and  Entities  Identified  Therein as The  Sellers and Mrs.
        Fields'  Original  Cookies,  Inc., dated as of August 13, 1998, filed as
        exhibit 2.1 to the  Company's  Registration  Statement  on Form S-4 (No.
        333-67389) and incorporated by reference herein.

 2.2    Stock Purchase  Agreement among Mrs. Fields' Original Cookies,  Inc., as
        Buyer,  and Jake Tortorice of Chocolate  Chip Cookies of Texas,  Inc. as
        Seller.  Filed as Exhibit 2.3 to the 8-K dated September 3, 1998,  filed
        as exhibit 2.1 to the Company's  Registration Statement on Form S-4 (No.
        333-67389) and incorporated by reference herein.

 2.3    Stock Purchase  Agreement among Mrs. Fields' Original Cookies,  Inc., as
        Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton, Steven
        J. Bryan and Jason A.  Piltzmaker,  holders of all  outstanding  capital
        stock of Deblan Corporation,  as Sellers Filed as Exhibit 2.2 to the 8-K
        dated  September  3,  1998,  filed  as  exhibit  2.1  to  the  Company's
        Registration  Statement on Form S-4 (No.  333-67389) and incorporated by
        reference herein.

 2.4    Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
        ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as Exhibit 2.4 to
        the 8-K dated  September 3, 1998,  filed as exhibit 2.1 to the Company's
        Registration  Statement on Form S-4 (No.  333-67389) and incorporated by
        reference herein.

2.5     Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
        Crossroads Cookies, Inc. Filed as Exhibit 2.5 to the 8-K dated September
        3, 1998, filed as exhibit 2.1 to the Company's Registration Statement on
        Form S-4 (No. 333-67389) and incorporated by reference herein.

 2.6    Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
        Hot Barton and Northpark Cookies, Inc. Filed as Exhibit 2.6 to the 8-K 
        dated September 3, 1998, filed as exhibit 2.1 to the Company's 
        Registration Statement on Form S-4 (No.333-67389) and incorporated by 
        reference herein.

2.7     Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
        Northpark Cookies, Inc. Filed as Exhibit 2.7 to the 8-K dated September
        3, 1998, filed as exhibit 2.1 to the Company's Registration Statement on
        Form S-4 (No. 333-67389) and incorporated by reference herein.

2.8     Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
        Quail Springs Cookies, Inc. Filed as Exhibit 2.8 to the 8-K dated 
        September 3, 1998, filed as exhibit 2.1 to the Company's Registration 
        Statement on Form S-4 (No. 333-67389) and incorporated by reference 
        herein.

 2.9    Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
        Westgate Cookies, Inc. Filed as Exhibit 2.9 to the 8-K dated September 
        3, 1998, filed as exhibit 2.1 to the Company's Registration Statement o
        Form S-4 (No. 333-67389) and incorporated by reference herein.

3.1     By-Laws of Mrs. Fields' Original Cookies, Inc., filed as Exhibit 3.4 to
        the Company's Registration Statement on S-4 (No. 333-45179) and 
        incorporated by reference herein

4.1     Indenture,  dated as of November 26, 1997,  among Mrs.  Fields' Original
        Cookies,  Inc., The Mrs. Fields' Brand,  Inc., and The Bank of New York,
        as Trustee, filed as Exhibit 4.1 to the Company's Registration Statement
        on S-4 (No. 333-45179) and incorporated by reference herein.

4.2     Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.1)

4.3    Form of Certificate of Senior Note (included as Exhibit A to Exhibit 4.1)


                            EXHIBIT INDEX (continued)

4.4     First  Supplemental  Indenture,  dated as of August 24, 1998, among Mrs.
        Fields' Original  Cookies,  Inc., The Mrs. Fields' Brand,  Inc., and The
        Bank of New York,  as  Trustee,  filed as exhibit  2.1 to the  Company's
        Registration Statement on Form S-4 (No.
        333-67389) and incorporated by reference herein.

 4.5    Second Supplemental  Indenture,  dated as of August 24, 1998, among Mrs.
        Fields'  Original  Cookies,  Inc., The Mrs.  Fields' Brand,  Inc., Great
        American  Cookie  Company,  Inc.,  and The Bank of New York, as trustee,
        filed as exhibit 2.1 to the Company's Registration Statement on Form S-4
        (No. 333-67389) and incorporated by reference herein.

 4.6    Third Supplemental Indenture,  dated as of November 20, 1998, among Mrs.
        Fields' Original Cookies, Inc., Great American Cookie Company, Inc., The
        Mrs. Fields' Brand, Inc.,  Pretzelmaker Holdings,  Inc., and The Bank of
        New  York,  as  a  Trustee,  filed  as  exhibit  2.1  to  the  Company's
        Registration  Statement on Form S-4 (No.  333-67389) and incorporated by
        reference herein.

 4.7    Registration  Rights Agreement,  dated as of August 24, 1998, among Mrs.
        Fields'  Original  Cookies,  Inc., The Mrs.  Fields' Brand,  Inc., Great
        American Cookie Company,  Inc.,  Jefferies & Company,  Inc. and BT Alex.
        Brown Incorporated,  filed as exhibit 2.1 to the Company's  Registration
        Statement  on Form S-4 (No.  333-67389)  and  incorporated  by reference
        herein.

10.1     Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
        Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
        L.P., filed as Exhibit 10.1 to the Company's Registration Statement on
        S- 4 (No. 333-45179) and incorporated by reference herein

10.2    Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields,
        Inc., Mrs. Fields' Original Cookies,  Inc., and Capricorn  Investors II,
        L.P., filed as Exhibit 10.11 to the Company's  Registration Statement on
        S-4 (No. 333-45179) and incorporated by reference herein

10.3    Amended and Restated Marketing Agreement, dated as of January 9, 1997, 
        between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain,
        filed as Exhibit 10.27 to the Company's Registration Statement on S-4 
        (No. 333-45179) and incorporated by reference herein

10.4    Amendment,  dated  December 1, 1997,  to Amended and Restated  Marketing
        Agreement between Mrs. Fields' Original Cookies,  Inc. and Coca-Cola USA
        Fountain,  filed as exhibit 2.1 to the Company's  Registration Statement
        on Form S-4 (No. 333-67389) and incorporated by reference herein.

 10.5   Corollary  agreement,  dated  September 21, 1998, to existing  marketing
        agreement,  dated as of January 9, 1997 and amended on November 13, 1997
        and December 1, 1997 between Mrs.  Fields'  Original  Cookies,  Inc. and
        Coca-Cola  USA   Fountain,   filed  as  exhibit  2.1  to  the  Company's
        Registration  Statement on Form S-4 (No.  333-67389) and incorporated by
        reference herein.

 10.6   Employment Agreement, dated as of October 1, 1997, between Michael R. 
        Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.28 to 
        the Company's Registration Statement on S-4 (No. 333-45179) and 
        incorporated by reference herein

 10.7   Employment  Agreement,  dated as of October 1, 1997,  between Pat Knotts
        and Mrs. Fields' Original  Cookies,  Inc., filed as Exhibit 10.29 to the
        Company's Registration Statement on S-4 (No. 333-45179) and incorporated
        by reference herein

 10.8   Employment Agreement, dated as of October 1, 1997, between L. Tim Pierce
        and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.30 to the 
        Company's Registration Statement on S-4 (No. 333-45179) and incorporated
        by reference herein



                            EXHIBIT INDEX (continued)

10.9    Employment Agreement,  dated as of July 1, 1996, between Lawrence Hodges
        and Mrs.  Fields'  Original  Cookies,  Inc.,  filed as Exhibit 10.31 the
        Company's Registration Statement on S-4 (No. 333-45179) and incorporated
        by reference herein

10.10    Employment  Agreement,  dated  as  of  July  10,  1997,  between  Garry
         Remington and Mrs.  Fields' Original  Cookies,  Inc. , filed as exhibit
         2.1 to the Company's Registration Statement on Form S-4 (No. 333-67389)
         and incorporated by reference herein.

 10.11  Lease  Agreement,  dated as of February 23, 1993,  between The Equitable
        Life  Assurance  Society of the United States and Mrs.  Fields  Cookies,
        filed as Exhibit 10.32 the Company's  Registration Statement on S-4 (No.
        333-45179) and incorporated by reference herein

 10.12  Lease  Agreement,  dated as of October 10, 1995,  between The  Equitable
        Life  Assurance  Society of the United States and Mrs.  Fields  Cookies,
        filed as Exhibit 10.33 the Company's  Registration Statement on S-4 (No.
        333-45179) and incorporated by reference herein

 10.13  Letter of Agreement, dated as of October 1, 1992, between United 
        Airlines, Inc. and Mrs. Fields Development Corporation, filed as Exhibit
        10.34 to the Company's Registration Statement on S-4 (No. 333- 45179) 
        and incorporated by reference herein

 10.14  Lease Agreement, dated as of January 18, 1998, between 2855 E. 
        Cottonwood Parkway, L.C. and Mrs. Fields' Original Cookies, Inc., filed
        as Exhibit 10.35 to the Company's Registration Statement on S-4 (No. 333
        -45179) and incorporated by reference herein

10.15   Amendment to Supply Agreement, dated as of June 19, 1995 between Van Den
        Bergh Foods Company and Mrs. Fields Inc.,  filed as Exhibit 10.37 to the
        Company's Registration Statement on S-4 (No. 333-45179) and incorporated
        by reference herein

 10.16  Stock Acquisition  Agreement,  dated as of September 2, 1997, among Mrs.
        Fields'  Holding  Company,  Inc.,  Pretzel  Time,  Inc.  and  Martin  E.
        Lisiewski,   filed  as  Exhibit  10.39  to  the  Company's  Registration
        Statement on S-4 (No. 333-45179) and incorporated by reference herein

 10.17  License  Agreement,  dated as of  March 1,  1992,  between  Mrs.  Fields
        Development Corporation and Marriott Corporation, filed as Exhibit 10.40
        to the  Company's  Registration  Statement  on S-4 (No.  333-45179)  and
        incorporated by reference herein

10.18   License  Agreement,  dated as of October 28, 1993  between  Mrs.  Fields
        Development  Corporation and Marriott Management Services,  Corp., filed
        as Exhibit  10.41 to the  Company's  Registration  Statement on S-4 (No.
        333-45170) and incorporated by reference herein.

 10.19  Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs. 
        Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E. 
        Lisiewski, filed as Exhibit 10.43 to the Company's Registration 
        Statement on S-4 (No. 333-45179) and incorporated by reference herein

 10.20  Franchise  Agreement Addendum 2 and Area Development  Agreement Addendum
        2, dated as of September 2, 1997,  between  Pretzel Time,  Inc. and Mrs.
        Fields' Original Cookies,  Inc., filed as Exhibit 10.44 to the Company's
        Registration  Statement  on S-4  (No.  333-45179)  and  incorporated  by
        reference herein

 10.21  Management Agreement, dated as of September 2, 1997, between Mrs. 
        Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit 
        10.45 to the Company's Registration Statement on S-4 (No. 333-45179) and
        incorporated by reference herein



<PAGE>



                            EXHIBIT INDEX (continued)

10.22    Stock Purchase Agreement, dated as of September 2, 1997, between Mrs. 
        Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
        10.46 to the Company's Registration Statement on S-4 (No. 333-45179) and
        incorporated by reference herein

10.23   Shareholder Agreement, dated as of September 2, 1997, among Mrs. Fields'
        Holding Company, Inc., Martin E. Lisiewski and Pretzel Time, Inc., filed
        as Exhibit  10.47 to the  Company's  Registration  Statement on S-4 (No.
        333-45179) and incorporated by reference herein

 10.24  Employment  Agreement,  dated as of September 2, 1997,  between  Pretzel
        Time,  Inc.  and  Martin E.  Lisiewski,  filed as  Exhibit  10.48 to the
        Company's Registration Statement on S-4 (No. 333-45179) and incorporated
        by reference herein

 10.25  Area Development Agreement, dated as of September 2, 1997, between 
        Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as 
        Exhibit 10.49 to the Company's Registration Statement on S-4 (No. 333- 
        45179) and incorporated by reference herein

10.26    $500,000 Promissory Note, dated as of September 2, 1997, between Martin
        E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as Exhibit 
        10.50 to the Company's Registration Statement on S-4 (No. 333-45179) and
        incorporated by reference herein

10.27    Exchange Agreement, dated September 2, 1997, between Mrs. Fields' 
        Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 10.51 to
        the Company's Registration Statement on S-4 (No. 333-45179) and 
        incorporated by reference herein

10.28    Registration Rights Agreement, dated September 2, 1997, between Mrs. 
        Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 
        10.52 to the Company's Registration Statement on S-4 (No. 333-45179) and
        incorporated by reference herein

 10.29  Franchise Development Agreement, dated September 2, 1997, between Mrs. 
        Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
        10.53 to the Company's Registration Statement on S-4 (No. 333- 5179) and
        incorporated by reference herein.

 10.30  Asset  Purchase  Agreement,  dated July 23,  1997,  among  Mrs.  Fields'
        Pretzel Concepts,  Inc., H&M Concepts, Inc., and The Managing Members of
        H&M  Concepts  Ltd.,  Co.,  filed  as  Exhibit  10.53  to the  Company's
        Registration  Statement  on S-4  (No.  333-45179)  and  incorporated  by
        reference herein

 10.31  Exhibit A to the Developing  Agent  Agreement,  dated September 2, 1997,
        between  Pretzel Time, Inc. and Mrs.  Fields'  Original  Cookies,  Inc.,
        filed as Exhibit  10.54 to the Company's  Registration  Statement on S-4
        (No. 333-45179) and incorporated by reference herein

10.32   Uniform Franchise Offering Circular of Pretzel Time, Inc., filed as 
        Exhibit 10.56 to the Company's Registration Statement on S-4 (No. 333-
        45179) and incorporated by reference herein

 10.33  Uniform  Franchise  Offering  Circular of Great American Cookie Company,
        Inc.,  as amended on  November  24,  1998,  filed as exhibit  2.1 to the
        Company's  Registration  Statement  on  Form  S-4  (No.  333-67389)  and
        incorporated by reference herein

 10.34  Exhibit B to the Developing  Agent  Agreement,  dated September 2, 1997,
        between Pretzel Time,  Inc., and Mrs. Fields'  Original  Cookies,  Inc.,
        filed as Exhibit  10.57 to the Company's  Registration  Statement on S-4
        (No. 333-45179) and incorporated by reference herein.

 10.35  Assignment of Assets and Assumption of Liabilities Agreement, dated July
        25, 1997,  between H&M Concepts  Ltd.,  Co.,  and Mrs.  Fields'  Pretzel
        Concepts,  Inc.,  filed as Exhibit 10.62 to the  Company's  Registration
        Statement on S-4 (No. 333-45179) and incorporated by reference herein

                            EXHIBIT INDEX (continued)

10.36   First Amendment to Operating Agreement for UVEST, LLC, dated July 25, 
        1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited, 
        filed as Exhibit 10.64 to the Company's Registration Statement on S-4 
        (No. 333-45179) and incorporated by reference herein

10.37   First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July 
        25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen, 
        filed as Exhibit 10.65 to the Company's Registration Statement on S-4 
        (No. 333-45179) and incorporated by reference herein

 10.38  Lease Agreement, dated March 2, 1995, between Price Development Company,
        Limited  Partnership and Mrs. Fields Cookies,  filed as Exhibit 10.69 to
        the  Company's   Registration  Statement  on  S-4  (No.  333-45179)  and
        incorporated by reference herein

 10.39  Consulting Agreement, dated November 26, 1996, between Debra J. Fields 
        and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.70 to the 
        Company's Registration Statement on S-4 (No. 333-45179) and incorporated
        by reference herein

 10.40  Mrs. Fields' Holding Company, Inc. Director Stock Option Plan, filed as
        exhibit 2.1 to the Company's Registration Statement on Form S-4 (No. 
        333-67389) and incorporated by reference herein.

 10.41  Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan, filed as
        exhibit 2.1 to the Company's Registration Statement on Form S-4 (No. 333
        -67389) and incorporated by reference herein.

 10.42  Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan, filed 
        as exhibit 2.1 to the Company's Registration Statement on Form S-4 (No.
        333-67389) and incorporated by reference herein.

 10.43  Amended and Restated Loan Agreement, dated as of February 28, 1998, 
        between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank, 
        filed as Exhibit 10.73 to the Company's Registration Statement on S-4 
        (No. 333-45179) and incorporated by reference herein

10.44   Intellectual Property Security Agreement, dated as of February 28, 1998,
        between Mrs. Fields' Original  Cookies,  Inc. and LaSalle National Bank,
        filed as exhibit 2.1 to the Company's Registration Statement on Form S-4
        (No. 333-67389) and incorporated by reference herein.

 10.45  Pledge and Security  Agreement,  dated as of February 28, 1998,  between
        Mrs. Fields' Original Cookies,  Inc. and LaSalle National Bank, filed as
        exhibit 2.1 to the  Company's  Registration  Statement  on Form S-4 (No.
        333-67389) and incorporated by reference herein.

 10.46  Stockholders' Agreement, dated as of July 17, 1998, between Mrs. Fields'
        Holding Company, Inc. and its Stockholders, filed as exhibit 2.1 to the 
        Company's Registration Statement on Form S-4 (No. 333-67389) and 
        incorporated by reference herein.

 10.47  Form of  Settlement  Agreement  and Release,  by and among Mrs.  Fields'
        Original Cookies, Inc., Capricorn Investors II, L.P., a Delaware limited
        partnership, Great American Cookie Company, Inc., Cookies USA, Inc., The
        Jordan Company,  and the Franchisees  parties thereto,  filed as exhibit
        2.1 to the Company's  Registration Statement on Form S-4 (No. 333-67389)
        and incorporated by reference herein.

 10.48  Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
        Original Cookies, Inc. and LBI Acquisition Corp. d/b/a Pennant Foods, 
        filed as exhibit 2.1 to the Company's Registration Statement on Form S-4
        (No. 333-67389) and incorporated by reference herein.

10.49   Registration Rights Agreement, dated as of November 26, 1997, among Mrs.
        Fields' Original Cookies, Inc. The Mrs. Fields' Brand, Inc., Jefferies
        & Company, Inc. and BT Alex Brown Incorporated, filed as exhibit 2.1 to 
        the Company's Registration Statement on Form S-4 (No. 333-67389) and 
        incorporated by reference herein.


                            EXHIBIT INDEX (continued)

 12.1   Computation of ratio of earnings to fixed charges of Mrs. Fields'  
        Original Cookies, Inc.

 21.1   Subsidiaries of Mrs. Fields' Original Cookies, Inc.

 23.1   Consent of Arthur Andersen LLP

 27.1    Financial Data Schedule (for SEC use only), filed as Exhibit 27 to the 
        Company's Form 10-Q for the year ended January 2, 1999

 99.3   Schedule II - Valuation and Qualifying Accounts








<PAGE>



                                   SIGNATURES

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





MRS. FIELDS' ORIGINAL COOKIES, INC.




                                           April 2, 1999
Larry A. Hodges, President & CEO Date



<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                                <C>                                                           <C>    
         Signature                                   Title                                       Date

/s/   *                                     President, Chief Executive Officer                         April 2, 1999
---------------------------
(Larry A. Hodges)                           and Director (Chief Executive Officer)


/s/   *                                     Senior Vice President, Chief Financial                     April 2, 1999
---------------------------
(L. Tim Pierce)                             Officer and Secretary  (Chief Financial Officer)


/s/    *                                    Vice President and Controller                              April 2, 1999
--------------------
(Mark Ostler)                               (Principal Accounting Officer)


/s/    *                                    Chairman of the Board of Directors                         April 2, 1999
--------------------------------
(Herbert S. Winokur)


/s/    *                                    Director                                                   April 2, 1999
------------------
(Richard M. Ferry)


/s/    *                                    Director                                                   April 2, 1999
----------------------
(Debbi Fields)


/s/    *                                    Director                                                    April 2,
1999
(Nathaniel A. Gregory)


/s/    *                                    Director                                                    April 2, 1999
(Walker Lewis)


/s/    *                                    Director                                                    April 2, 1999
----------------------------
(Peter W. Mullin)


 /s/   *                                    Director                                                   April 2, 1999
-----------------------------
(Gilbert C. Osnos)

</TABLE>