**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

### **Washington, D.C. 20549**

----

**FORM 10-Q**
| **(Mark One)**                                                                                                                                                                                                                                                | ** ** | ** **                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                                                                                         | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                                                                                    | ** ** | ** **                                                                                    |
| **For the quarterly period ended June 30, 2007**                                                                                                                                                                                                              |
| ** **                                                                                                                                                                                                                                                    |
| **OR**                                                                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                                                    |
| **o**                                                                                                                                                                                                                                                         | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                    | ** ** | ** **                                                                                    |
| **For the transition period  from                  to                  ** |
|                                                                                                                                                                                                                                                               |            |                                                                                               |  |

 

**Commission file number: 333-115046**

----

**MRS. FIELDS FAMOUS BRANDS, LLC**

(Exact Name of Registrant Specified in Its Charter)

| **Delaware**                                                       |   | **80-0096938**                     |
|--------------------------------------------------------------------|--------|------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization)   |   | (IRS Employer  Identification No.) |
| ** **                                                         |   | ** **                         |
| **2855  East Cottonwood Parkway, Suite 400  Salt Lake City, Utah** |   | **84121-7050**                     |
| (Address of  Principal Executive Offices)                          |   | (Zip Code)                         |

 

Registrant’sTelephone Number, Including Area Code:**(801)736-5600**

----

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

YES x NO o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated fileror a non-accelerated filer.  Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (check one):

| Large Accelerated Filer o |   | Accelerated  Filer o |   | Non-accelerated  filer x |
|--------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of theExchange Act).YES o    NO x

On August 14, 2007, 100 common interests ofregistrant were outstanding, all of which are held by an affiliate of theregistrant.  There is no establishedtrading market for registrant’s common interests.

 

----

### **MRS. FIELDS FAMOUS BRANDS, LLC**

**TABLE OF CONTENTS**

** **
| **PART I – FINANCIAL  INFORMATION**                                                                                                    |       |       |       |       |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|
|                                                                                                                                        |       |       |       |       |
| Item 1. Financial  Statements (Unaudited)                                                                                                   |       |       |       |       |
|                                                                                                                                        |       |       |       |       |
| Condensed  Consolidated Balance Sheets as of June 30, 2007 and December 30, 2006                                                            |       |       |
|                                                                                                                                        |       |       |       |       |
| Condensed  Consolidated Statements of Operations and Comprehensive Loss for the 13 weeks  and 26 weeks ended June 30, 2007 and July 1, 2006 |       |       |
|                                                                                                                                        |       |       |       |       |
| Condensed  Consolidated Statements of Cash Flows for the 26 weeks ended June 30, 2007  and July 1, 2006                                     |       |       |
|                                                                                                                                        |       |       |       |       |
| Notes to Condensed  Consolidated Financial Statements                                                                                       |       |       |
|                                                                                                                                        |       |       |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                                        |       |       |
|                                                                                                                                        |       |       |       |       |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                                                         |       |       |
|                                                                                                                                        |       |       |       |       |
| Item 4. Controls and  Procedures                                                                                                            |       |       |       |       |
|                                                                                                                                        |       |       |       |       |
| **PART II – OTHER  INFORMATION**                                                                                                       | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                                        |       |       |       |       |
| Item 1. Legal  Proceedings                                                                                                                  |       |       |       |       |
|                                                                                                                                        |       |       |       |       |
| Item  1A. Risk Factors                                                                                                                      |       |       |       |       |
|                                                                                                                                        |       |       |       |       |
| Item  6. Exhibits                                                                                                                           |       |       |       |       |
|                                                                                                                                        |       |       |       |       |
| SIGNATURES                                                                                                                                  |       |       |       |       |

 

2

----

# **PART I – FINANCIAL INFORMATION**

# **Item1.  Financial Statements**

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Condensed Consolidated Balance Sheets**

(in thousands)

(Unaudited)
| ** **                                                                                 | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                 | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ASSETS:                                                                                    |       |              |       |                  |       |
| Cash and cash  equivalents                                                                 |       | $                 | 9,989      |                  | $          | 15,963 |   |
| Receivables, net  of allowance for doubtful accounts of $691 and $692, respectively        |       | 7,522             |       | 10,639                |       |
| Amounts due from  affiliates                                                               |       | 162               |       | —                |       |
| Inventories                                                                                |       | 3,562             |       | 3,977                 |       |
| Prepaid expenses  and other                                                                |       | 588               |       | 720                   |       |
| Deferred tax  asset                                                                        |       | —            |       | 734                   |       |
| Total current  assets                                                                      |       | 21,823            |       | 32,033                |       |
|                                                                                       |       |              |       |                  |       |
| Property and  equipment, net                                                               |       | 7,164             |       | 8,169                 |       |
| Goodwill                                                                                   |       | 64,115            |       | 64,115                |       |
| Trademarks and  other intangible assets, net                                               |       | 9,760             |       | 10,745                |       |
| Deferred loan  costs, net of accumulated amortization of $11,394 and $10,810, respectively |       | 5,534             |       | 6,118                 |       |
| Deferred tax  asset                                                                        |       | —            |       | 9                     |       |
| Other assets                                                                               |       | 377               |       | 531                   |       |
| Total assets                                                                               |       | $                 | 108,773    |                  | $          | 121,720 |   |
|                                                                                       |       |              |       |                  |       |
| LIABILITIES AND MEMBER’S  DEFICIT:                                                    |       |              |       |                  |       |
| Accounts payable                                                                           |       | $                 | 3,110      |                  | $          | 9,621 |   |
| Accrued  liabilities                                                                       |       | 13,917            |       | 14,750                |       |
| Amounts due to  affiliates                                                                 |       | 3,439             |       | 3,788                 |       |
| Current portion  of capital lease obligations                                              |       | 118               |       | 119                   |       |
| Current portion  of deferred revenues                                                      |       | 889               |       | 1,069                 |       |
| Total current  liabilities                                                                 |       | 21,473            |       | 29,347                |       |
| Long-term debt                                                                             |       | 195,747           |       | 195,747               |       |
| Capital lease  obligations, net of current portion                                         |       | 328               |       | 385                   |       |
| Deferred  revenues, net of current portion                                                 |       | 589               |       | 751                   |       |
| Other  liabilities                                                                         |       | 1,193             |       | 1,254                 |       |
| Total  liabilities                                                                         |       | 219,330           |       | 227,484               |       |
| Commitments and  Contingencies                                                             |       |              |       |                  |       |
| Member’s deficit                                                                      |       | (110,402          | )          | (105,614              | )          |
| Accumulated  other comprehensive loss                                                      |       | (155              | )          | (150                  | )          |
| Total member’s  deficit                                                               |       | (110,557          | )          | (105,764              | )          |
| Total liabilities and  member’s deficit                                               |       | $                 | 108,773    |                  | $          | 121,720 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

3

----

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Condensed Consolidated Statements ofOperations and Comprehensive Loss**

(inthousands)

(Unaudited)
| ** **                                        | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                        | ** ** | **June 30,**            | ** ** | **July 1,**             | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                        | ** ** | **2007**                     | ** ** | **2006**                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| REVENUES:                                         |       |                         |       |                         |       |   |   |   |   |
| Mrs. Fields                                       |       | $                            | 12,173     |                         | $          | 7,338 |   | $ | 23,655 |   | $ | 15,300 |   |
| GAC/Pretzels                                      |       | 7,488                        |       | 7,438                        |       | 15,224 |   | 14,928 |   |
| Dairy                                             |       | 3,171                        |       | 4,144                        |       | 5,516 |   | 6,907 |   |
| Total revenues                                    |       | 22,832                       |       | 18,920                       |       | 44,395 |   | 37,135 |   |
|                                              |       |                         |       |                         |       |   |   |   |   |
| OPERATING COSTS AND  EXPENSES:                    |       |                         |       |                         |       |   |   |   |   |
| Mrs. Fields                                       |       | 10,554                       |       | 6,878                        |       | 20,612 |   | 14,279 |   |
| GAC/Pretzels                                      |       | 3,380                        |       | 3,609                        |       | 7,097 |   | 7,404 |   |
| Dairy                                             |       | 1,191                        |       | 1,785                        |       | 3,033 |   | 3,380 |   |
| General and  administrative                       |       | 2,620                        |       | 2,553                        |       | 5,026 |   | 5,461 |   |
| Depreciation                                      |       | 539                          |       | 943                          |       | 1,065 |   | 1,359 |   |
| Amortization                                      |       | 519                          |       | 538                          |       | 1,036 |   | 1,076 |   |
| Impairment of  goodwill                           |       | —                       |       | 14,568                       |       | — |   | 14,568 |   |
| Gain on sale of  land held for sale               |       | —                       |       | —                       |       | (128 | ) | — |   |
| Total operating  costs and expenses               |       | 18,803                       |       | 30,874                       |       | 37,741 |   | 47,527 |   |
| Income (loss)  from operations                    |       | 4,029                        |       | (11,954                      | )          | 6,654 |   | (10,392 | ) |
| Interest  expense, net                            |       | (5,388                       | )          | (5,241                       | )          | (10,681 | ) | (10,471 | ) |
| Other expense                                     |       | —                       |       | (150                         | )          | — |   | (28 | ) |
| Loss before  provision (benefit) for income taxes |       | (1,359                       | )          | (17,345                      | )          | (4,027 | ) | (20,891 | ) |
| Provision  (benefit) for income taxes             |       | 8                            |       | 651                          |       | 18 |   | (790 | ) |
| Net loss                                          |       | $                            | (1,367     | )                            | $          | (17,996 | ) | $ | (4,045 | ) | $ | (20,101 | ) |
|                                              |       |                         |       |                         |       |   |   |   |   |
| COMPREHENSIVE LOSS:                               |       |                         |       |                         |       |   |   |   |   |
| Net loss                                          |       | $                            | (1,367     | )                            | $          | (17,996 | ) | $ | (4,045 | ) | $ | (20,101 | ) |
| Foreign currency  translation adjustment          |       | (2                           | )          | 36                           |       | (5 | ) | 34 |   |
| Comprehensive loss                                |       | $                            | (1,369     | )                            | $          | (17,960 | ) | $ | (4,050 | ) | $ | (20,067 | ) |

 

See accompanying notes to unaudited condensed consolidated financial statements.

4

----

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Condensed Consolidated Statements ofCash Flows**

(inthousands)

(Unaudited)
| ** **                                                                   | ** ** | **26 Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                   | ** ** | **June 30,**            | ** ** | **July 1,** | ** ** |
| ** **                                                                   | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                       |       |                         |       |   |   |
| Net loss                                                                     |       | $                            | (4,045     | ) | $ | (20,101 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                         |       |   |   |
| Impairment of  goodwill                                                      |       | —                       |       | 14,568 |   |
| Depreciation and  amortization                                               |       | 2,101                        |       | 2,435 |   |
| Amortization of  deferred loan costs                                         |       | 584                          |       | 554 |   |
| Loss on sale of  non-marketable securities                                   |       | —                       |       | 28 |   |
| Gain on sale of  land held for sale                                          |       | (128                         | )          | — |   |
| Deferred income  taxes                                                       |       | —                       |       | (452 | ) |
| Changes in  assets and liabilities:                                          |       |                         |       |   |   |
| Receivables                                                                  |       | 3,117                        |       | 816 |   |
| Inventories                                                                  |       | 415                          |       | 224 |   |
| Prepaid expenses  and other                                                  |       | 132                          |       | (226 | ) |
| Other assets                                                                 |       | (47                          | )          | (78 | ) |
| Accounts payable                                                             |       | (6,511                       | )          | (4,112 | ) |
| Accrued  liabilities                                                         |       | (833                         | )          | (815 | ) |
| Amounts due  to/from affiliates                                              |       | (511                         | )          | (670 | ) |
| Deferred  revenues                                                           |       | (342                         | )          | 140 |   |
| Other  liabilities                                                           |       | (61                          | )          | — |   |
| Net cash used in  operating activities                                       |       | (6,129                       | )          | (7,689 | ) |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                       |       |                         |       |   |   |
| Proceeds from  sale of non-marketable securities                             |       | —                       |       | 122 |   |
| Proceeds from  sale of land held for sale                                    |       | 278                          |       | — |   |
| Purchases of  property and equipment                                         |       | (60                          | )          | (1,803 | ) |
| Net cash  provided by (used in) investing activities                         |       | 218                          |       | (1,681 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                       |       |                         |       |   |   |
| Principal  payments on capital leases                                        |       | (58                          | )          | (51 | ) |
| Net cash used in  financing activities                                       |       | (58                          | )          | (51 | ) |
| Effect of foreign  exchange rate changes on cash                             |       | (5                           | )          | 34 |   |
| Net decrease in cash  and cash equivalents                                   |       | (5,974                       | )          | (9,387 | ) |
| Cash and cash  equivalents at beginning of period                            |       | 15,963                       |       | 23,664 |   |
| Cash and cash  equivalents at end of period                                  |       | $                            | 9,989      |   | $ | 14,277 |   |
|                                                                         |       |                         |       |   |   |
| **Supplemental Disclosures of  Cash Flow Information:**                      |       |                         |       |   |   |
| Cash paid for  interest                                                      |       | $                            | 10,311     |   | $ | 10,274 |   |
| **Supplemental Disclosure of  Noncash Investing and Financing Activities:**  |       |                         |       |   |   |
| Distribution to  parent under tax allocation agreement                       |       | $                            | 743        |   | $ | 339 |   |
| Leasehold improvements  acquired under lease incentives                      |       | —                       |       | 188 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

5

----

**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to Condensed Consolidated Financial Statements**

(Unaudited)

**1.  Description of Business**

Mrs. Fields Famous Brands, LLC and subsidiaries (the “Company”)is a wholly-owned subsidiary of Mrs. Fields’ OriginalCookies, Inc. (“MFOC”).  MFOC is awholly-owned subsidiary of Mrs. Fields’ Holding Company, Inc. (“MFH”)and MFH is a wholly-owned subsidiary of Mrs. Fields’ Companies, Inc. (“MFC”).

On December 31, 2006, the Company restructured andreorganized its resources to focus primarily on the areas management identifiedas vital to the future growth of the Company’s brands.  As part of this reorganization, the Companyformed three business units and appointed presidents for each business unit,which include Mrs. Fields (defined below), TCBY (“Dairy”), and the combinedgroup of Great American Cookies, Pretzel Time and Pretzelmaker (“GAC/Pretzels”).  Each of the presidents is responsible foroperations of their respective business unit. Operating segments are components of the Company for which separatefinancial information is available that is evaluated regularly by management indeciding how to allocate resources and assess performance.  As a result of the reorganization, theCompany’s reportable segments changed from the four previously reportedsegments, namely franchising, gifts, branded retail, and licensing, to sixoperating segments as follows:
| ·       Mrs. Fields Gifts          |                                   |   |
|-----------------------------------------------------------------------|----------------------------------------|--------|
| ·       Mrs. Fields Branded Retail |                                   |
| ·       Mrs. Fields Franchising    | (collectively “Mrs. Fields”) |
| ·       Mrs. Fields Licensing      |                                   |
| ·       GAC/Pretzels               |                                   |
| ·       Dairy                      |                                   |

 

In accordance withStatement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” the Company hasrestated the segment disclosures for the 13 and 26 weeks ended July 1, 2006 toconform to the presentation of the new operating segments.

**2.     Basis of Presentation**

The accompanyingunaudited condensed consolidated financial statements of the Company have beenprepared in accordance with U.S. generally accepted accounting principles (“GAAP”)for interim financial information and Article 10 of Regulation S-X.   Accordingly they do not include all of theinformation and footnotes required by GAAP for complete financial statements.  In the opinion of management, alladjustments, consisting only of normal recurring accruals, considered necessaryfor a fair presentation have been included. Income per common interestinformation is not presented because the Company is wholly-owned by MFOC and,therefore, its common interests are not publicly traded.  These unaudited condensed consolidatedfinancial statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto for the fiscal year endedDecember 30, 2006 contained in the Company’s 2006 Annual Report on Form 10-Kfiled with the Securities and Exchange Commission on March 21, 2007 (the “AnnualReport”).

The preparation offinancial statements in conformity with GAAP requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from these estimates.

6

----

In connectionwith the Company’s reorganization and change in business segments, certainprior year amounts in the audited consolidated financial statements andsupporting note disclosures have been reclassified to conform to the currentyear presentation.  The Companyreclassified prior year revenues and expenses as follows:

·                  Franchising tothe Mrs. Fields, GAC/Pretzels and Dairy business units;

·                  Gifts, BrandedRetail and Licensing to the Mrs. Fields business unit.

 Suchreclassification did not impact previously reported net loss or accumulateddeficit.

**3.  Receivables**

Most of the Company’s receivables are due fromdomestic and international franchisees, distributors, licensees and corporatecustomers of Mrs. Fields Gifts and Mrs. Fields Branded Retail.  These receivables are composed of normaltrade accounts receivable and longer-term notes receivable.  Service charges may be assessed on past dueinvoices but any revenue associated with the service charges is only recognizedwhen collected.  The Company maintains anallowance for doubtful accounts to cover potential losses.  This allowance is the Company’s best estimateof the amount of probable collection losses in the Company’s existing tradeaccounts receivable.  The Companydetermines the allowance based upon historical write-off experience andindividual facts and circumstances associated with individual debtors.  If the assumptions that are used to determinethe allowance for doubtful accounts change, the Company may have to provide fora greater level of expense in future periods or reverse amounts provided for inprior periods.

Prior to fiscal 2001, TCBY Systems, LLC (“TCBY”), awholly-owned subsidiary of the Company, extended credit from time to time inthe form of notes receivable to franchisees and certain of these notesreceivable remain outstanding.  Notesreceivable from franchisees are primarily collateralized by equipment locatedat the franchisees’ stores.  These notesbear interest at market rates at the time the notes were issued and mature atvarious dates through April 2009. TCBY regularly reviews the notes for non-performance.  Notes that are considered non-performing areplaced on a non-accrual status when the collectibility of principal or interestbecomes uncertain.  During the 26 weeksended June 30, 2007 and July 1, 2006, TCBY recognized no interest incomepertaining to these notes receivable.

Prior to fiscal 2001, TCBY factored various notesreceivable aggregating $2.1 million. Under the terms of the factoring agreement, TCBY is ultimatelyresponsible to the factoring agent for the realizability of the notesreceivable.  In the event ofnon-performance, the factoring agent has recourse against TCBY to a maximumlevel of $195,000 and $269,000 as of June 30, 2007 and December 30, 2006, respectively,which the Company has reserved 100 percent for this potential recourseliability.  This reserve is included inaccrued liabilities in the accompanying condensed consolidated balance sheets.

 Notesreceivable are composed of the following (in thousands):
|                                  | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|----------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Performing notes                 |       | $                 | 36         |                  | $          | 59 |   |
| Allowance for  doubtful accounts |       | (15               | )          | (19                   | )          |
|                             |       | $                 | 21         |                  | $          | 40 |   |

 

7

----

The activity inthe allowance for doubtful accounts for notes receivable is as follows (inthousands):
|                    | ** ** | **For the 13 Weeks Ended** | ** ** | **For the 26 Weeks Ended** | ** ** |
|--------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **         | ** ** | **June 30,**                              | ** ** | **July 1,**                               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **         | ** ** | **2007**                                       | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Beginning  balance |       | $                                              | 16         |                                           | $          | 58 |   | $ | 19 |   | $ | 69 |   |
| Reversals, net     |       | (1                                             | )          | (15                                            | )          | (4 | ) | (26 | ) |
|               |       | $                                              | 15         |                                           | $          | 43 |   | $ | 15 |   | $ | 43 |   |

 

**4.  Inventories**

Inventories, consisting of finished goods, rawmaterials, novelties and packaging, are stated at the lower of cost (first-in,first-out method) or market value. Inventories are composed of the following (in thousands): 
|                | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|----------------|------------|-------------------|------------|-----------------------|------------|
| ** **     | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Finished goods |       | $                 | 1,404      |                  | $          | 1,663 |   |
| Raw Materials  |       | 879               |       | 1,071                 |       |
| Novelties      |       | 848               |       | 803                   |       |
| Packaging      |       | 431               |       | 440                   |       |
|           |       | $                 | 3,562      |                  | $          | 3,977 |   |

 

**5.  Property and Equipment**

Equipmentand fixtures are stated at cost less accumulated depreciation and aredepreciated over three to seven years using the straight-line method.  Leasehold improvements are stated at costless accumulated depreciation and are depreciated over the shorter of the termof the lease or the estimated useful life using the straight-line method.  Property and equipment are composed of thefollowing (in thousands):
|                                | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|--------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Equipment and  fixtures        |       | $                 | 11,732     |                  | $          | 11,682 |   |
| Leasehold improvements         |       | 7,007             |       | 6,997                 |       |
| Land                           |       | 240               |       | 240                   |       |
|                           |       | 18,979            |       | 18,919                |       |
| Less accumulated  depreciation |       | (11,815           | )          | (10,750               | )          |
|                           |       | $                 | 7,164      |                  | $          | 8,169 |   |

 

Property and equipment at June 30, 2007 and December30, 2006 included gross assets acquired under capital leases of $718,000 andrelated accumulated depreciation of $321,000 and $259,000, respectively.

Expenditures that materially extend useful lives ofproperty and equipment are capitalized. Routine maintenance, repairs and renewal costs are expensed asincurred.  Gains or losses from the saleor retirement of property and equipment are recorded in income from operations.

8

----

Included in leasehold improvements at June 30, 2007and December 30, 2006 is $1.3 million, less $146,000 and $83,000, respectively,of accumulated depreciation, representing amounts for tenant improvementsprovided as lease incentives by the lessor related to the lease for the Company’sgifting operations facility.  Deferredrent at June 30, 2007 and December 31, 2006 of $125,000 is included in accruedliabilities and $1.0 million in other liabilities relating to these leaseincentives.  The total amount of theseleasehold improvements and deferred rent are amortized over the life of thelease.

During the 26 weeks ended June 30, 2007, the Companysold land held for sale for $278,000, resulting in a gain of $128,000.  Land held for sale at December 30, 2006 wasincluded in other assets.

**6. Goodwill, Trademarks and Intangible Assets**

The Company accounts for goodwill and other intangibleassets in accordance with SFAS No. 142 (“SFAS 142”), “Goodwill and OtherIntangible Assets.”  Goodwill andintangible assets acquired in a purchase business combination and determined tohave an indefinite useful life are not amortized, but are tested for impairmentat least annually in accordance with the provisions of SFAS 142.  SFAS 142 also requires that intangibleassets with estimable useful lives be amortized over their respective estimateduseful lives to their estimated residual values and be reviewed for impairmentin accordance with SFAS No. 144, “Accounting for Impairment or Disposal ofLong-Lived Assets.”

The following outlines the Company’s goodwill byoperating segment (in thousands):
|                          | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|--------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| GAC/Pretzels             |       | $                 | 54,913     |                  | $          | 54,913 |   |
| Mrs. Fields  Franchising |       | 5,491             |       | 5,491                 |       |
| Mrs. Fields  Gifts       |       | 1,859             |       | 1,859                 |       |
| Mrs. Fields  Licensing   |       | 1,852             |       | 1,852                 |       |
|                     |       | $                 | 64,115     |                  | $          | 64,115 |   |

 

Included in GAC/Pretzels goodwill at June 30, 2007 andDecember 30, 2006 is $15.3 million related to Pretzels (see Note 16).  The Mrs. Fields Branded Retail and Dairyoperating segments had no goodwill at June 30, 2007 and December 30, 2006.

**7. Accrued Liabilities**

Accruedliabilities are composed of the following (in thousands):
|                                    | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Accrued  liabilities               |       | $                 | 5,164      |                  | $          | 5,452 |   |
| Accrued  compensation and benefits |       | 2,135             |       | 1,408                 |       |
| Accrued  severance                 |       | 584               |       | 1,856                 |       |
| Accrued interest  payable          |       | 6,034             |       | 6,034                 |       |
|                               |       | $                 | 13,917     |                  | $          | 14,750 |   |

 

9

----

The accrued severance at June 30, 2007 and December30, 2006 relates primarily to severance accrued as a result of the Company’sreorganization in January 2007 resulting in a reduction of personnel.  In accordance with SFAS No. 112, “Employers’Accounting for Postemployment Benefits – An Amendment to Financial AccountingStandards Board (“FASB”) Statements No. 5 and No. 43,” the Company accruedapproximately $1.7 million of severance costs in fiscal 2006 related to thisreorganization as it was probable and estimable at December 30, 2006.

The activity in accrued severance for the 13 weeks and26 weeks ended June 30, 2007 is as follows (in thousands):
|                    | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|--------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **         | ** ** | **June 30,**            | ** ** | **June 30,**            | ** ** |
| ** **         | ** ** | **2007**                     | ** ** | **2007**                     | ** ** |
| Beginning  balance |       | $                            | 941        |                         | $          | 1,856 |   |
| Additions          |       | 29                           |       | 29                           |       |
| Payments           |       | (386                         | )          | (1,301                       | )          |
|               |       | $                            | 584        |                         | $          | 584 |   |

 

**8. Related-Party Transactions**

The amounts due to/from affiliates are composed of thefollowing (in thousands): 
|                              | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Amounts due from  affilates: |       |              |       |                  |       |
| MFC                          |       | $                 | 14         |                  | $          | — |   |
| MFOC                         |       | 148               |       | —                |       |
|                         |       | $                 | 162        |                  | $          | — |   |
| ** **                   |       |              |       |                  |       |
| Amounts due to  affilates:   |       |              |       |                  |       |
| MFC - tax sharing            |       | $                 | 3,166      |                  | $          | 3,166 |   |
| MFOC                         |       | —            |       | 349                   |       |
| MFH                          |       | 273               |       | 273                   |       |
|                         |       | $                 | 3,439      |                  | $          | 3,788 |   |

 

The Company has a tax allocation agreement with MFCpursuant to which the Company agreed to make payments to MFC, after taking intoaccount payments the Company makes directly to tax authorities, based on theCompany’s stand-alone consolidated federal income tax liability,determined as if the Company and its subsidiaries constituted their ownconsolidated group for federal income tax purposes.  The Company will not be permitted to makethese payments to MFC, unless the MFC federal tax liability exceeds the Company’sstand-alone federal tax liability, until it meets certain financial ratios andis otherwise in compliance with the terms of the indenture governing the 9percent senior secured notes and the 111⁄2 percent senior secured notes(together, the “Senior Secured Notes”).

Additionally, the tax allocation agreement with MFCdoes not allow for the carry-back of net operating losses.  Under the tax allocation agreement, theCompany’s net operating losses must be carried forward when determining paymentto MFC.  As a result, the current benefitof the federal net operating loss of $743,000 was recorded as a distribution toMFC for the 26 weeks ended June 30, 2007.

10

----

**9. Reportable Segments**

As disclosed in Note 1, the Company changed theirreporting segments as a result of the reorganization of the Company’s businessunits.

The Company has the following six reportable operatingsegments:
| ·       Mrs. Fields Gifts          |                                        |   |
|-----------------------------------------------------------------------|----------------------------------------|--------|
| ·       Mrs. Fields Branded Retail |                                   |
| ·       Mrs. Fields Franchising    | (collectively “Mrs. Fields”) |
| ·       Mrs. Fields Licensing      |                                   |
| ·       GAC/Pretzels               |                                   |
| ·       Dairy                      |                                   |

 

The accounting policies for the segments are the sameas those discussed in the summary of significant accounting policies in Note 2to the Company’s Annual Report on Form 10-K. Sales and transfers between segments are eliminated in consolidation.

The Mrs. Fields Franchising, GAC/Pretzels and Dairyoperating segments include revenues received either directly or indirectly fromcookie, yogurt and pretzel stores, which are owned and operated by thirdparties.  These revenues include initialfranchise or license fees, monthly royalties based on a percentage of afranchisee’s gross sales, sales of cookie dough that the Company produces andcertain product formulation fees and supplier allowances which are based uponsales to franchisees.

The Mrs. Fields Gifts operating segment includes salesgenerated from the Company’s gift catalog and website.

The Mrs. Fields Branded Retail operating segmentincludes sales generated directly from the sale of Mrs. Fields products throughvarious retail channels.  As discussed inNote 9 “Reportable Segments” in the Company’s Annual Report, the Companycommenced selling shelf stable cookies in July 2006 directly through retailchannels following the termination of certain license agreements.  Prior to this time, our branded retailactivities consisted only of sales of Mrs. Fields branded cookie dough directlythrough retail channels.

The Mrs. Fields Licensing operating segment includeslicensing activity with third parties for the sale of products bearing theCompany’s brand names.

The Company evaluates performance of each operatingsegment based on contribution. Contribution is computed as the difference between the revenuesgenerated by a reportable segment and the selling and occupancy expenses, costof sales and direct operating expenses related to that reportable operatingsegment.  Contribution is used as ameasure of the operating performance of an operating segment.  The Company does not allocate any general andadministrative expenses, interest expense, or depreciation and amortization toits reportable operating segments.

11

----

Segment revenues and contribution are presented in thefollowing table (in thousands):
|                            | ** ** | **For the 13 Weeks Ended** | ** ** | **For the 26 Weeks Ended** | ** ** |
|----------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                 | ** ** | **June 30,**                              | ** ** | **July 1,**                               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                 | ** ** | **2007**                                       | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                  |       |                                           |       |                                           |       |   |   |   |   |
| Mrs. Fields Gifts          |       | $                                              | 5,087      |                                           | $          | 4,887 |   | $ | 9,982 |   | $ | 10,065 |   |
| Mrs. Fields Branded Retail |       | 5,156                                          |       | 45                                             |       | 9,659 |   | 79 |   |
| Mrs. Fields Franchising    |       | 1,815                                          |       | 1,979                                          |       | 3,699 |   | 4,089 |   |
| Mrs. Fields Licensing      |       | 115                                            |       | 427                                            |       | 315 |   | 1,067 |   |
| Total Mrs. Fields          |       | 12,173                                         |       | 7,338                                          |       | 23,655 |   | 15,300 |   |
| GAC/Pretzels               |       | 7,488                                          |       | 7,438                                          |       | 15,224 |   | 14,928 |   |
| Dairy                      |       | 3,171                                          |       | 4,144                                          |       | 5,516 |   | 6,907 |   |
|                       |       | $                                              | 22,832     |                                           | $          | 18,920 |   | $ | 44,395 |   | $ | 37,135 |   |
| Contribution:              |       |                                           |       |                                           |       |   |   |   |   |
| Mrs. Fields Gifts          |       | $                                              | (100       | )                                              | $          | (631 | ) | $ | (584 | ) | $ | (2,085 | ) |
| Mrs. Fields Branded Retail |       | 346                                            |       | 22                                             |       | 740 |   | 21 |   |
| Mrs. Fields Franchising    |       | 1,222                                          |       | 1,322                                          |       | 2,546 |   | 2,927 |   |
| Mrs. Fields Licensing      |       | 151                                            |       | (253                                           | )          | 341 |   | 158 |   |
| Total Mrs. Fields          |       | 1,619                                          |       | 460                                            |       | 3,043 |   | 1,021 |   |
| GAC/Pretzels               |       | 4,108                                          |       | 3,829                                          |       | 8,127 |   | 7,524 |   |
| Dairy                      |       | 1,980                                          |       | 2,359                                          |       | 2,483 |   | 3,527 |   |
|                       |       | $                                              | 7,707      |                                           | $          | 6,648 |   | $ | 13,653 |   | $ | 12,072 |   |

 

The reconciliation of contribution to loss beforeprovision (benefit) for income taxes is as follows (in thousands): 
|                                                   | ** ** | **For the 13 Weeks Ended** | ** ** | **For the 26 Weeks Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                        | ** ** | **June 30,**                              | ** ** | **July 1,**                               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                        | ** ** | **2007**                                       | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Contribution                                      |       | $                                              | 7,707      |                                           | $          | 6,648 |   | $ | 13,653 |   | $ | 12,072 |   |
| General and  administrative expenses              |       | (2,620                                         | )          | (2,553                                         | )          | (5,026 | ) | (5,461 | ) |
| Depreciation and  amortization                    |       | (1,058                                         | )          | (1,481                                         | )          | (2,101 | ) | (2,435 | ) |
| Impairment of  goodwill                           |       | —                                         |       | (14,568                                        | )          | — |   | (14,568 | ) |
| Gain on sale of  land held for sale               |       | —                                         |       | —                                         |       | 128 |   | — |   |
| Interest  expense, net                            |       | (5,388                                         | )          | (5,241                                         | )          | (10,681 | ) | (10,471 | ) |
| Other expense                                     |       | —                                         |       | (150                                           | )          | — |   | (28 | ) |
| Loss before  provision (benefit) for income taxes |       | $                                              | (1,359     | )                                              | $          | (17,345 | ) | $ | (4,027 | ) | $ | (20,891 | ) |

 

The fixed assets andinventory of the Company primarily relate to the Company’s GAC/Pretzelmanufacturing facility, Mrs. Fields Branded Retail operating segment, Mrs.Fields Gifts operating segment and related activities.  Assets relating to the Mrs. FieldsFranchising operating segment, the Dairy operating segment and the Mrs. FieldsLicensing operating segment are primarily amounts due from franchisees and licenseesand goodwill relating to franchising concepts.

12

----

Segment assets are presented in the following table(in thousands):
|                                 | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|---------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Mrs. Fields  Gifts              |       | $                 | 8,843      |                  | $          | 11,703 |   |
| Mrs. Fields  Branded Retail     |       | 2,880             |       | 3,157                 |       |
| Mrs. Fields  Franchising        |       | 10,395            |       | 10,538                |       |
| Mrs. Fields  Licensing          |       | 2,561             |       | 3,476                 |       |
| Total Mrs. Fields               |       | 24,679            |       | 28,874                |       |
| GAC/Pretzels                    |       | 59,316            |       | 59,829                |       |
| Dairy                           |       | 7,084             |       | 7,359                 |       |
| Total Segment Identified Assets |       | 91,079            |       | 96,062                |       |
| Non-Segment Identified Assets   |       | 17,694            |       | 25,658                |       |
| Total Assets                    |       | $                 | 108,773    |                  | $          | 121,720 |   |

 

Revenues fromfranchisees, customers and licensees within the United States of America were$21.3 million and $42.0 million or 93.2 percent and 94.6 percent of totalrevenues for the 13 and 26 weeks ended June 30, 2007, respectively, and $18.5million and $36.4 million or 97.9 percent and 98.1 percent of total revenuesfor the 13 and 26 weeks ended July 1, 2006, respectively.  Revenues from international franchisees,customers and licensees were $1.5 million and $2.4 million or 6.8 percent and5.4 percent of total revenues for the 13 and 26 weeks ended June 30, 2007,respectively, and $400,000 and $700,000 or 2.1 percent and 1.9 percent of totalrevenues for the 13 and 26 weeks ended July 1, 2006, respectively.  Revenues from any single foreign country werenot material.  Providing geographicalinformation regarding long-lived assets is impracticable.

 

The Mrs. Fields,GAC/Pretzels and Dairy business units are not dependent upon any single franchisee.

 

The Mrs. Fields Giftsoperating segment has one customer that accounted for $1.6 million and $2.4million, or 31.3 percent and 23.7 percent of revenues for the 13 and 26weeks ended June 30, 2007, respectively, and $962,000 and $1.9 million, or 19.7percent and 18.7 percent of revenues for the 13 and 26 weeks ended July 1,2006, respectively.

*** ***

The Mrs. Fields BrandedRetail operating segment is not dependent upon any single customer.

 

TheMrs. Fields Licensing operating segment has one licensee that accounted forapproximately $32,000 and $64,000 or 27.6 percent and 20.2 percent of therevenues of the Licensing operating segment for the 13 and 26 weeks ended June30, 2007, respectively, and had no revenues for the 13 and 26 weeks ended July1, 2006, respectively; one licensee that accounted for approximately $31,000and $115,000 or 27.3 percent and 36.6 percent of the revenues of the Licensingoperating segment for the 13 and 26 weeks ended June 30, 2007, respectively,and approximately $0 and $119,000 or 0.0 percent and 11.1 percent of therevenues of the Licensing operating segment for the 13 and 26 weeks ended July1, 2006, respectively; one licensee that accounted for approximately $30,000and $60,000 or 26.1 percent and 19.0 percent of the revenues of the Licensingoperating segment for the 13 and 26 weeks ended June 30, 2007, respectively,and approximately $30,000 and $60,000 or 7.0 percent and 5.6 percent of therevenues of the Licensing operating segment for the 13 and 26 weeks ended July1, 2006, respectively; and one licensee that accounted for approximately$12,000 and $30,000 or 10.4 percent and 9.5 percent of the revenues of theLicensing operating segment for the 13 and 26 weeks ended June 30, 2007,respectively, and approximately $29,000 and $63,000 or 6.9 percent and 5.9percent of the revenues of the Licensing operating segment for the 13 and 26weeks ended July 1, 2006, respectively.

13

----

**10.  Share-Based Compensation**

***Phantom Stock Plan***

Effective May 23, 2004, the Board of Directors of MFC(the “Board of Directors”) approved adoption of the Phantom Stock Plan of Mrs.Fields’ Companies, Inc. (the “Phantom Plan”). The purpose of the Phantom Plan is to provide long-term incentives tokey employees of MFC or its subsidiaries (the “Participants”) as determined bythe Compensation Committee of the Board of Directors (the “Committee”).  The Phantom Plan is unfunded and Participantsdo not receive any payment under the Phantom Plan until the completion of thefirst to occur of: (i) a sale of substantially all of the assets of MFC; (ii) apublic offering of MFC’s common stock where MFC receives proceeds, net of anyunderwriter’s discounts and expenses, of not less than $50 million; or (iii)any stock sale, merger or other transaction where the owners of common stockimmediately before the transaction do not own in excess of 50 percent of thecommon stock of the entity surviving such sale, merger or other transaction (a “TriggeringEvent”).

Participants receive performance units in amountsrecommended by MFC’s Chief Executive Officer and determined by theCommittee.  Once issued, performanceunits may only be forfeited upon certain events, such as a participant’svoluntary termination or termination for cause. Additionally, the Phantom Plan may be terminated by the Board ofDirectors at any time at its sole discretion. Upon the completion of a Triggering Event, Participants receive paymentsreflecting the number and value of their performance units at the time of thecompletion of the Triggering Event. Payments to Participants may be made in cash or through issuance ofequity securities of MFC, as determined by the Committee, at which time MFCwill recognize compensation expense.  Thevalue of a performance unit at the completion of a Triggering Event is thevalue of one share of common stock of MFC as determined in good faith by theBoard of Directors.  If the Board ofDirectors determines the need, it may seek the advice of an independentadvisor.

The maximum number of performance units that may be grantedunder the Phantom Plan is one million units. Subdivisions, splits orcombinations involving MFC’s common stock will proportionately affect thenumber of performance units that have been awarded under the Phantom Plan.  In May 2004, the Committee approved the grantof up to 392,418 performance units allocated among Participants as determinedby the Committee.  In March 2006, theCommittee approved the grant of up to 182,274 additional units to Participantsidentified by the Committee, resulting in total authorized grants of up to574,692 performance units.  During the 26weeks ended June 30, 2007, there were no performance units granted toParticipants. Future grants, if any, shall also be determined by the Committee.  As of June 30, 2007 and December 31, 2006, atotal of 460,130 performance units are issued and outstanding.

SFAS No. 123(R), “Share-Based Payment,” applies to allof the Company’s outstanding grants under the Phantom Plan.  There are no other employee share-basedpayment awards outstanding.  Compensationcosts for the grants under the Phantom Plan will be recognized upon thecompletion of a Triggering Event. Accordingly, no compensation costs have been recognized in the statementof operations for the 26 weeks ended June 30, 2007 or July 1, 2006.

***EmployeeStock Option Plan***

EffectiveSeptember 1, 2004, MFC terminated its Employee Stock Option Plan pursuant tothe provisions of the plan.  No furtheroptions will be granted under the plan. Valid and outstanding options granted to plan participants prior totermination were unaffected by the termination. The remaining 10,000 outstanding options expired without exercise inMarch 2007.  As of the 26 weeks endedJune 30, 2007, there were no issued or outstanding options under the EmployeeStock Option Plan.

14

----

***DirectorStock Option Plan***

Members of the Company’s Board of Managers, other thanofficers of the Company, are qualified to participate in MFC’s Director StockOption Plan (the “Director Stock Option Plan”). Under MFC’s Director Stock Option Plan, a committee of the Board ofDirectors of MFC is authorized to administer the Plan and has the power, amongother things, to grant awards of options for common stock of MFC to outsidedirectors of MFC and its subsidiaries, including the Company.  MFC’s Director Stock Option Plan provides forthe issuance of time vested options, which vest 25 percent per year on theanniversaries of the dates on which they are granted and vest in full upon achange of control of MFC or the Company. A total of 100,000 shares of common stock of MFC are reserved forissuance under MFC’s Director Stock Option Plan and as of June 30, 2007 therewere outstanding options providing for the issuance of up to 60,672 of thoseshares.  During the quarter ended June30, 2007, there were no additional stock option grants awarded to thenon-executive Managers.  Common stock ofMFC issued under the Director Stock Option Plan is subject to customaryrestrictions on transfer.  Compensationcosts for the grants under the Director Stock Option Plan are recognized overthe vesting period of the grant.  Thecompensation costs for the 26 weeks ended June 30, 2007 and July 1, 2006 wereinsignificant.

**11.  Commitments and Contingencies**

TheCompany and its products are subject to regulation by numerous governmentalauthorities, including, without limitation, federal, state and local laws andregulations governing franchising, health, sanitation, environmentalprotection, safety and hiring and employment practices.

Inthe ordinary course of business, the Company is involved in routine litigation,including franchise disputes and trademark disputes.  The Company is not a party to any legalproceedings that, in the opinion of management, after consultation with legalcounsel, is material to its business, financial condition or consolidatedresults of operations.

**12. Supplemental Condensed Consolidating Financial Information**

 

Long-term debt includes the Senior Secured Notes thatwere issued by the Company and Mrs. Fields Financing Company, Inc. as co-issuers.  Mrs. Fields Financing Company, Inc. is awholly-owned finance subsidiary of the Company. The Senior Secured Notes are fully and unconditionally guaranteed on ajoint and several basis by all of the Company’s domestic subsidiaries otherthan immaterial subsidiaries.  TheCompany has no independent assets or operations.  Therefore, supplemental financial informationon a condensed consolidating basis of the guarantor subsidiaries is notrequired.  There are no restrictions onthe Company’s ability to obtain cash dividends or other distributions of fundsfrom the guarantor subsidiaries, except those imposed by applicable law.

**13.  Taxes**

On December 31, 2006, the Company adopted theprovisions of FASB No. 48 (“FIN 48”), “Accounting for Uncertainty in IncomeTaxes,” an interpretation of FASB Statement No. 109, “Accounting forIncome Taxes.”  FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  The interpretationrequires that the Company recognize the impact of a tax position in thefinancial statements if that position is more likely than not of beingsustained on audit, based on the technical merits of the position.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods and disclosure.  In accordancewith the provisions of FIN 48, any cumulative effect resulting from the changein accounting principle is to be recorded as an adjustment to the openingbalance of deficit.

The adoption of FIN 48 did not have an impact on theCompany’s consolidated financial statements. At December 31, 2006 and through June 30, 2007, the Company had nounrecognized tax benefits.  As of thedate of adoption, there were no tax positions for which it is reasonablypossible that the total amounts of unrecognized tax benefits will significantlyincrease or decrease within twelve months from the date of adoption of FIN 48or from June 30, 2007.

15

----

The Company recognizes interest and penalties relatedto unrecognized tax benefits in interest expense.  There have been no interest or penaltiesrecognized in the financial statements of the Company.

The Company is included in the consolidated income taxreturns of MFC in the U.S. federal jurisdiction and in various statejurisdictions.  MFC is currently notunder examination by any federal or state tax authority, but remains subject toincome tax examinations for each of its open tax years which extend back to2003 for federal income tax purposes and 2002 for state income tax purposes.

On December 31, 2006, the Company adopted EmergingIssues Task Force (“EITF”) issued EITF Issue No. 06-3 (“EITF 06-3”), “HowTaxes Collected from Customers and Remitted to Government Authorities Should BePresented in the Income Statement (That Is, Gross Versus Net Presentation)”.  EITF 06-3 addresses which taxes assessed by agovernment authority should be considered and how these taxes should bepresented in the income statement (i.e., gross versus net).  The Company records revenues net of state andlocal sales taxes.

**14.  Accounting Pronouncements Not Yet Adopted**

In February 2007, the FASB issued SFAS No. 159, (“SFAS159”), “The Fair Value Option for Financial Assets and FinancialLiabilities—Including an Amendment of FASB Statement No. 115.”  SFAS 159 expands the use of fair valueaccounting but does not affect existing standards which require assets orliabilities to be carried at fair value. SFAS 159 gives a company the irrevocable option to carry most financialassets and liabilities at fair value, with changes in fair value recognized inearnings.  SFAS 159 is effective forfiscal years beginning after November 15, 2007 and is required to beadopted by the Company in the first quarter of 2008.  The Company is currently determining whetherfair value accounting is appropriate for any of its eligible items and cannotcurrently estimate the impact, if any, which SFAS 159 will have on the Company’sconsolidated results of operation and financial condition.

In September 2006, the FASB issued SFAS No. 157 (“SFAS157”), “Fair Value Measurements,” to define fair value, establish a frameworkfor measuring fair value in generally accepted accounting principles and expanddisclosures about fair value measurements, but does not change existingguidance as to whether or not an instrument is carried at fair value.  SFAS 157 is effective for fiscal yearsbeginning after November 15, 2007 and interim periods within those fiscalyears.  The Company is currentlyevaluating the effect, if any, that the adoption of SFAS 157 will have on theCompany’s consolidated financial position and results of operations.

**15.  Liquidity and Capital Resources**

TheCompany believes, based on historical results and current projections, and itsmanagement reorganization and control of operating expenses, that the cashcurrently on hand and expected cash flows from future operations will besufficient to continue operations for at least the next 12 months.  The Company is also exploring potentialequity contributions, permissible loans and other financing as additionalsources of cash.  Failure to achieve theanticipated benefit from its management reorganization may result in theCompany’s inability to continue operations in its current state and would havea material adverse impact on its operations. Accordingly, there can be no assurance that actual results will meet orexceed the Company’s projections or that the Company’s future operatingactivities will generate sufficient cash to meet its cash requirements for thenext 12 months.  (Also see Note 16regarding the sale of the Company’s Pretzel business.  Management has not yet determined how thesale proceeds will be utilized.  Theindenture governing the Senior Secured Notes contains restrictions on how suchproceeds may be used, but under certain conditions, allows management toutilize these proceeds to invest in the business, without the obligation toretire an equal amount of debt.)

16

----

**16.Subsequent Event**

On August 7, 2007, theCompany and its wholly-owned subsidiaries, Pretzel Time and Pretzelmaker,completed a sale of certain assets, consisting primarily of identifiableintangible assets of Pretzels, to NexCen Brands, Inc. (“NexCen”) pursuant to anasset purchase agreement (the “Agreement”). The total purchase price, subjectto customary closing adjustments, is $29.4 million, which consists of $22.1million in cash and 1,000,915 shares of NexCen common stock valued at $7.35 pershare.  Under the terms of the Agreement,$2.9 million (400,365 shares) and $1.0 million (136,054 shares) of restrictedNexCen common stock, valued at $7.35 per share, is to be held in escrow fornine and fifteen months, respectively, pending satisfaction of certainconditions as described in the Agreement. As of June 30, 2007, the Pretzels’ assets and liabilities consistedprimarily of approximately $300,000 of accounts receivable, $15.3 million ofgoodwill and $400,000 of accrued liabilities.

17

----

**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

Certain information setforth in this report contains “forward-looking statements” within the meaningof the federal securities laws.  Forward-lookingstatements are those that do not relate solely to historical fact.  They include, but are not limited to, anystatement that may predict, forecast, indicate or imply future results,performance, achievements or events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,”“intend,” “project,” “plan,” “continue,” “will,” “may” or the negative of suchwords or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties,including, but not limited to, economic, competitive and governmental factorsoutside of our control, that may cause actual results to differ materially fromtrends, plans or expectations set forth in the forward-looking statements.  Factors you should consider that could causethese differences include all factors described under Part II, Item 1A. “RiskFactors” contained elsewhere in this report.

You are cautioned not to place undue reliance on theforward-looking statements contained in this report, which reflect management’sanalysis only as of the date of this report. We undertake no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.  In light of theserisks, uncertainties and assumptions, the forward-looking events discussed inthis report may not occur.

# **ExecutiveSummary**

Mrs.Fields Famous Brands, LLC and subsidiaries (“we,” “us,” the “Company” orsimilar terms) is one of the largest franchisors in the premium snack-foodindustry, featuring Mrs. Fields®, Great American Cookies®, TCBY®, Pretzel Time®and Pretzelmaker® as our core brands. Through our franchisees’ retail stores, we are the largest retailer offreshly baked on-premises specialty cookies and brownies in the United Statesof America (the “United States”); the largest retailer of soft-serve frozenyogurt in the United States; and the second largest retailer of bakedon-premises pretzels in the United States. In addition, we operate a gifts and a branded retail business and haveentered into licensing arrangements that attempt to leverage awareness of ourcore brands among our retail customer base. We operate through a network of 2,119 retail concept locations, whichare located throughout the United States and in approximately 24 foreigncountries.

OnDecember 31, 2006, we restructured and reorganized our resources to focusprimarily on the areas we identified as vital to the future growth of ourbrands.  As part of this reorganization,we formed three business units and appointed presidents for each business unit,which include Mrs. Fields, TCBY (“Dairy”), and the combined group of GreatAmerican Cookies, Pretzel Time and Pretzelmaker (“GAC/Pretzels”).  Each of the presidents is responsible for operationsof their respective business unit. Operating segments are components of our Company for which separatefinancial information is available that is evaluated regularly by management indeciding how to allocate resources and assess performance.  As a result of the reorganization, ourreportable segments have changed from the four previously reported segments,namely franchising, gifts, branded retail, and licensing, to six operatingsegments as follows:
| ·      Mrs. Fields Gifts          |                                        |   |
|-----------------------------------------------------------------|----------------------------------------|--------|
| ·      Mrs. Fields Branded Retail |                                   |
| ·      Mrs. Fields Franchising    | (collectively “Mrs. Fields”) |
| ·      Mrs. Fields Licensing      |                                   |
| ·      GAC/Pretzels               |                                   |
| ·      Dairy                      |                                   |   |

 

Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” we have restated thesegment disclosures for the 13 and 26 weeks ended July 1, 2006 to conform tothe presentation of the new operating segments.

Mrs.Fields, GAC/Pretzels and Dairy represented 53.3 percent, 34.3 percent and 12.4percent of total revenues, respectively, for the 26 weeks ended June 30, 2007and 41.2 percent, 40.2 percent, and 18.6 percent of total revenues,respectively, for the 26 weeks ended July 1, 2006. 

18

----

Asof June 30, 2007, our store portfolio consisted of 1,649 domestic franchisedlocations, 344 international franchised locations and 126 licensedlocations.  Our franchisees’ andlicensees’ concept locations by brand are distributed as follows:
|                                | ** ** | **Domestic**   | ** ** | **International** | ** ** | **Licensed**  | ** ** | ** ** | ** ** |
|--------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                     | ** ** | **Franchised** | ** ** | **Franchised**    | ** ** | **Locations** | ** ** | **Total**  | ** ** |
| Mrs. Fields                    |       | 326            |       | 97                |       | 31            |       | 454        |       |
| Great American  Cookies        |       | 286            |       | 1                 |       | —        |       | 287        |       |
| Pretzel Time (1)               |       | 185            |       | 4                 |       | 6             |       | 195        |       |
| Pretzelmaker (1)               |       | 135            |       | 45                |       | 1             |       | 181        |       |
| Hot Sam (1)                    |       | —         |       | —            |       | 1             |       | 1          |       |
| GAC/Pretzels subtotal          |       | 606            |       | 50                |       | 8             |       | 664        |       |
| TCBY -  traditional stores     |       | 345            |       | —            |       | —        |       | 345        |       |
| TCBY -  non-traditional stores |       | 358            |       | 197               |       | 85            |       | 640        |       |
| Yovana - test  stores (2)      |       | 2              |       | —            |       | 2             |       | 4          |       |
| TCBY/Beriyo                    |       | 12             |       | —            |       | —        |       | 12         |       |
| Dairy subtotal                 |       | 717            |       | 197               |       | 87            |       | 1,001      |       |
| Total                          |       | 1,649          |       | 344               |       | 126           |       | 2,119      |       |

 

----

(1)          Subsequent to June 30, 2007, we completedour sale of the identifiable intangible assets of these concepts, as furtherdiscussed in Recent Developments.

(2)          Included in the domestic franchised Yovanatest stores is one store currently owned and operated by us, which may berefranchised, relocated or closed in fiscal 2007.  We assumed operations from a franchisee in aneffort to more closely monitor the results of the test.

Theprevious table counts each concept location individually.  For example, if a physical location had aMrs. Fields store and a Pretzel Time store together, it would be counted as twoconcept locations in the table above.  Ifactual physical stores were counted rather than concept locations, total storecounts would be reduced by 300 locations to 1,819.

Ourparent company, Mrs. Fields’ Original Cookies, Inc. (“MFOC”) and certain of itssubsidiaries own two franchised and licensed retail concept locations as ofJune 30, 2007, representing 0.1 percent of the total retail conceptlocations.  During the 26 weeks endedJune 30, 2007, we recognized $13,000 of franchise royalties relating to theretail concept locations owned by MFOC. MFOC expects that these remaining retail concept locations will be soldto other franchisees or will be closed during fiscal 2007.

Duringthe 26 weeks ended June 30, 2007, our store portfolio declined from 2,313concept locations to 2,119 concept locations, as follows:
|                               | ** ** | **Total Company** | ** ** |
|-------------------------------|------------|------------------------|------------|
| ** **                    | ** ** | **Domestic**           | ** ** | **International** | ** ** | **Licensed** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Franchised**         | ** ** | **Franchised** | ** ** | **Locations** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 1,804                  |       | 356 |   | 153 |   | 2,313 |   |
| New development  openings     |       | 30                     |       | 15 |   | — |   | 45 |   |
| Permanent  closings           |       | (182                   | )          | (26 | ) | (28 | ) | (236 | ) |
| Other closings,  net          |       | (3                     | )          | (1 | ) | 1 |   | (3 | ) |
| Balance at June 30, 2007      |       | 1,649                  |       | 344 |   | 126 |   | 2,119 |   |

 

19

----

The following tablesprovide additional detail of new development openings, permanent closings andother openings and closings of our concept locations during the 26 weeks endedJune 30, 2007:
|                               | ** ** | **Domestic Franchised** | ** ** |
|-------------------------------|------------|------------------------------|------------|
| ** **                    | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                   | ** ** | ** ** | ** ** | **Traditional** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Mrs. Fields**         | ** ** | **GAC/Pretzels** | ** ** | **Dairy** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 360                          |       | 622 |   | 376 |   | 446 |   | 1,804 |   |
| New development  openings     |       | 2                            |       | 17 |   | 8 |   | 3 |   | 30 |   |
| Permanent  closings           |       | (33                          | )          | (29 | ) | (28 | ) | (92 | ) | (182 | ) |
| Other closings,  net          |       | (3                           | )          | (4 | ) | 3 |   | 1 |   | (3 | ) |
| Balance at June 30,  2007     |       | 326                          |       | 606 |   | 359 |   | 358 |   | 1,649 |   |

 
|                               | ** ** | **International Franchised** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|
| ** **                    | ** ** | ** **                        | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                        | ** ** | ** ** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Mrs. Fields**              | ** ** | **GAC/Pretzels** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 97                                |       | 55 |   | 204 |   | 356 |   |
| New development  openings     |       | 6                                 |       | 2 |   | 7 |   | 15 |   |
| Permanent  closings           |       | (6                                | )          | (6 | ) | (14 | ) | (26 | ) |
| Other closings,  net          |       | —                            |       | (1 | ) | — |   | (1 | ) |
| Balance at June 30,  2007     |       | 97                                |       | 50 |   | 197 |   | 344 |   |

 
|                               | ** ** | **Licensed Locations** | ** ** |
|-------------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | ** **                  | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                  | ** ** | ** ** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Mrs. Fields**        | ** ** | **GAC/Pretzels** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 44                          |       | 10 |   | 99 |   | 153 |   |
| New development  openings     |       | —                      |       | — |   | — |   | — |   |
| Permanent  closings           |       | (13                         | )          | (2 | ) | (13 | ) | (28 | ) |
| Other openings,  net          |       | —                      |       | — |   | 1 |   | 1 |   |
| Balance at June 30,  2007     |       | 31                          |       | 8 |   | 87 |   | 126 |   |

 

Wehave implemented a number of strategies designed to attempt to reverse ourtrend of declining store counts, including identifying stores that are at riskof closure for operational issues, lease or franchise agreement expiration andworking with franchisees to relocate, transfer or correct operationaldeficiencies.  We are also testingprograms to refresh, remodel or reconcept some of our concept locations, asmore fully discussed in our 2006 Annual Report on Form 10-K filed with theSecurities and Exchange Commission (“SEC”) on March 21, 2007 (“Annual Report”).  There can be no assurance that our strategieswill succeed.  If store counts continueto decline, our business operations or financial condition could be adverselyaffected.

20

----

Throughoutthis discussion, we refer to the total weeks that our franchised locationsoperate in any given period as “franchised unit weeks” and use that termcomparatively when describing factors that may affect performance.    Fewer franchised locations translatenaturally to fewer total franchised unit weeks that our franchisees operate andcontribute revenues to us.  The Dairyoperating segment is composed of both larger, traditional locations and asignificant number of smaller, non-traditional locations.  We measure franchise unit weeks differentlyfor the Dairy operating segment, based on our calculation that it takesapproximately three average non-traditional locations to equal the revenues ofone average traditional location.  Wetherefore refer to “traditional equivalent unit weeks” to describe the totalnumber of weeks that TCBY franchised locations operate in any given period,adjusted to account for the different impact that non-traditional TCBY storeopenings and closings may have when compared to similar events affectingtraditional TCBY stores.

# **RecentDevelopments**

As discussed on our Form 8-K filed onJuly 9, 2007, we approved a fully executed copy of a Product Supply Agreement(the “Supply Agreement”) between Pretzelmaker and Layton Dough, a division ofSmith’s Food & Drug Centers, Inc. (“Layton”).  Layton produces Pretzelmaker’s proprietaryfrozen pretzel dough for sale to designated distributors who purchase theproduct for resale to Pretzelmaker franchisees. The Supply Agreement has an initial term of one year and provides forautomatic renewals for subsequent one-year periods unless either party gives atleast 180 days prior notice of its intent to terminate.  The Supply Agreement also includes provisionsrelated to licensing of Pretzelmaker’s marks for purposes of production,pricing, payment, invoicing and collection, inventory controls, qualitystandards and assurance, indemnification and confidentiality.

OnAugust 7, 2007, we completed the sale of certain assets, consisting primarilyof identifiable intangible assets of our wholly-owned subsidiaries, PretzelTime Franchising, LLC (“Pretzel Time”) and Pretzelmaker Franchising, LLC (“Pretzelmaker,”and collectively “Pretzels”), to NexCen Brands, Inc. (“NexCen”) pursuant to anasset purchase agreement (the “Agreement”). The total purchase price, subjectto customary closing adjustments, is $29.4 million, which consists of $22.1million in cash and 1,000,915 shares of NexCen common stock valued at $7.35 pershare.  Under the terms of the Agreement,$2.9 million (400,365 shares) and $1.0 million (136,054 shares) of restrictedNexCen common stock, valued at $7.35 per share, is to be held in escrow fornine and fifteen months, respectively, pending satisfaction of certainconditions as described in the Agreement. As of June 30, 2007, the Pretzels’ assets and liabilities consistedprimarily of approximately $300,000 of accounts receivable, $15.3 million ofgoodwill and $400,000 of accrued liabilities.

# **  Reclassifications**

Inconnection with our reorganization and change in business segments, certainprior year amounts have been reclassified to conform to the current yearpresentation.  We reclassified prior yearrevenues and expenses as follows:

·                  Franchisingto the Mrs. Fields, GAC/Pretzels and Dairy business units; and

·                  Gifts,Branded Retail and Licensing to the Mrs. Fields business unit.

Such reclassificationdid not impact previously reported net loss or accumulated deficit.

21

----

**Results of Operations**

 

The following table sets forth, for the periodsindicated, certain information relating to our operations and percentagechanges from period to period (in thousands):
| ** **                                       | ** ** | **13 Weeks Ended** | ** ** | ** **       | ** ** | **26 Weeks Ended** | ** ** | ** **        | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|------------------|------------|------------------------------|------------|-------------------|------------|
| ** **                                       | ** ** | **June 30,**            | ** ** | **July 1,** | ** ** | **%**                        | ** ** | **June 30,** | ** ** | **July 1,** | ** ** | **%** | ** ** |
| ** **                                       | ** ** | **2007**                     | ** ** | **2006**         | ** ** | **Change**                   | ** ** | **2007**          | ** ** | **2006** | ** ** | **Change** | ** ** |
| REVENUES:                                        |       |                         |       |             |       |                         |       |              |       |   |   |   |   |
| Mrs. Fields Gifts                                |       | $                            | 5,087      |             | $          | 4,887                        |       | 4.1               |       | $ | 9,982 |   | $ | 10,065 |   | (0.8 | ) |
| Mrs. Fields Branded Retail                       |       | 5,156                        |       | 45               |       | NM                           |       | 9,659             |       | 79 |   | NM |   |
| Mrs. Fields Franchising                          |       | 1,815                        |       | 1,979            |       | (8.3                         | )          | 3,699             |       | 4,089 |   | (9.5 | ) |
| Mrs. Fields Licensing                            |       | 115                          |       | 427              |       | (73.1                        | )          | 315               |       | 1,067 |   | (70.5 | ) |
| Total Mrs. Fields                                |       | 12,173                       |       | 7,338            |       | 65.9                         |       | 23,655            |       | 15,300 |   | 54.6 |   |
| GAC/Pretzels                                     |       | 7,488                        |       | 7,438            |       | 0.7                          |       | 15,224            |       | 14,928 |   | 2.0 |   |
| Dairy                                            |       | 3,171                        |       | 4,144            |       | (23.5                        | )          | 5,516             |       | 6,907 |   | (20.1 | ) |
| Total revenues                                   |       | 22,832                       |       | 18,920           |       | 20.7                         |       | 44,395            |       | 37,135 |   | 19.6 |   |
| OPERATING COSTS  AND EXPENSES:                   |       |                         |       |             |       |                         |       |              |       |   |   |   |   |
| Mrs. Fields Gifts                                |       | 5,187                        |       | 5,518            |       | (6.0                         | )          | 10,566            |       | 12,150 |   | (13.0 | ) |
| Mrs. Fields Branded Retail                       |       | 4,810                        |       | 23               |       | NM                           |       | 8,919             |       | 58 |   | NM |   |
| Mrs. Fields Franchising                          |       | 593                          |       | 657              |       | (9.7                         | )          | 1,153             |       | 1,162 |   | (0.8 | ) |
| Mrs. Fields Licensing                            |       | (36                          | )          | 680              |       | NM                           |       | (26               | )          | 909 |   | NM |   |
| Total Mrs. Fields                                |       | 10,554                       |       | 6,878            |       | 53.4                         |       | 20,612            |       | 14,279 |   | 44.4 |   |
| GAC/Pretzels                                     |       | 3,380                        |       | 3,609            |       | (6.3                         | )          | 7,097             |       | 7,404 |   | (4.1 | ) |
| Dairy                                            |       | 1,191                        |       | 1,785            |       | (33.3                        | )          | 3,033             |       | 3,380 |   | (10.3 | ) |
| General and administrative                       |       | 2,620                        |       | 2,553            |       | 2.6                          |       | 5,026             |       | 5,461 |   | (8.0 | ) |
| Depreciation                                     |       | 539                          |       | 943              |       | (42.8                        | )          | 1,065             |       | 1,359 |   | (21.6 | ) |
| Amortization                                     |       | 519                          |       | 538              |       | (3.5                         | )          | 1,036             |       | 1,076 |   | (3.7 | ) |
| Impairment of goodwill                           |       | —                       |       | 14,568           |       | NM                           |       | —            |       | 14,568 |   | NM |   |
| Gain on sale of land held for sale               |       | —                       |       | —           |       | NM                           |       | (128              | )          | — |   | NM |   |
| Total operating costs and expenses               |       | 18,803                       |       | 30,874           |       | (39.1                        | )          | 37,741            |       | 47,527 |   | (20.6 | ) |
| Income (loss) from operations                    |       | 4,029                        |       | (11,954          | )          | NM                           |       | 6,654             |       | (10,392 | ) | NM |   |
| Interest expense, net                            |       | (5,388                       | )          | (5,241           | )          | 2.8                          |       | (10,681           | )          | (10,471 | ) | 2.0 |   |
| Other expense                                    |       | —                       |       | (150             | )          | (100.0                       | )          | —            |       | (28 | ) | (100.0 | ) |
| Loss before provision (benefit) for income taxes |       | (1,359                       | )          | (17,345          | )          | (92.2                        | )          | (4,027            | )          | (20,891 | ) | (80.7 | ) |
| Provision (benefit) for income taxes             |       | 8                            |       | 651              |       | NM                           |       | 18                |       | (790 | ) | NM |   |
| Net loss                                         |       | $                            | (1,367     | )                | $          | (17,996                      | )          | (92.4             | )          | $ | (4,045 | ) | $ | (20,101 | ) | (79.9 | ) |
|                                             |       |                         |       |             |       |                         |       |              |       |   |   |   |   |
| Cash flows from operating activities             |       | $                            | 4,391      |             | $          | 3,532                        |       | (24.3             | )          | $ | (6,129 | ) | $ | (7,689 | ) | 20.3 |   |
| Cash flows from investing activities             |       | $                            | (48        | )                | $          | (1,281                       | )          | NM                |       | $ | 218 |   | $ | (1,681 | ) | NM |   |
| Cash flows from financing activities             |       | $                            | (28        | )                | $          | (25                          | )          | (12.0             | )          | $ | (58 | ) | $ | (51 | ) | (13.7 | ) |

 

----

NM - Calculationnot meaningful.

22

----

**13 Weeks Ended June 30, 2007**

**Compared to the 13 Weeks Ended July1, 2006**

** **

*IncomeFrom Operations—Overview*. Income from operations was $4.0 million for the 13 weeks ended June30, 2007, an increase of $16.0 million or 133.7 percent from loss of$12.0 million for the 13 weeks ended July 1, 2006.  The increase in income from operations wasprimarily due to the following:

·                  decreasedimpairment of goodwill associated with the dairy reporting unit of $14.6million in 2006;

·                  increasedcontribution from our business units of $1.1 million; and

·                  decreaseddepreciation expense of $400,000.

The foregoing increasesin income from operations were partially offset by an increase in general andadministrative expenses of $100,000.

The increase incontribution from our business units of $1.1 million is composed of thefollowing:

·                  Mrs.Fields business unit contribution increase of $1.2 million;

·                  GAC/Pretzelsbusiness unit contribution increase of $300,000; offset by

·                  Dairy businessunit contribution decrease of $400,000.

*BusinessUnit Contribution. *Mrs.Fields business unit contribution is composed of the following:

·                  salesof products through our gift catalog and website, less direct operatingexpenses in our Mrs. Fields Gifts operating segment;

·                  netsales of our branded products through retail channels by us and through foodbrokers less related cost of sales and direct selling and operating expenses inour Mrs. Fields Branded Retail operating segment;

·                  salesof new franchises and royalties from existing franchises less direct operatingexpenses in our Mrs. Fields Franchising operating segment; and

·                  licensing feesreceived from third parties for the sale of products bearing our brand namesless direct operating expenses in our Mrs. Fields Licensing operating segment.

Our GAC/Pretzels andDairy business unit contribution is composed of sales of new franchises androyalties from existing franchises less direct operating expenses.  Our GAC/Pretzels business unit also includessales for batter purchases by our Great American Cookies franchisees, less costof product and direct operating expenses, from our manufacturing facility.

The following table setsforth the contribution from each of our business units (in thousands):
|              | ** ** | **For the 13 Weeks Ended** | ** ** |
|--------------|------------|------------------------------------------------|------------|
| ** **   | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** **   | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Mrs. Fields  |       | $                                              | 1,619      |   | $ | 460 |   |
| GAC/Pretzels |       | 4,108                                          |       | 3,829 |   |
| Dairy        |       | 1,980                                          |       | 2,359 |   |
|         |       | $                                              | 7,707      |   | $ | 6,648 |   |

 

23

----

**Mrs. Fields**

The following tabledetails the revenues and operating expenses of the Mrs. Fields business unit(in thousands):
|                                      | ** ** | **For the 13 Weeks Ended** | ** ** | ** **       | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|------------------|------------|
| ** **                           | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** | **%** | ** ** |
| ** **                           | ** ** | **2007**                                       | ** ** | **2006**         | ** ** | **Change** | ** ** |
| Mrs. Fields  Gifts                   |       | $                                              | 5,087      |             | $          | 4,887 |   | 4.1 |   |
| Mrs. Fields  Branded Retail          |       | 5,156                                          |       | 45               |       | NM |   |
| Mrs. Fields  Franchising             |       | 1,815                                          |       | 1,979            |       | (8.3 | ) |
| Mrs. Fields  Licensing               |       | 115                                            |       | 427              |       | (73.1 | ) |
| Total Mrs. Fields revenues           |       | 12,173                                         |       | 7,338            |       | 65.9 |   |
| Mrs. Fields  Gifts                   |       | 5,187                                          |       | 5,518            |       | (6.0 | ) |
| Mrs. Fields  Branded Retail          |       | 4,810                                          |       | 23               |       | NM |   |
| Mrs. Fields  Franchising             |       | 593                                            |       | 657              |       | (9.7 | ) |
| Mrs. Fields  Licensing               |       | (36                                            | )          | 680              |       | NM |   |
| Total Mrs. Fields operating expenses |       | 10,554                                         |       | 6,878            |       | 53.4 |   |
| Total Mrs.  Fields contribution      |       | $                                              | 1,619      |             | $          | 460 |   | 252.0 |   |

 

***Mrs. Fields Gifts***

*Mrs.Fields Gifts Revenues.* Mrs. Fields Gifts revenues were $5.1 million for the 13 weeks ended June30, 2007, an increase of $200,000 or 4.1 percent from $4.9 million for the 13weeks ended July 1, 2006.  These revenuesconsist of sales through our catalog and website as well as affiliations withother websites and sales to large corporate accounts.  This increase in revenues was primarilyattributable to the following:

·                  nationalaccounts revenues of $500,000 related to our largest customer; and

·                  Internet searchengines revenues of $400,000 due to additional providers­­.

The foregoing increasesin revenues were partially offset by a decrease in:

·                  catalogdriven sales of $600,000 due to decreased circulation of catalogs; and

·                  affiliatesdriven sales of $100,000 due to a reduction in affiliates.

*Mrs.Fields Gifts Expenses.* Mrs. Fields Gifts expenses are composed of cost of sales for productssold, selling and promotional expenses and direct operating expenses of thissegment.  Expenses were $5.2 millionfor the 13 weeks ended June 30, 2007, a decrease of $300,000 or 6.0 percentfrom $5.5 million for the 13 weeks ended July 1, 2006.  This decrease in expenses was primarily dueto the following:

·                  catalogand advertising expenses of $400,000 due to decreased circulation of ourcatalogs;

·                  operatingexpenses of $200,000 related primarily to decreased freight costs; and

·                  compensation andrelated costs of $100,000 due to the management reorganization that occurred inJanuary 2007.

The foregoing decreasesin expenses were partially offset by an increase in:

·                  costof goods sold of $200,000 primarily due to an increase in raw materials as aresult of increased revenues;

·                  bonusexpense of $100,000 for accrued bonuses for fiscal year 2007; and

·                  rent andoccupancy expenses of $100,000 related to the new gifts facility.

***Mrs. Fields Branded Retail***

*Mrs. Fields Branded Retail Revenues. *Mrs. Fields Branded Retail revenues were $5.2 millionand $45,000 for the 13 weeks ended June 30, 2007 and July 1, 2006,respectively.  The increase is due to therevenues generated from the sale of Mrs. Fields branded shelf stable cookies.  We commenced selling Mrs. Fields brandedshelf stable cookies in July 2006 directly through retail channels followingthe termination of certain license agreements.

24

----

*Mrs. Fields**Branded Retail Expenses.*  Mrs. Fields Branded Retail expenses arecomposed of cost of sales for product sold, selling and promotional expensesand other direct operating expenses of this segment.  These expenses were $4.8 million and $23,000for the 13 weeks ended June 30, 2007 and July 1, 2006, respectively.  The increase is associated with the brandedretail shelf stable cookies activity which commenced in July 2006.

***Mrs. FieldsFranchising***

The following tabledetails the year-over-year (“YOY”) percentage change in same store sales:
|             | ** ** | **For the 13 Weeks Ended** | ** ** |
|-------------|------------|------------------------------------------------|------------|
| ** **  | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** **  | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Mrs. Fields |       | 0.0                                            |       | (2.1 | ) |

 

Our Mrs. Fields concept’sYOY same store sales were flat for the 13 weeks ended June 30, 2007, animprovement from the first quarter of 2007. This was a result of an increased average ticket price due topromotional focus on the Big Cookies Cake program and our Breezer smoothieprogram, and a strong summer promotion launch to help stem customer countdeclines.

*Mrs. Fields*  *FranchisingRevenues. *Mrs. Fields Franchising revenues were$1.8 million for the 13 weeks ended June 30, 2007, a decrease of $200,000or 8.3 percent from $2.0 million for the 13 weeks ended July 1, 2006.  This decrease in revenues was primarilyattributable to approximately 500 or 10.1 percent fewer unit weeks offsetpartially by an increase in average ticket price.

*Mrs. Fields Franchising Expenses.*  Mrs. Fields Franchising expenses are composedof operation and supervision expenses wherein we provide support, direction andsupervision to the franchisees, and development and support expenses includingproduct development costs, expenses relating to new franchise development,marketing and advertising, bad debt expense and other direct franchisingexpenses of this segment.  These expenseswere $600,000 for the 13 weeks ended June 30, 2007, a decrease of $100,000 or9.7 percent from $700,000 for the 13 weeks ended July 1, 2006.  This decrease in expenses was primarily dueto decreased costs of $100,000 related to shared resources for productdevelopment, purchasing, training and customer service and decreased expensesassociated with brand initiatives of $100,000. These decreases were partially offset by increased bonus expense of$100,000 for accrued bonuses for fiscal year 2007.

***Mrs. FieldsLicensing***

*Mrs. Fields Licensing Revenues. *Mrs. Fields Licensing revenues were $100,000 forthe 13 weeks ended June 30, 2007, a decrease of $300,000 or 73.1 percentfrom $400,000 for the 13 weeks ended July 1, 2006.  This decrease in revenues was primarily dueto licensing royalties earned in 2006 of $300,000 under our terminatedlicensing agreement for the sale of TCBY frozen food specialty products throughretail channels.

*Mrs.Fields Licensing Expenses. *Mrs.Fields Licensing expenses are composed of selling and promotional expenses, baddebt and other direct operating expenses of this segment.  These expenses were negligible for the 13weeks ended June 30, 2007, a decrease of $700,000 from $700,000 for the 13weeks ended July 1, 2006.  This decreasein expenses was primarily due to the following:

·                  baddebt of $400,000 in fiscal year 2006 related to a terminated license agreement;

·                  legal,advertising and promotion expenses totaling approximately $200,000; and

·                  compensation andrelated costs of $100,000 due to the management reorganization that occurred inJanuary 2007.

25

----

**GAC/Pretzels**

The following tabledetails the YOY percentage increase in same store sales:
|                         | ** ** | **For the 13 Weeks Ended** | ** ** |
|-------------------------|------------|------------------------------------------------|------------|
| ** **              | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** **              | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Great American  Cookies |       | 1.8                                            |       | 2.7 |   |
| Pretzel Time            |       | 11.6                                           |       | 7.0 |   |
| Pretzelmaker            |       | 6.8                                            |       | 11.9 |   |
| ** **              | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| Total GAC/Pretzels      |       | 5.1                                            |       | 5.2 |   |

 

OurGreat American Cookies concept continues its positive momentum through thesecond quarter of fiscal year 2007 with a 1.8% YOY same store salesincrease.  The launch of cupcakes and anincreased focus on cookie cakes helped increase customer counts in the stores.

Ourpretzel concepts experienced another quarter with strong YOY same store salesincreases.  The introduction of a newLemon Breezer, along with continued support of the Pretzel Bites, contributedto the ongoing success.

*GAC/PretzelsRevenues. *GAC/Pretzels revenues were $7.5 million forthe 13 weeks ended June 30, 2007, an increase of $100,000 or 0.7 percentfrom $7.4 million for the 13 weeks ended July 1, 2006.  This increase in revenues was primarilyattributable to an increase of $200,000 in royalties and sales of product byour Great American Cookies manufacturing facility to our franchisees.  This increase was partially offset by a$100,000 decrease in initial franchise fees earned in the second quarter offiscal year 2007.

*GAC/Pretzels Expenses. *GAC/Pretzels expenses are composed of operation and supervisionexpenses wherein we provide support, direction and supervision to thefranchisees; development and support expenses including product developmentcosts, expenses relating to new franchise development, marketing andadvertising, bad debt expenses and other direct franchising expenses of thissegment; and cost of product sales associated with our Great American Cookiesmanufacturing facility including raw materials, labor and other manufacturingcosts.  These expenses were $3.4 millionfor the 13 weeks ended June 30, 2007, a decrease of $200,000 or6.3 percent from $3.6 million for the 13 weeks ended July 1, 2006.  This decrease in expenses was primarilyattributable to decreases in cost of product of $100,000 and compensation andrelated costs and other operating expenses associated with our Great AmericanCookies manufacturing facility of $100,000 primarily as a result of themanagement reorganization that occurred in January 2007.

**Dairy**

The following tabledetails the YOY percentage decrease in same store sales:
|            | ** ** | **For the 13 Weeks Ended** | ** ** |
|------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** ** | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Dairy      |       | (1.3                                           | )          | (3.5 | ) |

 

OurDairy segment’s YOY same store sales decreased 1.3 percent for the 13weeks ended June 30, 2007 primarily as a result of unseasonably cold and wetweather in certain parts of the United States during April.  We have improved our product and menu and weinitiated a remodel program for the existing TCBY traditional store base whichprovides an updated, contemporary store décor for consumers and an improvedbusiness model for franchisees which we expect will strengthen our YOY storesales.

26

----

*Dairy Revenues. *Dairy revenues were $3.2 million forthe 13 weeks ended June 30, 2007, a decrease of $900,000 or 23.5 percent from$4.1 million for the 13 weeks ended July 1, 2006.  This decrease in revenues was due todecreases in product formulation revenues generated by purchases of TCBYproducts by franchisees of $600,000 and royalties of $400,000 principallyattributable to approximately 1,300 or 16.8 percent fewer unit weeks and adecrease in YOY same store sales.  Thesedecreases were partially offset by an increase of $100,000 in initial franchisefees and other revenues.  We anticipatethat our dairy unit weeks will continue to decline in the near future, at leastuntil the rollout of the new store décor and the line of Beriyo smoothieproducts into TCBY stores are completed.

*Dairy Expenses.* Dairy expenses are composed of operation andsupervision expenses wherein we provide support, direction and supervision tothe franchisees, and development and support expenses including productdevelopment costs, expenses relating to new franchise development, marketingand advertising, bad debt expense and other direct franchising expenses of thissegment.  These expenses were $1.2million for the 13 weeks ended June 30, 2007, a decrease of $600,000 or33.3 percent from $1.8 million for the 13 weeks ended July 1, 2006.  This decrease in expenses was primarilyattributable to the following:

·                  compensationand related costs of $300,000 due to the decrease in headcount resulting fromour reorganization;

·                  distributioncosts of $200,000 associated with the distribution of our products to our dairyfranchise system resulting from the Blue Line Extension Agreement that ended inMarch 2007;

·                  costsassociated with shared resources related to product development, purchasing,training and customer service of $200,000; and

·                  other franchisedevelopment and support costs of $100,000.

The foregoing decreasesin expenses were partially offset by the following increases:

·                  brandinitiatives of $100,000 to test Beriyo and Yovana concepts and to prepare forthe new store décor initiative; and

·                  operating costsof $100,000 related to a Yovana test store that we began operating in thefourth quarter of 2006.

**Other**

*Generaland Administrative Expenses.* General and administrative expenses were $2.6 million for both the 13weeks ended June 30, 2007 and July 1, 2006. This consistent level of general and administrative expenses wasprimarily affected by the following:

·                  decreasesin compensation and related costs of $300,000 primarily due to the decrease inheadcount resulting from our reorganization; offset by

·                  increasesin bonus expense of $100,000 for accrued bonuses for fiscal year 2007;

·                  increasesin professional fees of $100,000; and

·                  increases ingeneral and administrative expenses of $100,000.

*Depreciation and AmortizationExpense.*  Totaldepreciation and amortization expense was $1.0 million for the 13 weeks endedJune 30, 2007, a decrease of $500,000 or 28.6 percent from $1.5 million for the13 weeks ended July 1, 2006. Depreciation expense was $500,000 for the 13 weeks ended June 30, 2007,a decrease of $500,000 or 42.8 percent from $1.0 million for the 13 weeks endedJuly 1, 2006.  This decrease was due to$400,000 attributable to leasehold improvements and equipment associated with aYovana test store recorded in fiscal year 2006 and the $200,000 attributable tothe leasehold improvements in our old gifting facility.  Amortization expense was $500,000 for the 13weeks ended June 30, 2007 and for the 13 weeks ended July 1, 2006.

27

----

**26 Weeks Ended June 30, 2007**

**Compared to the 26 Weeks Ended July1, 2006**

** **

*IncomeFrom Operations—Overview*. Income from operations was $6.7 million for the 26 weeks ended June30, 2007, an increase of $17.1 million or 164.0 percent from loss of$10.4 million for the 26 weeks ended July 1, 2006.  The increase in income from operations wasprimarily due to the following:

·                  decreasedimpairment of goodwill associated with the dairy reporting unit of $14.6million in 2006;

·                  increasedcontribution from our business units of $1.6 million;

·                  decreasedgeneral and administrative expenses of $400,000;

·                  decreaseddepreciation expense of $300,000; and

·                  gain on sale ofland held for sale of $100,000 that occurred in 2007.

The increase incontribution from our business units of $1.6 million is composed of thefollowing:

·                  Mrs.Fields business unit contribution increase of $2.0 million;

·                  GAC/Pretzelsbusiness unit contribution increase of $600,000; offset by

·                  Dairy businessunit contribution decrease of $1.0 million.

*BusinessUnit Contribution. *Mrs.Fields business unit contribution is composed of the following:

·                  salesof products through our gift catalog and website, less direct operatingexpenses in our Mrs. Fields Gifts operating segment;

·                  netsales of our branded products through retail channels by us and through foodbrokers less related cost of sales and direct selling and operating expenses inour Mrs. Fields Branded Retail operating segment;

·                  salesof new franchises and royalties from existing franchises less direct operatingexpenses in our Mrs. Fields Franchising operating segment; and

·                  licensing feesreceived from third parties for the sale of products bearing our brand namesless direct operating expenses in our Mrs. Fields Licensing operating segment.

Our GAC/Pretzels andDairy business unit contribution is composed of sales of new franchises androyalties from existing franchises less direct operating expenses.  Our GAC/Pretzels business unit also includessales for batter purchases by our Great American Cookies franchisees, less costof product and direct operating expenses, from our manufacturing facility.

The following table setsforth the contribution from each of our business units (in thousands):
|              | ** ** | **For the 26 Weeks Ended** | ** ** |
|--------------|------------|------------------------------------------------|------------|
| ** **   | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** **   | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Mrs. Fields  |       | $                                              | 3,043      |   | $ | 1,021 |   |
| GAC/Pretzels |       | 8,127                                          |       | 7,524 |   |
| Dairy        |       | 2,483                                          |       | 3,527 |   |
|         |       | $                                              | 13,653     |   | $ | 12,072 |   |

 

28

----

**Mrs. Fields**

The following tabledetails the revenues and operating expenses of the Mrs. Fields business unit(in thousands):
|                                      | ** ** | **For the 26 Weeks Ended** | ** ** | ** **       | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|------------------|------------|
| ** **                           | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** | **%** | ** ** |
| ** **                           | ** ** | **2007**                                       | ** ** | **2006**         | ** ** | **Change** | ** ** |
| Mrs. Fields  Gifts                   |       | $                                              | 9,982      |             | $          | 10,065 |   | (0.8 | ) |
| Mrs. Fields  Branded Retail          |       | 9,659                                          |       | 79               |       | NM |   |
| Mrs. Fields  Franchising             |       | 3,699                                          |       | 4,089            |       | (9.5 | ) |
| Mrs. Fields  Licensing               |       | 315                                            |       | 1,067            |       | (70.5 | ) |
| Total Mrs. Fields revenues           |       | 23,655                                         |       | 15,300           |       | 54.6 |   |
| Mrs. Fields  Gifts                   |       | 10,566                                         |       | 12,150           |       | (13.0 | ) |
| Mrs. Fields  Branded Retail          |       | 8,919                                          |       | 58               |       | NM |   |
| Mrs. Fields  Franchising             |       | 1,153                                          |       | 1,162            |       | (0.8 | ) |
| Mrs. Fields  Licensing               |       | (26                                            | )          | 909              |       | NM |   |
|                                 |       |                                           |       |             |       |   |   |
| Total Mrs. Fields operating expenses |       | 20,612                                         |       | 14,279           |       | 44.4 |   |
|                                 |       |                                           |       |             |       |   |   |
| Total Mrs.  Fields contribution      |       | $                                              | 3,043      |             | $          | 1,021 |   | 198.0 |   |

 

***Mrs. Fields Gifts***

*Mrs.Fields Gifts Revenues.* Mrs. Fields Gifts revenues were $10.0 million for the 26 weeks endedJune 30, 2007, a decrease of $100,000 or 0.8 percent from $10.1 million for the26 weeks ended July 1, 2006.  Theserevenues consist of sales through our catalog and website as well asaffiliations with other websites and sales to large corporate accounts.  This decrease in revenues was primarilyattributable to a decrease in catalog driven sales of $1.5 million due todecreased circulation of catalogs.  Thisdecrease in revenues was partially offset by the following sales increasesthrough:

·                  Internetsearch engines revenues of $800,000 due to additional providers­­;

·                  nationalaccounts revenues of $400,000;

·                  partnersand affiliates revenues of $100,000 due to expanded product offerings; and

·                  other revenuesof $100,000.

*Mrs.Fields Gifts Expenses.* Mrs. Fields Gifts expenses were $10.6 million for the 26 weeksended June 30, 2007, a decrease of $1.6 million or 13.0 percent from$12.2 million for the 26 weeks ended July 1, 2006.  This decrease in expenses was primarily dueto the following:

·                  catalogand advertising expenses of $1.2 million due to decreased circulation of ourcatalogs;

·                  compensationand related costs of $200,000 due to the management reorganization thatoccurred in January 2007;

·                  operatingexpenses of $200,000 primarily due to decreased freight expense; and

·                  professionalfees of $100,000 due to projects completed in 2006.

The foregoing decreasesin expenses were partially offset by increases in bonus expense of $100,000 foraccrued bonuses for fiscal year 2007.

***Mrs. Fields Branded Retail***

*Mrs. Fields Branded Retail Revenues. *Mrs. Fields Branded Retail revenues were $9.7million and $79,000 for the 26 weeks ended June 30, 2007 and July 1, 2006,respectively.  This increase is due tothe revenues generated from the sale of Mrs. Fields branded shelf stablecookies.  As previously discussed, wecommenced selling Mrs. Fields branded shelf stable cookies in July 2006directly through retail channels following the termination of certain licenseagreements.

29

----

*Mrs. Fields**Branded Retail Expenses.*  Mrs. Fields Branded Retail expenses $8.9million and $58,000 for the 26 weeks ended June 30, 2007 and July 1, 2006,respectively.  The increase is associatedwith the branded retail activities which commenced in July 2006.

***Mrs. FieldsFranchising***

The following tabledetails the YOY percentage decrease in same store sales:
|             | ** ** | **For the 26 Weeks Ended** | ** ** |
|-------------|------------|------------------------------------------------|------------|
| ** **  | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** **  | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Mrs. Fields |       | (1.8                                           | )          | (1.6 | ) |

 

Our Mrs. Fields concept’sYOY same store sales decrease of 1.8 percent for the 26 weeks ended June30, 2007 was a result of a continued decline in customer counts at thestores partially offset by increases in our average ticket price due topromotional focus on the Big Cookie Cake program and our Breezer smoothieprogram.

*Mrs. Fields**Franchising Revenues. *Mrs. Fields Franchisingrevenues were $3.7 million for the 26 weeks ended June 30, 2007, adecrease of $400,000 or 9.5 percent from $4.1 million for the 26 weeks endedJuly 1, 2006.  This decrease in revenueswas primarily attributable to approximately 800 or 8.1 percent fewer unit weeksand a decrease in same store YOY sales of 1.8 percent.

*Mrs. Fields Franchising Expenses.*  Mrs. Fields Franchising expenses were $1.2million for the 26 weeks ended June 30, 2007 and for the 26 weeks ended July 1,2006.  Total compensation and relatedcosts increased $200,000 primarily due to a newly appointed president as partof the management reorganization that occurred in January 2007 and bonusexpense increased $100,000 for accrued bonuses for fiscal year 2007.  These increases were offset by decreasedcosts of $200,000 related to shared resources for product development,purchasing, training and customer service and a decrease of $100,000 in brandinitiatives.

***Mrs. FieldsLicensing***

*Mrs. Fields Licensing Revenues. *Mrs. Fields Licensing revenues were $300,000 forthe 26 weeks ended June 30, 2007, a decrease of $800,000 or 70.5 percentfrom $1.1 million for the 26 weeks ended July 1, 2006.  This decrease in revenues was due to licensingroyalties earned in 2006 of $400,000 under our terminated licensing agreementfor the sale of Mrs. Fields branded shelf stable cookies and royalties of$400,000 under our terminated licensing agreement for the sale of TCBY frozenfood specialty products through retail channels that were not repeated in 2007.

*Mrs.Fields Licensing Expenses. *Mrs.Fields Licensing expenses were negligible for the 26 weeks ended June 30, 2007,a decrease of $900,000 from $900,000 for the 26 weeks ended July 1, 2006.  This decrease in expenses was primarily dueto the following:

·                  baddebt of $400,000 in fiscal year 2006 related to a terminated license agreement;

·                  legal,advertising and promotion expenses totaling approximately $300,000; and

·                  compensation andrelated costs of $200,000 due to the management reorganization that occurred inJanuary 2007.

30

----

**GAC/Pretzels**

The following tabledetails the YOY percentage increase in same store sales:

 
|                         | ** ** | **For the 26 Weeks Ended** | ** ** |
|-------------------------|------------|------------------------------------------------|------------|
| ** **              | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** **              | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Great American  Cookies |       | 1.4                                            |       | 3.9 |   |
| Pretzel Time            |       | 11.1                                           |       | 5.8 |   |
| Pretzelmaker            |       | 7.0                                            |       | 11.5 |   |
| ** **              | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| Total  GAC/Pretzels     |       | 4.8                                            |       | 5.5 |   |

 

OurGreat American Cookies concept’s YOY same store sales increase of 1.4 percentfor the 26 weeks ended June 30, 2007 was primarily a result of a strongValentine’s Day period, the introduction of cupcakes and a price increase ofapproximately 5.0 percent, which was effective in April 2006.

OurPretzel Time and Pretzelmaker concepts’ YOY same store sales increases of 11.1percent and 7.0 percent, respectively, were primarily a result of the “Freshfor All” campaign, emphasizing fresh pretzels and beverages, an in-store gamesweepstakes aimed at promoting volume and frequency purchases and the continuedfocus on high margin items such as pretzel bites and lemonade.

*GAC/PretzelsRevenues. *GAC/Pretzels revenues were $15.2 million forthe 26 weeks ended June 30, 2007, an increase of $300,000 or 2.0 percentfrom $14.9 million for the 26 weeks ended July 1, 2006.  This increase in revenues was primarilyattributable to increases in sales of products by our Great American Cookiesmanufacturing facility to our franchisees of $200,000 or 2.6 percent and anincrease of $100,000 in royalties and initial franchise fees.  The increase by our Great American Cookiesmanufacturing facility was primarily due to a price increase to our franchiseesof approximately 5.0 percent effective April 2006.

*GAC/Pretzels Expenses. *GAC/Pretzelsexpenses were $7.1 million for the 26 weeks ended June 30, 2007, a decrease of$300,000 or 4.1 percent from $7.4 million for the 26 weeks ended July 1,2006.  This decrease in expenses wasprimarily attributable to the following:

·                  cost of product and operating expenses associated with our GreatAmerican Cookies manufacturing facility of $300,000; and

·                  costsof $100,000 related to shared resources related to product development,purchasing, training and customer service.

These decreases were partially offset by anincrease in bonus expense of $100,000 for accrued bonuses for fiscal year 2007.

**Dairy**

The following tabledetails the YOY percentage decrease in same store sales:
|            | ** ** | **For the 26 Weeks Ended** | ** ** |
|------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **June 30,**                              | ** ** | **July 1,** | ** ** |
| ** ** | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Dairy      |       | (2.4                                           | )          | (0.7 | ) |

 

Our Dairy concept’s YOYsame store sales decreased 2.4 percent for the 26 weeks ended June 30,2007.  The decrease in YOY same storesales is a result of unseasonably cold and wet weather in certain parts of theUnited States.  We have improved our productand menu and we initiated a remodel program for the existing TCBY traditionalstore base which provides an updated, contemporary store décor for consumersand an improved business model for franchisees which we expect will strengthenour YOY same store sales.

31

----

*Dairy Revenues. *Dairy revenues were $5.5 million forthe 26 weeks ended June 30, 2007, a decrease of $1.4 million or 20.1 percentfrom $6.9 million for the 26 weeks ended July 1, 2006.  This decrease in revenues was due todecreases in product formulation revenues generated by purchases of TCBYproducts by franchisees of $900,000 and royalties of $500,000.  These decreases were principally attributableto approximately 2,500 or 15.9 percent fewer unit weeks and a decrease in YOYsame store sales.  We anticipate that ourdairy unit weeks will continue to decline in the near future, at least untilthe rollout of the new store décor and the line of Beriyo smoothie productsinto TCBY stores are completed.

*DairyExpenses.* Dairyexpenses were $3.0 million for the 26 weeks ended June 30, 2007, a decrease of$400,000 or 10.3 percent from $3.4 million for the 26 weeks ended July 1,2006.  This decrease in expenses wasprimarily attributable to the following:

·      compensationand related costs of $500,000 due to the decrease in headcount resulting fromour reorganization;

·      distributioncosts of $400,000 associated with the distribution of our products to our dairyfranchise system resulting from the Blue Line Extension Agreement that ended inMarch 2007;

·      costs of $200,000 related toshared resources related to product development, purchasing, training andcustomer service;

·      severancecost of $100,000 for amounts incurred in 2006;

·      traveland related costs of $100,000; and

·      other franchise developmentand support costs of $200,000.

The foregoing decreasesin expenses were partially offset by the following increases:

·      brandinitiatives of $700,000 to test the Beriyo and Yovana concepts and to preparefor the TCBY new store décor initiative;

·      operatingcosts of $200,000 related to a Yovana test store that we began operating in thefourth quarter of 2006;

·      bonusexpense of $100,000 for accrued bonuses for fiscal year 2007; and

·      bad debt expense of$100,000.

**Other**

*Generaland Administrative Expenses.* General and administrative expenses were $5.0 million for the 26 weeksended June 30, 2007, a decrease of $500,000 or 8.0 percent from $5.5 millionfor the 26 weeks ended July 1, 2006. This decrease in general and administrative expenses was primarilyattributable to the following:

·      compensationand related costs of $600,000 primarily due to the decrease in headcountresulting from our reorganization;

·      severancecosts of $300,000 incurred in 2006;

·      legalexpenses of $100,000; and

·      other general andadministrative expenses of $100,000.

The foregoing decreasesin expenses were partially offset by the following increases:

·      bonusaccrual of $400,000 for accrued bonuses for fiscal year 2007; and

·      professional fees of$200,000.

*Depreciationand Amortization Expense.* Total depreciation and amortization expense was $2.1 million for the 26weeks ended June 30, 2007, a decrease of $300,000 or 13.7 percent from $2.4million for the 26 weeks ended July 1, 2006. Depreciation expense was $1.1 million for the 26 weeks ended June 30,2007, a decrease of $300,000 or 21.6 percent from $1.4 million for the 26 weeksended July 1, 2006.  This decrease wasdue to the following:

·      $400,000attributable to leasehold improvements and equipment associated with a Yovanatest store; and

·      $300,000attributable to leasehold improvements in our old gifting facility.

These decreases indepreciation expense were partially offset by an increase in depreciationexpense of $400,000 associated with the new gifting facility.

Amortizationexpense was $1.0 million for the 26 weeks ended June 30, 2007, a decrease of$100,000 or 3.7 percent from $1.1 million for the 26 weeks ending July 1, 2006.

32

----

**ConsolidatedFinancial Condition**

Total assets atJune 30, 2007 were $108.8 million, a decrease of $13.0 million or10.6 percent from $121.7 million at December 30, 2006.  This decrease in assets was primarilyattributable to the following decreases:

·      cashand cash equivalents of $6.0 million due to the semi-annual interest paymentmade in March 2007;

·      accountsreceivable, net of $3.1 million;

·      propertyand equipment of $1.0 million;

·      trademarksand other intangible assets, net of $1.0 million;

·      deferredtax asset of $700,000;

·      deferredloan costs of $600,000;

·      inventoriesof $400,000; and

·      otherassets of $200,000.

Total liabilities at June30, 2007 were $219.3 million, a decrease of $8.2 million or3.6 percent from $227.5 million at December 30, 2006.  This decrease in liabilities was primarilyattributable to the following decreases:

·      accountspayable of $6.5 million;

·      accruedliabilities of $800,000;

·      deferredrevenues and other liabilities of $600,000; and

·      amountsdue to affiliates of $300,000.

***Consolidated Cash Flows for the 26 Weeks Ended June 30, 2007Compared to July 1, 2006***

Net cash flowsused in operating activities were $6.1 million for the 26 weeks ended June 30,2007, a decrease in cash used of $1.6 million from net cash flows used inoperating activities of $7.7 million for the 26 weeks ended July 1, 2006.  This decrease in cash used in operatingactivities was principally due to an increase in contribution by our operatingsegments of $1.6 million and a decrease in general and administrative expensesof $400,000 partially offset by an increase in cash used for working capitalassets and liabilities of $400,000.

Net cash flowsprovided by investing activities were $200,000 for the 26 weeks ended June 30,2007, an increase in cash provided of $1.9 million from cash used in investingactivities of $1.7 million for the 26 weeks ended July 1, 2006.  This increase in cash from investingactivities was attributable to the non-recurrence of the purchase of propertyand equipment of $1.7 million principally associated with our new giftsfacility and from proceeds from the sale of land of $300,000 that occurred in2007.  These changes were partiallyoffset by proceeds from the sale of non-marketable securities of $100,000 thatoccurred in 2006.

Net cash flowsused in financing activities were negligible for the 26 weeks ended June 30,2007 and for the 26 weeks ended July 1, 2006 and relate to principal paymentson capital leases.

###### **Liquidityand Capital Resources**

Our principal sources of liquidity are cash on handand cash flows generated from operations. At June 30, 2007, we had $10.0 million of cash on hand.  We expect that our principal uses of cashwill be for working capital, capital expenditures and semi-annual interestpayments of $10.3 million on our 9 percent senior secured notes and our 111⁄2percent senior secured notes (together, the “Senior Secured Notes”), of which$10.3 million will be due on September 15, 2007 and March 15, 2008.  In addition, to the extent we have cashavailable and it is permitted by the indenture governing the Senior SecuredNotes, we may pay dividends to our parent companies for uses such asacquisitions, debt repayments and dividends. We do not expect to be required, but we may offer, to repurchase aportion of the Senior Secured Notes as described below.

33

----

We are highly leveraged.  At June 30, 2007, we had $195.7 million of long-termdebt represented by the Senior Secured Notes. The Senior Secured Notes mature on March 15, 2011, with interestpayable semi-annually on March 15 and September 15.  Due to borrowing restrictions under theindenture governing the Senior Secured Notes, our ability to obtain additionaldebt financing is significantly limited. The Senior Secured Notes require us to offer to repurchase a portion ofthe notes at 100 percent of the principal amount, plus accrued and unpaidinterest thereon to the date of purchase, with 50 percent of our “excesscash flow,” as defined in the indenture agreement, when the ratio of our netindebtedness to consolidated EBITDA is above 3.75 to 1.0 and the cumulativeunpaid excess cash flow offer amount exceeds $10.0 million.  We do not anticipate that our “excess cashflow” will exceed the levels that would require us to offer to repurchase aportion of the notes described above.

Webelieve, based on historical results and current projections, and ourmanagement reorganization and control of operating expenses, that the cashcurrently on hand and expected cash flows from future operations will besufficient to continue operations for at least the next 12 months.  We are also exploring potential equitycontributions, permissible loans and other financing as additional sources ofcash.  Failure to achieve the anticipatedbenefit from our management reorganization may result in our inability to continueoperations in our current state and would have a material adverse effect on ouroperations.  Accordingly, there can be noassurance that actual results will meet or exceed our projections or that ourfuture operating activities will generate sufficient cash to meet our cashrequirements for the next 12 months. *** ***(Alsosee Note 16 regarding the sale of our Pretzel business.  We have not yet determined how the saleproceeds will be utilized.  The indenturegoverning the Senior Secured Notes contains restrictions on how such proceedsmay be used, but under certain conditions, allows us to utilize these proceedsto invest in the business, without the obligation to retire an equal amount ofdebt.)

**Inflation**

The impact of inflation on our business has not beensignificant in recent years.  Some of ouremployees are paid hourly wages at the federal minimum wage level.  Minimum wage increases will negatively impactour payroll costs in the short term, but management believes such impact can beoffset in the long term through lower staffing of operations and, if necessary,through product price increases.

**Seasonality**

Oursales and contribution from franchisees’ store operations are highly seasonal,but our various brands experience counteracting seasonal effects.  Our Mrs. Fields, Great American Cookies,Pretzel Time and Pretzelmaker stores, primarily located in malls, tend tomirror customer traffic flow trends in malls, which increase significantlyduring the fourth quarter, primarily between Thanksgiving and the end of thecalendar year.  Holiday gift purchasesalso are a significant factor in increased sales in the fourth quarter.  However, Dairy stores experience theirstrongest sales periods during the warmer months from late Spring through earlyFall, which helps to balance the impact of seasonality on our operations.  The combined revenues for each quarter of theMrs. Fields Franchising, GAC/Pretzels and Dairy operating segments as apercentage of total combined revenues for the fiscal year ended December 30,2006 were 23.3 percent for the first quarter, 25.6 percent for the secondquarter, 25.2 percent for the third quarter and 25.9 percent for the fourthquarter.

Oursales and contribution from our Mrs. Fields Gifts operating segment are highlyseasonal primarily due to holiday gift purchases that increase sales in thefourth quarter.  Sales in the fourthquarter of fiscal 2006 were $16.7 million, which represents 54.5 percent oftotal sales of the gifts segment for the year ended December 30, 2006.

**Critical Accounting Policies**

The preparation of financialstatements requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities, disclosure of contingent assets andliabilities and the reported amounts of revenues and expenses in ourconsolidated financial statements. Management has reviewed with our Audit Committee the accounting policiesthat we use to prepare our consolidated financial statements and believes thatthe following policies are the most important to the portrayal of our financialcondition and the results of our operations while requiring the use ofjudgments and estimates about the effects of matters that are inherentlyuncertain.

34

----

*Revenue Recognition*.  We recognize revenues from our initialfranchising fees and licensing fees when all material services or conditionsrelating to the franchising or licensing have been substantially performed orsatisfied, which is generally upon the opening of a store by a franchisee orlicensee.  Franchise and license royalties,which are based on a percentage of gross store sales, are recognized as earned,which is generally upon sale of product by franchisees or licensees.  Minimum royalty payments under certainlicensing agreements are deferred and recognized on a straight-line basis overthe term of the agreement.  Revenues fromthe sale of cookie dough that we produce and sell to certain franchisees arerecognized at the time of shipment and classified in franchising revenues.  Revenues, net of sales discounts and allowances,from the sale of branded retail products such as cookie dough and shelf stablecookies to grocery stores and wholesale clubs are recognized upon delivery andincluded in branded retail revenues. Revenues, net of state and local sales tax, from gift sales arerecognized at the time of shipment.

We receive cash payments for product formulation feesand allowances from suppliers based on the amount of product purchased directlyby our distributors and franchisees. These product formulation fees and allowances include cash payments tous for the right to use our proprietary formulations and recipes to manufacturethe frozen dough, dough mixes and TCBY products these suppliers sell to ourfranchisees.  Formulation fees andallowances are recorded as franchising revenues upon shipment of product to ourdistributors or franchisees.  Included infranchising revenues in each of operating segments for such formulation feesand allowances are as follows:  
|              | ** ** | **For the 13 Weeks Ended** | ** ** | **For the 26 Weeks Ended** | ** ** |
|--------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **   | ** ** | **June 30,**                              | ** ** | **July 1,**                               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **   | ** ** | **2007**                                       | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Mrs. Fields  |       | $                                              | 472        |                                           | $          | 464 |   | $ | 888 |   | $ | 958 |   |
| GAC/Pretzels |       | 302                                            |       | 283                                            |       | 601 |   | 599 |   |
| Dairy        |       | 2,111                                          |       | 2,715                                          |       | 3,639 |   | 4,569 |   |
|         |       | $                                              | 2,885      |                                           | $          | 3,462 |   | $ | 5,128 |   | $ | 6,126 |   |

 

*Impairment of Goodwill.*  Goodwill is not amortized, but is subject toan annual assessment for impairment, or more frequently if circumstancesindicate potential impairment, through a comparison of fair value to itscarrying amount.  The two-step approachto assess our goodwill impairment requires that we first compare the estimatedfair value of each reporting unit with goodwill to the carrying amount of thereporting unit’s assets and liabilities, including its goodwill.  If the fair value of the reporting unit is belowits carrying amount, then the second step of the impairment test is performed,in which the current fair value of the reporting unit’s assets and liabilitieswill determine the current implied fair value of the reporting unit’s goodwill.

Onan annual basis (in the fourth quarter), or more frequently if circumstancesindicate potential impairment, we perform an assessment for impairment of ourgoodwill associated with each of our reporting units, by comparing eachreporting unit’s fair value with its carrying value.  The estimated fair value of goodwill isaffected by, among other things, operating results, our business plan for thefuture, estimated results of future operations and the comparable companies andtransactions that are used to estimate the fair value of our goodwill.  To the extent that the carrying value of areporting unit exceeds its fair value, goodwill is written down to its impliedfair value.  Changes in our business planor operating results that are different than the projections used to developthe reporting unit’s fair value may have an impact on the valuation ofgoodwill.

Inconducting our impairment analyses, we perform analyses and tests of ourgoodwill with respect to our reporting units. The test methods employed involve assumptions concerning useful lives ofintangible assets, interest and discount rates, projections and otherassumptions of future business conditions. The assumptions employed are based on management’s judgment usinginternal and external data.

*Impairment of Long-lived and Certain IdentifiableIntangible Assets.* Wereview our long-lived assets for impairment when circumstances indicate thatthe carrying value of an asset may not be fully recovered by the undiscountednet cash flow generated over the remaining life of the related asset or groupof assets.  If the cash flows generatedby the asset are not sufficient to recover the remaining carrying value of theasset, we are required to write down the value of the asset to its estimatedfair value.  In evaluating whether theasset will generate sufficient cash flow to recover its carrying value, weestimate the amount of cash flow that will be generated by the asset and theremaining life of the asset.  In makingour estimate, we consider the performance trends related to the asset, thelikelihood that the trends will continue or change, at the asset grouping levelfor which there are identifiable independent cash flows.

35

----

*Allowance for Doubtful Accounts.*  We sell products to and receive royaltiesfrom our franchisees and sell products to other customers.  Sometimes these franchisees and customers areunable or unwilling to pay for the products that they receive or royalties thatthey owe.  Factors that affect ourability to collect amounts that are due to us include the financial strength ofa franchisee or customer and its operations, the economic strength of the mallwhere the franchisee is located and the overall strength of the retaileconomy.  We are required to establish anestimated allowance for the amounts included in accounts receivable that wewill not be able to collect in the future. To establish this allowance, we evaluate the customer’s or franchisee’sfinancial strength, payment history, reported sales and the availability ofcollateral to offset potential losses. If the assumptions that are used to determine the allowance for doubtfulaccounts change, we may have to provide for a greater level of expense infuture periods or reverse amounts provided in prior periods.

*Deferred Income Tax Assets. *Deferred income tax assetsare assessed for recoverability and valuation allowances are provided asnecessary to reduce deferred income tax assets to amounts expected to berealized.  Should expectations of taxableincome change in future periods, it may become necessary to change thevaluation allowance, which could affect our results of operations in the periodsuch determination is made.  We record anincome tax provision or benefit at a rate that is based on expected results forthe fiscal year.  If future changes inmarket conditions cause actual results to be more or less favorable,adjustments to the effective income tax rate on a quarterly basis could berequired.

*Inventories.*  In assessing the realizability ofinventories, we make judgments as to future demand requirements and productexpiration dates.  The inventoryrequirements change based on projected customer demand, which changes due tofluctuations in market conditions and product life cycles.

*Legal and Regulatory.*  We record liabilities for legal andregulatory matters when the contingency is both probable and reasonablyestimable.  We are involved in severallegal and regulatory matters.  Afterconsultation with legal counsel, we believe that the ultimate dispositions ofthese matters will not have a material negative impact on our financialposition, liquidity or results of operations. However, there can be no assurance that we will be successful in ourefforts to satisfactorily resolve these matters and the ultimate outcome couldresult in a material negative impact on our financial position, liquidity orresults of operations.

**AccountingPronouncements Not Yet Adopted**

In February 2007, the FASB issued SFAS No. 159, (“SFAS159”), “The Fair Value Option for Financial Assets and Financial Liabilities—Includingan Amendment of FASB Statement No. 115”. SFAS 159 expands the use of fair value accounting but does not affectexisting standards which require assets or liabilities to be carried at fairvalue.  SFAS 159 gives a company theirrevocable option to carry most financial assets and liabilities at fairvalue, with changes in fair value recognized in earnings.  SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007 and is required to be adopted by us inthe first quarter of 2008.  We arecurrently determining whether fair value accounting is appropriate for any of oureligible items and cannot currently estimate the impact, if any, which SFAS 159will have on our consolidated results of operation and financial condition.

In September 2006, the FASB issued SFAS No. 157 (“SFAS157”), “Fair Value Measurements,” to define fair value, establish a frameworkfor measuring fair value in generally accepted accounting principles and expanddisclosures about fair value measurements, but does not change existingguidance as to whether or not an instrument is carried at fair value.  SFAS 157 is effective for fiscal yearsbeginning after November 15, 2007 and interim periods within those fiscalyears.  We are currently evaluating theeffect, if any, that the adoption of SFAS 157 will have on our consolidatedfinancial position and results of operations.

# **Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

There have been no significant changes in market riskssince the end of our fiscal year ended December 30, 2006.  For more information, please read Item 7A andthe consolidated financial statements and notes thereto contained in our AnnualReport.

36

----

# **Item 4.  Controls and Procedures**

Management, withthe participation of our Chief Executive Officer (the “CEO”) and ChiefFinancial Officer (the “CFO”), evaluated the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by thisreport.  Based on that evaluation, theCEO and the CFO concluded that our disclosure controls and procedures, as ofthe end of the period covered by this report, are functioning effectively toprovide reasonable assurance that the information required to be disclosed byus in our reports filed under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms.  A controls system, nomatter how well designed and operated, cannot provide absolute assurance thatthe objectives of the controls system are met, and no evaluation of controlscan provide absolute assurance that all control issues and instances of fraud,if any, within a company have been detected.

There has been nochange in our internal control over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) thatoccurred during our fiscal quarter ended June 30, 2007, that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

37

----

**PART II –OTHER INFORMATION**

# **Item 1.  Legal Proceedings**

We and ourproducts are subject to regulation by numerous governmental authorities,including, without limitation, federal, state and local laws and regulationsgoverning franchising, health, sanitation, environmental protection, safety andhiring and employment practices.

In the ordinarycourse of business, we are involved in routine litigation, including franchisedisputes and trademark disputes.  We arenot a party to any legal proceedings that, in the opinion of management, afterconsultation with legal counsel, is material to its business, financialcondition or results of operations.

**Item1A.  Risk Factors**

Thefollowing risk factors, among others, could cause our financial performance todiffer significantly from the goals, plans, objectives, intentions andexpectations expressed in this report. If any of the following risks and uncertainties or other risks anduncertainties not currently known to us or not currently considered to bematerial actually occur, our business, financial condition or operating resultscould be harmed substantially.

***Risks Related to Our Business***

*Theresults of operations of our business in the future will depend upon whether weare able to successfully implement our business strategy, the implementation ofwhich depends on factors that are beyond our control.*

Webelieve that the implementation of our business strategy is key to enabling usto grow our revenues and profitability and, ultimately, our futuresuccess.  Our business strategy isfocused on the growth of each of our brands by increasing the number of retailunits and profitable sales.

*Fromtime to time, we may be restricted from selling our franchises.*

Thesale of franchises is regulated by various state laws as well as by the FederalTrade Commission.  The Federal TradeCommission requires that franchisors make extensive disclosure in a uniformfranchise prospectus to prospective franchisees but does not requireregistration.  However, a number ofstates require annual registration of the uniform franchise prospectus withstate authorities or other disclosure in connection with franchise offers andsales.  In addition, several states have “franchiserelationship laws” or “business opportunity laws” that limit the ability of thefranchisors to terminate agreements or to withhold consent to renewal ortransfer of these agreements.

Thereare certain events that require us to make certain disclosure to stateauthorities.  Further, renewal of uniformfranchise offering circular registrations are required in several states withina certain period of time following our fiscal year end.  From time to time in the future, there willbe periods of time after certain events or in connection with registrationrenewal during which we may be prohibited from selling our franchises incertain states.  Without limiting theforegoing, our financial condition requires us to defer collection of certainfees in some states until the store opens, and in Virginia, prohibits us fromoffering new franchises for sale.  If weare unable to sell our franchises for an extended period of time in certainstates, our business operations or financial condition could be adverselyaffected.

*Ourability to attract new franchisees, retain existing franchisees,and locate and procure favorable store locations iscritical to the success of our business.*

Wecompete with a broad segment of other business opportunities and franchisecompanies for franchisees.  There is also aggressive competition frommany sources for favorable sites for new stores, both within and outsidethe mall environment.  Many of our competitors have greaterresources or more favorable business models than ours with which toattract new investors and procure sites.  If we are unable to attractnew or existing franchisees to purchase new franchises, or represent acompetitive opportunity for leaseholders, it will limit our abilityto develop new franchised locations.

38

----

*Adecline in mall traffic could cause our bakery brand franchise income todecrease materially.*

Webelieve that the amount and proximity of pedestrian traffic near our bakerybrand stores strongly influence sales of our products, which we believe arefrequently impulse purchases.  In recentyears, we believe visits to major shopping malls, where at June 30, 2007 themajority of our bakery franchisees’ stores are located, have experiencedperiods of decline.  This trend has had anegative impact on our revenues.  Wecannot be sure that this trend will not continue or that this trend can beoffset by increased sales per customer. A prolonged decline in mall traffic could adversely affect our financialcondition and results of operations.

*We have experienced a number offranchise store closures since 2004.  Ifthis trend continues, our financial position and results of operations could beadversely affected.*

Since the end offiscal 2004, 29 retail concept locations were closed by MFOC and 873 retailconcept locations were closed by other franchisees.  These closures represent 33.6 percent of thetotal number of stores open at the beginning of fiscal 2005.  In comparison, 324 retail concept locationshave opened since the end of fiscal 2004. Since the end of fiscal 2004, the number of Great American Cookies brandlocations has increased by 1.4 percent, the number of Mrs. Fields brandlocations has decreased by 12.9 percent, the number of TCBY brandtraditional locations has decreased by 26.4 percent, the number of TCBYbrand non-traditional locations has decreased by 33.6 percent, the numberof Pretzel Time brand locations has decreased by 16.3 percent and the number ofPretzelmaker brand locations has decreased by 9.5 percent.  Additional store closures could occur in thefuture and we may be unable to successfully open additional new stores in thefuture.  If this trend continues, ourfinancial condition and results of operations may be adversely affected.

*Webelieve our brand identity is critical to the success of our business.  If we are unable to use any of our trademarksor to protect our trade secrets, our sales and our results of operations willbe adversely affected.*

Webelieve that our trademarks have significant value and are important to themarketing of our retail outlets and products and the operations of ourfranchisees’ stores, gifts segment and licensing strategy.  Most of our trademarks are federallyregistered before the United States Patent and Trademark Office and registeredor pending in many foreign countries. However, we cannot be sure that our trademarks cannot be circumvented orthat our trademarks do not or will not violate the proprietary rights ofothers.  If a challenge to one of ourtrademarks is successful, we could be prevented from continuing to use thattrademark.  A negative ruling concerningour use or the validity or enforceability of one of our trademarks wouldadversely affect our sales of the related products and our operatingresults.  In addition, we cannot be surethat we will have the financial resources necessary to police the use of ourtrademarks by our franchisees and licensees or enforce or defend ourtrademarks, which could result in incorrect or unauthorized use of ourtrademarks.  Moreover, we may not be ableto use or register our existing trademarks abroad due to the application offoreign laws, which would force us to adopt new trademarks for use in thosejurisdictions that initially will not be as recognizable as our existingmarks.  Despite our efforts to protectour trade secrets, unauthorized parties may attempt to obtain and use informationregarding our proprietary recipes and our means of protecting our trade secretrights may not be adequate.  Theoccurrence of any of these factors could diminish the value of our trademarkportfolio or trade secrets and negatively impact our sales, business operationsand strategies.

*Wedepend heavily on our suppliers and distributors.*

Wedepend on several primary suppliers, including Countryside and Oak State, whichsupply products for our Mrs. Fields franchise system and branded retailbusiness.  We also depend on two mainsuppliers for production of our TCBY branded yogurt products under two SupplyAgreements with Scott Brothers and Yarnell.

Wealso depend on our primary distributors for distribution of perishable andnon-perishable items to our franchisees. We have supply agreements with eight regional distributors who willprovide service to our TCBY franchisees throughout the United States.  The distribution costs to most of ourfranchisees have not substantially increased under the new regional agreements.

39

----

Our reliance onour suppliers and distributors, particularly newly-established ones, subjectsus to a number of risks, including possible delays or interruptions insupplies, diminished control over quality and a potential lack of adequate rawmaterial capacity.  Any disruption in thesupply of or degradation in the quality of the raw materials provided by oursuppliers could have a material adverse effect on our business, operatingresults and financial condition.  Inaddition, such disruptions in supply or degradations in quality could have along-term detrimental impact on our efforts to develop a strong brand identityand a loyal consumer base.  If anysupplier or distributor fails to perform as anticipated, or if there is atermination or any disruption in any of these relationships for any reason, itcould have a material adverse effect on our results of operations.

*Ourinformation systems are an integral part of our gifts segment.  Systems disruptions and failures could causeour customers to become dissatisfied with us and may impair our business.*

Ourability to maintain our website, network system and telecommunicationsequipment in working order and to reasonably protect them from interruption iscritical to the success of our gifts business segment.  Our website must accommodate regular traffic,deliver information and complete transactions. Our customers, advertisers and business alliances may become dissatisfiedby any systems failure that interrupts our ability to provide our products andservices to them.

*Webelieve that our relationship with our franchisees and retail licensees iscritical to the success of our business. If these franchise and retail license agreements were to be terminatedor if we are unable to maintain these relationships, our sales and our resultsof operations would be adversely affected.*

Fifteenof our franchisees or licensees own ten or more retail concept locations.  In total, these franchisees own 270 retailconcept locations and contributed approximately $1.2 million or 4.8percent of our franchise revenues for the quarter ended June 30, 2007.  For the same period, franchise revenues madeup 55.0 percent of our total revenues. The termination of these key franchise or retail license agreements orlower than anticipated sales may have an adverse affect on our financialcondition and results of operations.  Wecannot be sure that our relations with franchisees and licensees will notchange or that our licensees will continue to perform as they have in the past,which could result in franchise or license agreements being terminated by us orby our franchisees or licensees.

Generally,we believe our relationship with our franchisees and our licensees is acritical component in the success of our business.  As an example, as required by state andfederal franchise disclosure rules, we must provide all prospective franchiseeswith the name and contact information for each of the concept’s existingfranchisees.  Prospects often contactexisting franchisees as part of their due diligence before making a franchisepurchase decision.  If our relationshipwith existing franchisees is strained, it may slow or suspend franchisedevelopment with new franchisees, as well as curtail additional developmentwith existing franchisees.  Strainedrelationships with existing franchisees can also contribute to additional oraccelerated closure of existing stores, particularly upon transfer orexpiration of franchise agreements and leases.

*Wemay be harmed by actions taken by our franchisees or licensees that are beyondour control.*

Ourfranchisees and licensees generally are independent contractors and are not ouremployees.  We require our franchiseesand licensees to adhere to strict production, display, storage and marketing specificationsand procedures and we provide training and support to franchisees, but thequality of franchised store operations or licensed products may be diminishedby any number of factors beyond our control. Consequently, franchisees may not operate stores or licensees may notproduce or market licensed products in a manner consistent with our standardsand requirements, or may not hire and train qualified managers and other storepersonnel.  If they do not, our image,reputation and brand may suffer and our franchise and license revenues as wellas our ability to attract prospective franchisees may be adversely affected.

40

----

*Weare vulnerable to fluctuations in the cost, availability and quality of ouringredients.*

Thecost, availability and quality of the ingredients we use to prepare ourproducts at the Great American Cookies manufacturing facility and in our giftsoperations are subject to a range of factors, many of which are beyond ourcontrol.  Fluctuations in economic andpolitical conditions, weather and demand could adversely affect the costs ofour ingredients.  We have no control overfluctuations in the price of commodities and we may not be able to pass throughany cost increases to our customers.  Weare dependent on frequent deliveries of fresh ingredients, thereby subjectingus to the risk of shortages or interruptions in supply.  All of these factors could cause adversemarket conditions which could adversely affect our financial results.

*Ourbranded retail business is in its start-up phase and we are only beginning toestablish relationships with brokers, vendors and customers.*

Thesale of snack products to grocery, club stores and similar distributionchannels is highly competitive and subject to ongoing expenses related toslotting fees, advertising credits and discounts*. *Similarly, the business relies onrelationships with vendors, brokers and customers.  Since we commenced this business veryrecently (in July 2006), there can be no certainty that we will successfully maintain the level of business orrelationships established by Shadewell, who operated a similar business under alicense agreement with us.  As with anynew business, we may be unable to predict with any certainty the costsassociated with operating the branded retail group or the revenues we expect togenerate.  We do not believe that theincome for this new business will immediately replace or exceed the royaltiesthat may have been generated by the terminated license agreements.

*Ifwe lose key management personnel, we may have difficulty in implementing thebusiness strategy that current management has developed and may fail to achieveexpected profits as a result.*

Oursuccess depends on the continued services of our senior management,particularly Stephen Russo, our President and Chief Executive Officer.  In addition, our continued growth depends, inpart, on attracting and retaining skilled managers and employees as well asmanagement’s ability to utilize effectively our key personnel.  If Stephen Russo or any other senior managementpersonnel leaves us, we mayhave difficulty in implementing the business strategy they have developed andmay fail to achieve expected profits as a result.  We cannot be sure that management’s effortsto integrate, utilize, attract and retain personnel will be successful.

*Ourfailure to respond to demographic trends, changes in consumer preferences andother factors and our failure to implement new marketing strategies could havea material adverse effect on our results of operations.*

Thespecialty and snack food industry is affected by changes in consumerpreferences, tastes and eating habits, local, regional, national andinternational economic conditions, demographic trends and mall trafficpatterns.  A number of factors, includingincreased food, labor and benefits costs, the availability of experiencedmanagement and hourly employees and difficulties or delays in developing andintroducing new products to suit consumer preferences, may adversely affect thespecialty retail industry in general and our franchise outlets inparticular.  Our failure to anticipate,identify and respond to changing consumer preferences and economic conditionsand the failure of our customers to respond favorably to our marketing or newproducts could have a material adverse effect on our results of operations.

Asan example, we believe our TCBY brand has struggled to stay relevant anddifferentiated from its competitors.  Webelieve it is important to the brand’s growth to reposition it in a way thatcapitalizes on yogurt’s current popularity and revitalize it through new storedesign and venues.  We are in the processof exploring ways to accomplish this repositioning and revitalization,including the testing of our Yovana concept, Beriyo products and new storedesign.  However, we do not know howsuccessful we will be in developing or implementing this plan or the extent towhich the capital investment required to implement such a reconcepting planwill be available when needed.  If we areunable to successfully implement this or any other aspect of our businessstrategy, our business operations and our financial condition could beadversely affected.

41

----

*Thereis intense competition in the specialty food retailers industry.*

Thespecialty retail food and snack food industry is highly competitive withrespect to price, service, location and food quality and within the industry wecompete with cookie, pretzel, frozen yogurt and ice cream retailers, as well asother confectionary, sweet snack and specialty foods retailers, many of whichhave greater resources than we do. Consequently, we cannot be certain that we can compete successfully withthese other food retailers.

Inaddition to the risks we face from current competitors, we cannot be certainthat we can successfully compete with any new entrants into the specialtyretail food and snack food industry who may introduce new and successfulproducts or marketing.  Our inability tocompete adequately would have a material adverse effect on our results ofoperations.

*Adversepublicity, particularly about health concerns, could reduce our sales andadversely affect results of operations.*

Ourability to compete depends in part on maintaining our reputation withconsumers.  We could be adverselyaffected by publicity resulting from food quality, illness, injury or otherhealth concerns, including food borne illness claims or operating issuesstemming from one store, a limited number of stores or even a competitor’sstore.  In addition, we use ingredientsin several of our products, such as nuts, to which some people may haveallergies, and butter and cream, which are high in fat.  There may be adverse publicity about thehealth risks relating to these or other ingredients.  Adverse publicity about these factors couldreduce sales of our products and adversely affect results of operations.

*Ourinternational operations are exposed to various risks that could have amaterial adverse effect on our results of operations and financial condition.*

Wehave franchised and licensed retail stores in numerous foreign countries.  While most of our operations are in theUnited States, through our franchised retail store locations and our brandedretail activities, we also have operations in numerous other regions, includingoperations in Canada, Mexico, Australia, South America, the Caribbean, theMiddle East and Asia, representing approximately 3.7 percent of our totalrevenue during fiscal 2006.  We expect toexpand into additional regions in the future. Our international operations are subject to many additional risks,including:

·      theburden of complying with multiple and possibly conflicting laws and anyunexpected changes in regulatory requirements;

·      importand export restrictions and tariffs;

·      additionalexpenses relating to the difficulties and costs of staffing and managinginternational operations;

·      litigationin foreign jurisdictions;

·      potentiallyadverse tax consequences;

·      increasedcompetition as a result of subsidies to local companies;

·      politicalinstability or war;

·      culturaldifferences;

·      theimpact of business cycles and economic instability; and

·      increasedexpense as a result of inflation.

Anyone of these factors could have a material adverse affect on our sales ofproducts or services to our international customers and curtail our expansionstrategy.

42

----

*Governmentregulation of our business could adversely affect the results of ouroperations.*

Numerousgovernmental authorities have issued regulations that apply to us and ourfranchisees’ stores, including, without limitation, federal, state and locallaws and regulations governing health, sanitation, environmental protection,safety, hiring and employment practices, including laws, such as the Fair LaborStandards Act, governing such matters as minimum wages, overtime and otherworking conditions.  The FDA administersregulations that apply to our products. If we fail to obtain or retain the required food licenses or to complywith applicable governmental regulations or if there is any increase inemployee benefit costs or other costs associated with employees, our costscould increase as we attempt to comply with regulations.  Our revenues could decrease if we or oursuppliers are unable to manufacture or if our franchisees or licensees areunable to sell products in locations in which we do not have requiredlicenses.  Our products, themanufacturers and their manufacturing facilities are also subject to periodicinspection.  Discovery of problems mayreduce our results of operations because of costs of compliance or inability tomanufacture or sell products for failure to comply with regulations.

Inaddition, the sale of franchises is regulated by various state laws as well asby the Federal Trade Commission.  TheFederal Trade Commission requires that franchisors make extensive disclosure ina Uniform Franchise prospectus to prospective franchisees but does not requireregistration.  However, a number ofstates require registration of the Uniform Franchise prospectus with stateauthorities or other disclosure in connection with franchise offers andsales.  In addition, several states have “franchiserelationship laws” or “business opportunity laws” that limit the ability of thefranchisors to terminate agreements or to withhold consent to renewal ortransfer of these agreements.  While webelieve that we are in compliance with existing regulations in thejurisdictions where we currently offer franchises, we cannot predict the effectof any future legislation or regulation on our business operations or financialcondition.  Additionally, bills haveoccasionally been introduced in Congress which would provide for federalregulation of aspects of franchisor-franchisee relationships.  We cannot predict what effect thoseregulations could have on our business.

*Any interruption in funding sourcesused by franchisees to purchase and develop our franchises could adverselyimpact our ability to market franchises.*

Manyof our franchisees must obtain loans to purchase and develop ourfranchises.  One significant source ofthis funding is the U.S. Small Business Administration (“SBA”).  Any suspension of funding or delays inapproval of the SBA’s funding budget will affect our franchisees’ ability toobtain funding from this significant source and adversely impact our ability tomarket franchises.

*Litigation,including product liability litigation, could reduce our results of operationsor increase our losses because of the cost of paying on successful claims andwe may not be able to continue to obtain adequate insurance.*

Weare involved in routine litigation in the ordinary course of business,including franchise disputes.  Althoughwe have not been significantly adversely affected in the past by litigation,there can be no assurance as to the effect of any future disputes.

Althoughwe currently are not subject to any product liability litigation, we couldexperience product liability litigation in the future involving ourproducts.  Our quality control program isdesigned to maintain high standards for the food and materials and foodpreparation procedures used by franchised stores.  Products are periodically inspected by ourpersonnel at both the point of sale locations and the manufacturing facilitiesto ensure that they conform to our standards. In addition to insurance held by our suppliers, we maintain insurancerelating to personal injury and product liability in amounts that we consideradequate for the retail food industry. While we have been able to obtain insurance in the past, there can be noassurance that we will be able to maintain these insurance policies in thefuture.  Consequently, any successfulclaim against us, in an amount materially exceeding our coverage, couldadversely affect our operating results.

43

----

*Quarterlyfluctuations and seasonality.*

Ouroperating results are subject to quarterly and seasonal fluctuations.  Our sales and income from franchisees’ storeoperations are seasonal given the significant impact of the high number of mallbased locations.  At these locations,sales tend to mirror customer traffic flow trends in malls, which increasesignificantly during the fourth quarter, primarily between Thanksgiving and theend of the calendar year.  Holiday giftpurchases also are a significant factor in increased sales in the fourthquarter.  However, our TCBY franchisedstores tend to have their strongest sales periods during the warmer months fromlate Spring through early Fall, which helps to balance the impact ofseasonality on our operations.  Inaddition, by marketing our cookie brands around holidays that occur in lateWinter and early Spring, such as Valentine’s Day and Easter as well as holidaysin the late Fall, such as Halloween, we hope to continue to decrease the impactof seasonality on our cash flow. However, we may not be successful in decreasing the impact ofseasonality on our cash flow.  If we areunable to manage seasonal fluctuations of cash flow, our financial conditionand results of operations may be adversely affected.

***Risks Related to Our SubstantialIndebtedness***

*Oursubstantial level of indebtedness could adversely affect our financialcondition and prevent us from fulfilling our obligations under our SeniorSecured Notes.*

We have substantialindebtedness represented by our Senior Secured Notes.  In addition, subject to restrictions in theIndenture governing the Senior Secured Notes, we may incur additionalindebtedness.

Our high level of indebtedness could have importantconsequences, including the following:

·      ourability to obtain additional financing for working capital, capitalexpenditures, acquisitions or general corporate purposes may be limited;

·      wemust use a substantial portion of our cash flow from operations to pay interestand required principal on the Senior Secured Notes and, to the extent incurred,our other indebtedness, which will reduce the funds available to us foroperations and other purposes;

·      ourhigh level of indebtedness could place us at a competitive disadvantagecompared to our competitors that may have proportionately less debt;

·      ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate may be limited; and

·      ourhigh level of indebtedness makes us more vulnerable to economic downturns andadverse developments in our business.

Weexpect to obtain the money to pay our expenses and to pay the amounts due underthe Senior Secured Notes and our other debt primarily from our operations.  Our ability to meet our expenses and makethese payments thus depends on our future performance, which will be affectedby financial, business, economic and other factors, many of which we cannotcontrol.  Our available cash hasdecreased since 2004 and our business may not generate sufficient cash flowfrom operations in the future and our currently anticipated growth in revenueand cash flow may not be realized, either or both of which could result in ourbeing unable to repay indebtedness, including the Senior Secured Notes or tofund other liquidity needs.  If we do nothave enough money, we may be required to attempt to refinance all or part ofour then existing debt (including the Senior Secured Notes), sell assets orborrow more money.  However, we may notbe able to accomplish any of these alternatives on terms acceptable to us, orat all.  In addition, the terms ofexisting or future debt agreements, including the Indenture, may restrict usfrom adopting any of these alternatives. The failure to generate sufficient cash flow or to achieve any of thesealternatives could have a material adverse effect on our business and ourability to pay the amounts due under the Senior Secured Notes.

44

----

*TheIndenture imposes significant operating and financial restrictions, which mayprevent us from pursuing certain business opportunities and taking certainactions.*

The Indentureimposes significant operating and financial restrictions on us.  These restrictions limit, among other things,our ability to:

·      incuradditional indebtedness;

·      repaysubordinated indebtedness prior to stated maturities;

·      paydividends on or redeem or repurchase our stock;

·      issuecapital stock;

·      makeinvestments;

·      createliens;

·      sellcertain assets or merge with or into other companies;

·      enterinto certain transactions with stockholders and affiliates;

·      sellstock in our subsidiaries;

·      restrictdividends, distributions or other payments from our subsidiaries; and

·      otherwiseconduct necessary corporate activities.

Tothe extent that we wish to conduct these restricted activities, we must do soin strict accordance with the provisions of the Indenture.  These restrictions could adversely affect ourability to finance our future operations or capital needs and pursue availablebusiness opportunities.  A breach of anyof these restrictions could result in a default in respect of the relatedindebtedness.  If a default occurs, therelevant lenders could elect to declare the indebtedness, together with accruedinterest and fees, to be immediately due and payable and proceed against anycollateral securing that indebtedness, which includes substantially all of ourassets.  Acceleration of our otherindebtedness could result in a default under the terms of the Indenture and ourassets may not be sufficient to satisfy our obligations under our indebtedness,including the Senior Secured Notes.

*Ourparent companies may take actions that conflict with bondholder, franchisee andother interests.*

As aresult of its direct control of our ultimate parent company and indirectcontrol of MFH and MFOC, two affiliated private investment firms, CapricornInvestors II, L.P. and Capricorn Investors III, L.P. together control the powerto elect our managers, to appoint members of management and to approve allactions requiring the approval of the holders of our common interests,including adopting amendments to our certificate of formation and limitedliability company agreement as well as approving mergers, acquisitions or salesof all or substantially all of our assets. The actions may conflict with the interests of bondholders, franchiseesand others.  Similarly, the interests ofour parent companies could conflict with other stakeholder interests.  For example, if we encounter financialdifficulties or are unable to pay our debts as they mature, the interests ofMFOC as a holder of equity might conflict with holders of the Senior SecuredNotes.  Our parent companies also mayhave an interest in pursuing acquisitions, divestitures, financings or othertransactions that, in their judgment, could enhance their equity investment,even though such transactions might materially adversely affect our financialcondition and results of operations.

45

----

# **Item 6. Exhibits**

| 31.1   |   | Certification of Chief Executive Officer Pursuant to  Rule 13a-15(e) or 15d-15(e) of the Exchange Act, As Adopted Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.    |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                             |
| 31.2   |   | Certification of Chief Financial Officer Pursuant to  Rule 13a-15(e) or 15d-15(e) of the Exchange Act, As Adopted Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.    |
|   |   |                                                                                                                                                                             |
| 32     |   | Certification of Chief Executive Officer and Chief Financial  Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section  906 of the Sarbanes-Oxley Act of 2002. |

 

# **SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
| **MRS. FIELDS FAMOUS BRANDS, LLC**     |     |            |
|----------------------------------------|----------|-----------------|
| ** **                             |     |            |
| ** **                             |     |            |
| /s/ Stephen  Russo                     |     | August 13, 2007 |   |
| Stephen Russo                          | * * | Date            |
| President and  Chief Executive Officer |     |            |
| *(Principal  Executive Officer)*       |     |            |
| * *                               |     |            |
| * *                               |     |            |
| /s/ Gregory K.  Barber                 |     | August 13, 2007 |   |
| Gregory K.  Barber                     | * * | Date            |
| Chief Financial  Officer and Treasurer |     |            |
| *(Principal  Financial Officer)*       |     |            |

 

46

----