**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

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

 

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**FORM10-Q**

 

| **(Mark One)**                                                                                                                                                                                                           | ** ** | ** **                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                                                                               | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                                               |
| **For the quarterly period ended  April 1, 2006**                                                                                                                                                                        |
|                                                                                                                                                                                                                     |
| **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**

 

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**MRS.FIELDS FAMOUS BRANDS, LLC**

(Exact Name of Registrant Specified in Its Charter)

 

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

 

Registrant’s Telephone Number, Including AreaCode:**(801) 736-5600**

 

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Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

YES ý     NO o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (checkone):

Large Accelerated Filer o                      AcceleratedFiler o                      Non-acceleratedfiler ý

 

Indicate by check mark whether the registrant is a shell company (asdefined by Rule 12b-2 of the Exchange Act). YES o    NO ý

 

OnMay 12, 2006, 100 common interests of registrant were outstanding, all of whichare held by an affiliate. There is no established trading market for registrant’scommon interests.

 

 

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

### ** **

**TABLEOF CONTENTS**

 
| **PART I – FINANCIAL INFORMATION**                                                                                         |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                            |   |
| *Item 1. Financial Statements  (Unaudited)*                                                                                     |   |
| * *                                                                                                                        |   |
| Condensed Consolidated Balance Sheets as of  April 1, 2006 and December 31, 2005                                                |   |
|                                                                                                                            |   |
| Condensed Consolidated Statements of  Operations and Comprehensive Loss for the 13 weeks ended April 1, 2006 and  April 2, 2005 |   |
|                                                                                                                            |   |
| Condensed Consolidated Statements of Cash  Flows for the 13 weeks ended April 1, 2006 and April 2, 2005                         |   |
|                                                                                                                            |   |
| 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

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# **PARTI – FINANCIAL INFORMATION**

# ** **

# **Item1. Financial Statements**

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**CondensedConsolidated Balance Sheets**

**(Unaudited)**

**(Dollarsin thousands)**

 
| ** **                                                                                | ** ** | **April 1,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ASSETS:                                                                                   |       |              |       |                  |       |
| Cash and cash equivalents                                                                 |       | $                 | 12,015     |                  | $          | 23,664 |   |
| Receivables, net of allowance for doubtful  accounts of $645 and $612, respectively       |       | 6,997             |       | 8,061                 |       |
| Inventories                                                                               |       | 2,551             |       | 2,869                 |       |
| Prepaid expenses and other                                                                |       | 1,530             |       | 932                   |       |
| Deferred tax asset                                                                        |       | 957               |       | 780                   |       |
| Total current assets                                                                      |       | 24,050            |       | 36,306                |       |
|                                                                                      |       |              |       |                  |       |
| Property and equipment, net                                                               |       | 4,466             |       | 4,360                 |       |
| Goodwill                                                                                  |       | 78,683            |       | 78,683                |       |
| Trademarks and other intangible assets, net                                               |       | 12,242            |       | 12,755                |       |
| Deferred loan costs, net of accumulated  amortization of $10,263 and $9,964, respectively |       | 6,664             |       | 6,964                 |       |
| Deferred tax asset                                                                        |       | 134               |       | 151                   |       |
| Other assets                                                                              |       | 742               |       | 678                   |       |
|                                                                                      |       | $                 | 126,981    |                  | $          | 139,897 |   |
|                                                                                      |       |              |       |                  |       |
| LIABILITIES AND MEMBER’S DEFICIT:                                                    |       |              |       |                  |       |
| Accounts payable                                                                          |       | $                 | 2,742      |                  | $          | 6,496 |   |
| Accrued liabilities                                                                       |       | 6,472             |       | 12,289                |       |
| Amounts due to affiliates                                                                 |       | 2,490             |       | 3,949                 |       |
| Current portion of capital lease  obligations                                             |       | 106               |       | 104                   |       |
| Current portion of deferred revenues                                                      |       | 1,410             |       | 1,074                 |       |
| Total current liabilities                                                                 |       | 13,220            |       | 23,912                |       |
| Long-term debt                                                                            |       | 195,747           |       | 195,747               |       |
| Capital lease obligations, net of current  portion                                        |       | 457               |       | 485                   |       |
| Deferred revenues, net of current portion                                                 |       | 1,086             |       | 1,175                 |       |
| Total liabilities                                                                         |       | 210,510           |       | 221,319               |       |
| Member’s deficit                                                                     |       | (83,378           | )          | (81,273               | )          |
| Accumulated other comprehensive loss                                                      |       | (151              | )          | (149                  | )          |
| Total member’s deficit                                                               |       | (83,529           | )          | (81,422               | )          |
|                                                                                      |       |              |       |                  |       |
| COMMITMENTS AND CONTINGENCIES                                                             |       | $                 | 126,981    |                  | $          | 139,897 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

3

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**MRS. FIELDS FAMOUS BRANDS, LLC**

**Condensed Consolidated Statements ofOperations and Comprehensive Loss**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                              | ** ** | **13 Weeks Ended** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **April 1,**            | ** ** | **April 2,** | ** ** |
| ** **                              | ** ** | **2006**                     | ** ** | **2005** | ** ** |
| REVENUES:                               |       |                         |       |   |   |
| Franchising                             |       | $                            | 12,363     |   | $ | 12,354 |   |
| Gifts                                   |       | 5,178                        |       | 4,960 |   |
| Licensing                               |       | 640                          |       | 1,138 |   |
| Other                                   |       | 34                           |       | 52 |   |
| Total revenues                          |       | 18,215                       |       | 18,504 |   |
| OPERATING COSTS AND EXPENSES:           |       |                         |       |   |   |
| Franchising                             |       | 5,944                        |       | 5,088 |   |
| Gifts                                   |       | 6,632                        |       | 5,248 |   |
| Licensing                               |       | 229                          |       | 142 |   |
| General and administrative              |       | 2,859                        |       | 2,005 |   |
| Depreciation                            |       | 416                          |       | 279 |   |
| Amortization                            |       | 538                          |       | 705 |   |
| Other operating expenses, net           |       | 35                           |       | 37 |   |
| Total operating costs and expenses      |       | 16,653                       |       | 13,504 |   |
| Income from operations                  |       | 1,562                        |       | 5,000 |   |
| Interest expense, net                   |       | (5,230                       | )          | (5,355 | ) |
| Other income                            |       | 122                          |       | — |   |
| Loss before benefit for income taxes    |       | (3,546                       | )          | (355 | ) |
| Benefit for income taxes                |       | (1,441                       | )          | (120 | ) |
| Net loss                                |       | $                            | (2,105     | ) | $ | (235 | ) |
| COMPREHENSIVE LOSS:                     |       |                         |       |   |   |
| Net loss                                |       | $                            | (2,105     | ) | $ | (235 | ) |
| Foreign currency translation adjustment |       | (2                           | )          | (5 | ) |
| Comprehensive loss                      |       | $                            | (2,107     | ) | $ | (240 | ) |

 

See accompanying notes tocondensed consolidated financial statements.

 

4

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**MRS. FIELDS FAMOUS BRANDS, LLC**

**Condensed Consolidated Statements of CashFlows**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                   | ** ** | **13 Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                   | ** ** | **April 1,**            | ** ** | **April 2** | ** ** |
| ** **                                                                   | ** ** | **2006**                     | ** ** | **2005** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                        |       |                         |       |   |   |
| Net loss                                                                     |       | $                            | (2,105     | ) | $ | (235 | ) |
| Adjustments to reconcile net loss to net cash  used in operating activities: |       |                         |       |   |   |
| Depreciation and amortization                                                |       | 954                          |       | 984 |   |
| Amortization of deferred loan costs                                          |       | 300                          |       | 316 |   |
| Gain on sale of equity warrants                                              |       | (122                         | )          | — |   |
| Deferred income taxes                                                        |       | (160                         | )          | 241 |   |
| Changes in assets and liabilities:                                           |       |                         |       |   |   |
| Receivables, net                                                             |       | 1,064                        |       | 1,463 |   |
| Amounts due to affiliates, net                                               |       | (1,459                       | )          | (338 | ) |
| Inventories, net                                                             |       | 318                          |       | 108 |   |
| Prepaid expenses and other                                                   |       | (598                         | )          | (237 | ) |
| Other assets                                                                 |       | (89                          | )          | (43 | ) |
| Accounts payable                                                             |       | (3,754                       | )          | (2,450 | ) |
| Accrued liabilities                                                          |       | (5,817                       | )          | (5,702 | ) |
| Deferred revenue                                                             |       | 247                          |       | (294 | ) |
| Net cash used in operating activities                                        |       | (11,221                      | )          | (6,187 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                        |       |                         |       |   |   |
| Proceeds from sale of equity warrants                                        |       | 122                          |       | — |   |
| Purchases of property and equipment                                          |       | (522                         | )          | (176 | ) |
| Net cash used in investing activities                                        |       | (400                         | )          | (176 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                        |       |                         |       |   |   |
| Principal payments on capital lease                                          |       | (26                          | )          | (8 | ) |
| Net cash used in financing activities                                        |       | (26                          | )          | (8 | ) |
| Effect of foreign exchange rate changes on  cash                             |       | (2                           | )          | (5 | ) |
| Net decrease in cash and cash equivalents                                    |       | (11,649                      | )          | (6,376 | ) |
| Cash and cash equivalents at beginning of  period                            |       | 23,664                       |       | 19,859 |   |
| Cash and cash equivalents at end of period                                   |       | $                            | 12,015     |   | $ | 13,483 |   |
|                                                                         |       |                         |       |   |   |
| **Supplemental Disclosures of Cash Flow  Information:**                      |       |                         |       |   |   |
| Cash paid for interest                                                       |       | $                            | 10,261     |   | $ | 10,273 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

5

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**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to Condensed Consolidated FinancialStatements**

**(Unaudited)**

 

**1.Basis of Presentation**

** **

The accompanying condensed consolidated financial statements have beenprepared by Mrs. Fields Famous Brands, LLC and subsidiaries (the “Company” or “Mrs.Fields”) in accordance with the rules and regulations of the Securities andExchange Commission (“SEC”) for interim financial information and, accordingly,do not include all of the information and footnotes required by U.S. generallyaccepted accounting principles for a complete presentation of the financialstatements. In the opinion of management, these condensed consolidatedfinancial statements reflect all adjustments, which consist only of normalrecurring adjustments, necessary to present fairly the financial position ofMrs. Fields as of April 1, 2006 and December 31, 2005, and the results of theiroperations and their cash flows for the periods presented. The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from these estimates. Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto for the fiscal yearended December 31, 2005 contained in Mrs. Fields’ Annual Report on Form 10-Kfiled with the SEC on March 21, 2006.

 

The Company is a wholly-owned subsidiary of Mrs. Fields’ OriginalCookies, Inc. (“MFOC”). MFOC is a wholly-owned subsidiary of Mrs. Fields’Holding Company, Inc. (“MFH”) and MFH is a wholly-owned subsidiary of Mrs.Fields’ Companies, Inc. (“MFC”).

 

The results of operations for the 13 weeks ended April 1, 2006 are notnecessarily indicative of the results that may be expected for the remainder ofthe fiscal year ending December 30, 2006. Income per common interestinformation is not presented because Mrs. Fields is wholly-owned by MFOC and,therefore, its common interests are not publicly traded.

 

**2.Receivables**

** **

Most of the Company’s receivables are due from domestic andinternational franchisees, distributors, licensees and corporate customers ofour gifts segment. These receivables consist of normal trade accountsreceivable and longer-term notes receivable. Service charges may be assessed onpast due invoices but any revenue associated with these charges is onlyrecognized when collected. The Company maintains an allowance for doubtfulaccounts to cover potential losses. This allowance is the Company’s bestestimate of the amount of probable collection losses in the Company’s existingtrade accounts receivable. The Company determines the allowance based uponhistorical write-off experience and individual facts and circumstancesassociated with individual debtors. If the assumptions that are used todetermine the allowance for doubtful accounts change, the Company may have toprovide for a greater level of expense in future periods or reverse amountsprovided in prior periods.

 

Prior to fiscal 2001, TCBY Systems, LLC (“TCBY”), a wholly-ownedsubsidiary of the Company, extended credit from time to time in the form ofnotes receivable to franchisees and certain of these notes receivable remainoutstanding. Notes receivable from franchisees are primarily collateralized byequipment located at the franchisees’ stores. These notes bear interest atmarket rates and mature at various dates through April 2009. TCBYregularly reviews the notes for non-performance. Notes that are considerednon-performing are placed on a non-accrual status when the collectability ofprincipal or interest becomes uncertain. During the 13 weeks ended April 1,2006 and April 2, 2005, TCBY recognized no interest income pertaining to thesenotes receivable.

 

6

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Prior to fiscal 2001, TCBY factored various notes receivableaggregating $2.1 million. Under the terms of the factoring agreement, TCBYis ultimately responsible to the factoring agent for the realizability of thenotes receivable. In the event of non-performance, the factoring agent hasrecourse against TCBY to a maximum level of $425,000 and $478,000 as of April1, 2006 and December 31, 2005, respectively. The Company has reserves of$425,000 and $478,000 as of April 1, 2006 and December 31, 2005, respectively,for this potential recourse liability. This reserve is included in accruedliabilities in the accompanying consolidated balance sheets.

 

Notes receivable at April 1, 2006 and December 31, 2005 are comprisedof the following (in thousands):

 
| ** **                      | ** ** | **April 1,** | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Performing notes                |       | $                 | 166        |                  | $          | 195 |   |
| Allowance for doubtful accounts |       | (58               | )          | (69                   | )          |
|                            |       | $                 | 108        |                  | $          | 126 |   |

 

The activity in the allowance for notes receivable forthe 13 weeks ended April 1, 2006 and April 2, 2005 is as follows (in thousands):

 
| ** **            | ** ** | **For the 13 Weeks Ended** | ** ** |
|-----------------------|------------|------------------------------------------------|------------|
| ** **            | ** ** | **April 1,**                              | ** ** | **April 2,** | ** ** |
| ** **            | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| Beginning balance     |       | $                                              | 69         |   | $ | 597 |   |
| Additions (reversals) |       | (11                                            | )          | 4 |   |
| Write-offs            |       | —                                         |       | (513 | ) |
|                  |       | $                                              | 58         |   | $ | 88 |   |

 

**3.Inventories**

 

Inventories, consistingof raw materials, finished goods, packaging and novelties, are stated at thelower of cost (first-in, first-out method) or market value. Inventories atApril 1, 2006 and December 31, 2005 are comprised of the following (inthousands):

 
| ** **     | ** ** | **April 1,** | ** ** | **December 31,** | ** ** |
|----------------|------------|-------------------|------------|-----------------------|------------|
| ** **     | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Raw materials  |       | $                 | 932        |                  | $          | 1,283 |   |
| Finished goods |       | 635               |       | 770                   |       |
| Packaging      |       | 601               |       | 548                   |       |
| Novelties      |       | 383               |       | 268                   |       |
|           |       | $                 | 2,551      |                  | $          | 2,869 |   |

 

7

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**4.Property and Equipment**

 

Equipment and fixtures are stated at cost less accumulated depreciationand are depreciated over three to seven years using the straight-line method. Leaseholdimprovements are stated at cost less accumulated depreciation and aredepreciated over the shorter of the term of the lease or the estimated usefullife using the straight-line method. Property and equipment at April 1, 2006and December 31, 2005 are comprised of the following (in thousands):

 
| ** **                    | ** ** | **April 1,** | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Leasehold improvements        |       | $                 | 4,369      |                  | $          | 4,241 |   |
| Equipment and fixtures        |       | 8,580             |       | 7,927                 |       |
| Land                          |       | 240               |       | 240                   |       |
|                          |       | 13,189            |       | 12,408                |       |
| Less accumulated depreciation |       | (8,723            | )          | (8,048                | )          |
|                          |       | $                 | 4,466      |                  | $          | 4,360 |   |

 

Property and equipment atApril 1, 2006 and December 31, 2005 includes gross assets acquired under acapital lease of $698,000 and related accumulated depreciation of $169,000 and$139,000, respectively.

 

Expenditures thatmaterially extend useful lives of property and equipment are capitalized. Routinemaintenance, repairs and renewal costs are expensed as incurred. Gains orlosses from the sale or retirement of property and equipment are recorded incurrent operations.

 

**5.Accrued Liabilities**

** **

Accrued liabilities are comprised of the following at April 1, 2006 andDecember 31, 2005 (in thousands):

 
| ** **                        | ** ** | **April 1,** | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Accrued liabilities               |       | $                 | 4,049      |                  | $          | 4,778 |   |
| Accrued compensation and benefits |       | 1,569             |       | 1,534                 |       |
| Accrued interest payable          |       | 854               |       | 5,977                 |       |
|                              |       | $                 | 6,472      |                  | $          | 12,289 |   |

 

**6.Related-Party Transactions**

** **

Theamounts due to affiliates are comprised of amounts due to MFC, MFH and MFOC atApril 1, 2006 and December 31, 2005 (in thousands):

 
| ** **        | ** ** | **April 1,** | ** ** | **December 31,** | ** ** |
|-------------------|------------|-------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| MFC - tax sharing |       | $                 | 1,841      |                  | $          | 3,138 |   |
| MFH               |       | 273               |       | 273                   |       |
| MFOC              |       | 376               |       | 538                   |       |
|              |       | $                 | 2,490      |                  | $          | 3,949 |   |

 

8

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TheCompany has a tax allocation agreement with MFC pursuant to which the Companyagreed to make payments to MFC, after taking into account payments the Companymakes directly to tax authorities, based on the Company’s stand-aloneconsolidated federal income tax liability, determined as if the Company and itssubsidiaries constituted their own consolidated group for federal income taxpurposes. The Company will not be permitted to make these payments to MFC,unless the MFC federal tax liability exceeds the Company’s stand-alone federaltax liability, until it meets certain financial ratios and is otherwise incompliance with the terms of the indenture governing the 9 percent seniorsecured notes and the 111⁄2 percent senior secured notes (the “Senior SecuredNotes”).

 

**7.Reportable Segments**

** **

Operatingsegments are components of the Company for which separate financial informationis available that is evaluated regularly by management in deciding how toallocate resources and in assessing performance. This information is reportedon the basis that it is used internally for evaluating segment performance. TheCompany has three reportable operating segments; namely, franchising, gifts andlicensing. The franchising segment consists of revenues received eitherdirectly or indirectly from cookie, yogurt and pretzel stores, which are ownedand operated by third parties. These revenues include initial franchise orlicense fees, monthly royalties based on a percentage of a franchisee’s grosssales, sales of cookie dough that the Company produces and certain productformulation fees and supplier allowances which are based upon sales tofranchisees. The gifts segment includes sales generated from the Company’s mailorder gift catalog and website. The licensing segment consists of otherlicensing activity from third parties for the sale of products bearing theCompany’s brand names. The accounting policies for the segments are the same asthose discussed in the summary of significant accounting policies in Note 2 toour consolidated financial statements included in our Annual Report on Form10-K filed with the SEC on March 21, 2006. Sales and transfers between segmentsare eliminated in consolidation.

 

TheCompany evaluates performance of each segment based on contribution. Contributionis computed as the difference between the revenues generated by a reportablesegment and the selling and occupancy expenses, cost of sales and directgeneral and administrative expenses related to that reportable segment. Contributionis used as a measure of the operating performance of an operating segment. TheCompany does not allocate any indirect general and administrative expense,other operating income (expense), interest expense, depreciation andamortization or assets to its reportable operating segments.

 

Segmentrevenues and contribution for the 13 weeks ended April 1, 2006 and April 2,2005 are presented in the following table (in thousands):

 
| ** **             | ** ** | **For the 13 Weeks Ended** | ** ** |
|------------------------|------------|------------------------------------------------|------------|
| ** **             | ** ** | **April 1,**                              | ** ** | **April 2,** | ** ** |
| **Total Company** | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| Revenues:              |       |                                           |       | ** ** |   |
| Franchising            |       | $                                              | 12,363     |   | $ | 12,354 |   |
| Gifts                  |       | 5,178                                          |       | 4,960 |   |
| Licensing              |       | 640                                            |       | 1,138 |   |
|                   |       | $                                              | 18,181     |   | $ | 18,452 |   |
| Contribution:          |       |                                           |       |   |   |
| Franchising            |       | $                                              | 6,419      |   | $ | 7,266 |   |
| Gifts                  |       | (1,454                                         | )          | (288 | ) |
| Licensing              |       | 411                                            |       | 996 |   |
|                   |       | $                                              | 5,376      |   | $ | 7,974 |   |

 

9

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Thereconciliation of contribution to net income for the 13 weeks ended April 1,2006 and April 2, 2005 is as follows (in thousands):

 
| ** **                          | ** ** | **For the 13 Weeks Ended** | ** ** |
|-------------------------------------|------------|------------------------------------------------|------------|
| ** **                          | ** ** | **April 1,**                              | ** ** | **April 2,** | ** ** |
| ** **                          | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| Contribution                        |       | $                                              | 5,376      |   | $ | 7,974 |   |
| Other operating revenue             |       | 34                                             |       | 52 |   |
| General and administrative expenses |       | (2,859                                         | )          | (2,005 | ) |
| Other operating expenses, net       |       | (35                                            | )          | (37 | ) |
| Interest expense, net               |       | (5,230                                         | )          | (5,355 | ) |
| Other income                        |       | 122                                            |       | — |   |
| Depreciation and amortization       |       | (954                                           | )          | (984 | ) |
| Benefit for income taxes            |       | 1,441                                          |       | 120 |   |
| Net loss                            |       | $                                              | (2,105     | ) | $ | (235 | ) |

 

Thefixed assets and inventory of the Company primarily relate to the Company’sGreat American Cookies manufacturing facility and gifts business segment andrelated activities. Assets relating to franchising and licensing activity areprimarily amounts due from franchisees and licensees and goodwill relating tofranchising concepts.

 

Revenuesfrom franchisees, customers and licensees within the United States of America (“UnitedStates”) were $17.9 million and $18.1 million or 98.4 percent and 97.8 percentof total revenues for the 13 weeks ended April 1, 2006 and April 2, 2005,respectively. Revenues from international franchisees, customers and licenseeswere $300,000 and $400,000 or 1.6 percent and 2.2 percent of total revenues forthe 13 weeks ended April 1, 2006 and April 2, 2005, respectively. Revenues fromany single foreign country were not material. Providing geographicalinformation regarding long-lived assets is impracticable.

 

TheCompany has one licensee that accounted for $365,000 and $767,000 or57.1 percent and 67.4 percent of the revenues of the licensingsegment for the 13 weeks ended April 1, 2006 and April 2, 2005, respectively. TheCompany has one customer in its gifts business segment that accounted for$918,000 and $665,000 or 17.7 percent and 13.4 percent of revenues ofthe gifts business segment for the 13 weeks ended April 1, 2006 and April 2,2005, respectively. There were no other customers or licensees that accountedfor more than ten percent of Mrs. Fields’ total revenues or anyindividual segment’s revenues.

 

**8. Share-Based Compensation**

 

OnJanuary 1, 2006 the Company adopted the provisions of Financial AccountingStandards Board Statement No. 123R, Share-Based Payment (“SFAS 123R”). SFAS123R sets accounting requirements for “share-based” compensation to employeesand requires companies to recognize in the statement of operations thegrant-date fair value of stock options and other equity-based compensation.

 

10

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Effectiveas of May 23, 2004, the Board of Directors of MFC approved adoption of thePhantom Stock Plan of Mrs. Fields’ Companies, Inc. (the “Phantom Plan”). Thepurpose of the Phantom Plan is to provide long-term incentives to key employeesof MFC or its subsidiaries (the “Participants”) as determined by theCompensation Committee of the Board of Directors (the “Committee”). The PhantomPlan is unfunded and Participants do not receive any payment under the PhantomPlan until the completion of the first to occur of: (i) a sale of substantiallyall of the assets of MFC; (ii) a public offering of MFC’s Common Stock whereMFC receives proceeds, net of any underwriter’s discounts and expenses, of notless than $50 million; or (iii) any stock sale, merger or other transactionwhere the owners of Common Stock immediately before the transaction do not ownin excess of 50 percent of the common stock of the entity surviving such sale,merger or other transaction (a “Triggering Event”). Additionally, the PhantomPlan may be terminated by the Board of Directors at any time at their solediscretion. Participants receive performance units in amounts recommended bythe CEO and determined by the Committee. Upon the completion of a TriggeringEvent, Participants receive payments reflecting the number and value of theirperformance units at the time of the completion of the Triggering Event. Paymentsto Participants may be made in cash or through issuance of equity securities ofMFC, as determined by the Committee, at which time compensation expense will berecognized. The value of a performance unit at the completion of a TriggeringEvent is the value of one share of common stock of MFC as determined in goodfaith by the Board of Directors. If the Board of Directors determines the need,it may seek the advice of an independent advisor.

 

Themaximum number of performance units that may be granted under the Phantom Planis one million units. Subdivisions, splits or combinations involving MFC’sCommon Stock will proportionately affect the number of performance units thathave been awarded under the Phantom Plan. In May 2004, the Committee approvedthe grant of up to 392,418 performance units allocated among Participants asdetermined by the Committee. In March 2006, the Committee approved the grant ofup to 182,274 additional units to Participants identified by the Committee,resulting in total authorized grants of up to 574,692 performance units. Duringthe 13 weeks ended April 1, 2006, the Committee granted 218,730 performanceunits to Participants. As of April 1, 2006, a total of 560,130 performanceunits have been granted to Participants.

 

TheCompany’s Phantom Plan is now accounted for under SFAS 123R. Compensation costfor the grants under the Phantom Plan will be recognized upon the completion ofa Triggering Event. Accordingly, no compensation cost has been recognized inthe statement of operations for the 13 weeks ended April 1, 2006.

 

**9. Commitments and Contingencies**

 

The Company and its products are subjectto regulation by numerous governmental authorities, including withoutlimitation, federal, state and local laws and regulations governingfranchising, health, sanitation, environmental protection, safety and hiringand 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 partyto any legal proceedings (including the matter described below) that, in theopinion of management, after consultation with legal counsel, is material toits business, financial condition or results of operations.

 

As discussed in the Company’s AnnualReport on Form 10-K filed with the SEC on March 21, 2006, Shadewell Grove IP,LLC (“Shadewell”) filed a Verified Complaint, Motion for Restraining Order andrelated documents (the “Action”) in the Court of Chancery of the State ofDelaware against Mrs. Fields Franchising, LLC, a wholly-owned subsidiary of theCompany (“MFF”), in October 2005. The Action arose from MFF’s termination ofcertain license agreements for Shadewell’s failure to make certain payments toMFF in a timely manner. In the Action, Shadewell alleged that the licenseagreements were improperly terminated by MFF. Among other relief, Shadewellsought a court order that the license agreements would remain in full force andeffect and that MFF must specifically perform its obligations under theagreements. On May 8, 2006, the court ruled in our favor on all issues. Currently,the parties continue to fulfill their obligations under the terminated licenseagreements.

 

11

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**10. Supplemental Condensed Consolidating FinancialInformation**

 

Long-termdebt includes the Senior Secured Notes that were issued by the Company and Mrs.Fields Financing Company, Inc. as co-issuers. Mrs. Fields Financing Company,Inc. is a wholly-owned finance subsidiary of Mrs. Fields Famous Brands, LLC. TheSenior Secured Notes are fully and unconditionally guaranteed on a joint andseveral basis by all of the Company’s domestic subsidiaries other than minorsubsidiaries. Mrs. Fields Famous Brands, LLC has no independent assets oroperations. Therefore, supplemental financial information on a condensedconsolidating basis of the guarantor subsidiaries is not required. There are norestrictions on the Company’s ability to obtain cash dividends or otherdistributions of funds from the guarantor subsidiaries, except those imposed byapplicable law.

 

12

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# **Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

# ** **

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

 

This report includes “forward-looking statements” withinthe meaning of the Private Securities Litigation Reform Act of 1995. Forward-lookingstatements are those that do not relate solely to historical fact. Theyinclude, but are not limited to, any statement that may predict, forecast,indicate or imply future results, performance, achievements or events. They maycontain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,”“plan,” “continue,” “will,” “may” or words or phrases of similar meaning. Forward-lookingstatements involve risks and uncertainties, including, but not limited to,economic, competitive and governmental factors outside of our control, that maycause actual results to differ materially from trends, plans or expectationsset forth in the forward-looking statements. Factors you should consider thatcould cause these differences include:

 

•                  theavailability and adequacy of our cash flow to satisfy our obligations,including debt service on our long-term debt and additional funds required forworking capital;

 

•                  theimpact of our current negative member’s deficit on our franchising activities;

 

•                  ourability to solicit new franchisees;

 

•                  economic,competitive, demographic, business and other pressures, trends and conditionsin various markets;

 

•                  theseasonal nature of our operations;

 

•                  actionstaken or failed to be taken by third parties, including by our customers,suppliers, distributors, competitors and shareholders, as well as legislative,regulatory, judicial and other governmental authorities;

 

•                  changesin our business strategy or development plans;

 

•                  performanceby our franchisees and licensees or changes in relationships with ourfranchisees and licensees;

 

•                  difficultiesor delays in our developing and introducing anticipated new products or failureof our customers to accept new product offerings;

 

•                  adoptionof new accounting pronouncements;

 

•                  changesin consumer preferences and our ability to adequately anticipate such changes;

 

•                  changesin prices of our raw materials;

 

•                  changesin personnel or increased labor costs;

 

•                  thetermination of, or inability to renew on favorable terms, our materialagreements;

 

•                  changesin customer traffic;

 

•                  legalproceedings and regulatory matters;

 

•                  naturaldisasters, acts of war or terrorist incidents; and

 

•                  allother factors described under “Risk Factors” in our Annual Report on Form 10-Kfiled with the Securities and Exchange Commission (“SEC”) on March 21, 2006.

 

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You are cautioned not toplace undue reliance on the forward-looking statements contained in thisreport, which reflect management’s analysis only as of the date of this report.We undertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.In light of these risks, uncertainties and assumptions, the forward-lookingevents discussed in this report may not occur.

 

# **Executive Summary**

# ** **

Mrs.Fields Famous Brands, LLC (“we”, “us”, the “Company” or similar terms) is oneof the largest franchisors in the premium snack-food industry, featuring Mrs.Fields®, Great American Cookies®, TCBY®, Pretzel Time® and Pretzelmaker® as ourcore brands. Through our franchisees’ retail stores, we are the largestretailer of freshly baked on-premises specialty cookies and brownies in theUnited States of America (the “United States”); the largest retailer ofsoft-serve frozen yogurt in the United States; and the second largest retailerof baked on-premises pretzels in the United States. In addition, we operate agrowing gifts business and have entered into licensing arrangements thatattempt to leverage awareness of our core brands among our retail customer base.We operate through a network of 2,448 retail concept locations, which are locatedthroughout the United States and in approximately 25 foreign countries.

 

Ourbusiness is divided into three primary business segments for financialreporting purposes: franchising, gifts and licensing, which represented 67.9percent, 28.4 percent and 3.5 percent of total revenues, respectively, for the13 weeks ended April 1, 2006. 

 

We believe our businessstrategy aligns the interests of the Company with the interests of our retailfranchisees and focuses our joint efforts on strengthening and broadening theappeal of our brands through satisfying the wants and needs of consumers. Thatstrategy is based upon three continuing objectives:

 

•                  build profitable year-over-year franchisesales;

•                  accelerate growth of new franchised storedevelopment; and

•                  grow licensing and gifts operations.

 

Weuse the following key performance indicators to measure our success andprogress:

 

•                  year-over-year same store franchise sales;

•                  net change in number of retail conceptlocations; and

•                  year-over-year gifts and licensing revenues.

 

Our performance against these keyperformance indicators is presented and discussed throughout the management’sdiscussion and analysis. For further disclosure of reportable segments, seeNote 7 to our condensed consolidated financial statements contained elsewherein this report.

 

14

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As of April 1, 2006, our store portfolioconsisted of 1,940 domestic franchised locations, 338 international franchisedlocations and 170 licensed locations. Our franchisees’ and licensees’ conceptlocations by brand are distributed as follows:

 
| ** **                    | ** ** | **Domestic**   | ** ** | **International** | ** ** | **Licensed**  | ** ** | ** ** | ** ** |
|-------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                    | ** ** | **Franchised** | ** ** | **Franchised**    | ** ** | **Locations** | ** ** | **Total**  | ** ** |
| Mrs. Fields                   |       | 366            |       | 93                |       | 49            |       | 508        |       |
| Great American                |       | 279            |       | 1                 |       | 1             |       | 281        |       |
| Original Cookie               |       | —         |       | —            |       | 1             |       | 1          |       |
| Cookie subtotal               |       | 645            |       | 94                |       | 51            |       | 790        |       |
| Pretzel Time                  |       | 198            |       | 7                 |       | 6             |       | 211        |       |
| Pretzelmaker                  |       | 146            |       | 46                |       | 1             |       | 193        |       |
| Hot Sam                       |       | —         |       | —            |       | 3             |       | 3          |       |
| Pretzel subtotal              |       | 344            |       | 53                |       | 10            |       | 407        |       |
| Bakery brands subtotal        |       | 989            |       | 147               |       | 61            |       | 1,197      |       |
| TCBY - traditional stores     |       | 412            |       | —            |       | —        |       | 412        |       |
| TCBY - non-traditional stores |       | 536            |       | 191               |       | 109           |       | 836        |       |
| Yovana - test stores          |       | 2              |       | —            |       | —        |       | 2          |       |
| Beriyo by TCBY - test store   |       | 1              |       | —            |       | —        |       | 1          |       |
| Dairy brands subtotal         |       | 951            |       | 191               |       | 109           |       | 1,251      |       |
| Total                         |       | 1,940          |       | 338               |       | 170           |       | 2,448      |       |

 

The previous table counts each conceptlocation individually. For example, if a physical location had a Mrs. Fieldsstore and a Pretzel Time store together, it would be counted as two conceptlocations in the table above. If actual physical stores were counted ratherthan concept locations, total store counts would be reduced by 275 locations to2,173.

 

Mrs. Fields’ Original Cookies, Inc. (“MFOC”)and certain of its subsidiaries owned 11 franchised and licensed retail conceptlocations as of April 1, 2006, representing 0.4 percent of the total retailconcept locations. During the 13 weeks ended April 1, 2006, we recognized$52,000 of franchise royalties and $73,000 of product sales relating to theretail concept locations owned by MFOC. MFOC expects that most of these retailconcept locations will be sold to other franchisees or will be closed duringfiscal 2006.

 

During the 13 weeks from December 31,2005 to April 1, 2006, our store portfolio declined from 2,479 conceptlocations to 2,448 concept locations, as follows:

 
| ** **                | ** ** | **Total Company** | ** ** |
|---------------------------|------------|------------------------|------------|
| ** **                | ** ** | **Domestic**           | ** ** | **International** | ** ** | **Licensed** | ** ** | ** ** | ** ** |
| ** **                | ** ** | **Franchised**         | ** ** | **Franchised** | ** ** | **Locations** | ** ** | **Total** | ** ** |
| Balance December 31, 2005 |       | 1,978                  |       | 328 |   | 173 |   | 2,479 |   |
| New development openings  |       | 19                     |       | 20 |   | — |   | 39 |   |
| Permanent closings        |       | (62                    | )          | (10 | ) | (3 | ) | (75 | ) |
| Other openings, net       |       | 5                      |       | — |   | — |   | 5 |   |
| Balance April 1, 2006     |       | 1,940                  |       | 338 |   | 170 |   | 2,448 |   |

 

15

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The following tables provide additionaldetail of new development openings and permanent closings of our conceptlocations during the 13 weeks from December 31, 2005 to April 1, 2006:

 
| ** **                | ** ** | **Domestic Franchised** | ** ** |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | ** **                   | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **                   | ** ** | **Traditional** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                | ** ** | **Bakery**                   | ** ** | **Dairy** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance December 31, 2005 |       | 1,006                        |       | 424 |   | 548 |   | 1,978 |   |
| New development openings  |       | 12                           |       | 6 |   | 1 |   | 19 |   |
| Permanent closings        |       | (30                          | )          | (14 | ) | (18 | ) | (62 | ) |
| Other openings, net       |       | 1                            |       | (1 | ) | 5 |   | 5 |   |
| Balance April 1, 2006     |       | 989                          |       | 415 |   | 536 |   | 1,940 |   |

 
| ** **                | ** ** | **International Franchised** | ** ** | ** **      | ** ** |
|---------------------------|------------|-----------------------------------|------------|-----------------|------------|
| ** **                | ** ** | ** **                        | ** ** | **Non-**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **                        | ** ** | **Traditional** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                | ** ** | **Bakery**                        | ** ** | **Dairy**       | ** ** | **Total** | ** ** | ** ** | ** ** |
| Balance December 31, 2005 |       | 142                               |       | 186             |       | 328 |   |   |   |
| New development openings  |       | 11                                |       | 9               |       | 20 |   |   |   |
| Permanent closings        |       | (6                                | )          | (4              | )          | (10 | ) |   |   |
| Balance April 1, 2006     |       | 147                               |       | 191             |       | 338 |   |   |   |

 
| ** **                | ** ** | **Licensed Locations** | ** ** | ** **      | ** ** |
|---------------------------|------------|-----------------------------|------------|-----------------|------------|
| ** **                | ** ** | ** **                  | ** ** | **Non-**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **                  | ** ** | **Traditional** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                | ** ** | **Bakery**                  | ** ** | **Dairy**       | ** ** | **Total** | ** ** | ** ** | ** ** |
| Balance December 31, 2005 |       | 64                          |       | 109             |       | 173 |   |   |   |
| Permanent closings        |       | (3                          | )          | —          |       | (3 | ) |   |   |
| Balance April 1, 2006     |       | 61                          |       | 109             |       | 170 |   |   |   |

 

We have implemented a number ofstrategies designed to attempt to reverse our trend of declining store counts,including identifying stores that are at risk of closure for operationalissues, lease or franchise agreement expiration and working with franchisees torelocate, transfer or correct operational deficiencies. We are also testingprograms to refresh, remodel or reconcept some of our concept locations, asmore fully discussed in our Annual Report on Form 10-K filed with the SEC onMarch 21, 2006. There can be no assurance that our strategies will succeed. Ifstore counts continue to decline, it may have a material adverse affect on ourfinancial condition and results of operations.

 

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# **Recent Developments**

 

# **Blue Line Distributing**

 

TCBY Systems, LLC (“TCBY”) and Blue LineDistributing (“Blue Line”), TCBY’s principal distributor of TCBY products toits franchisees, entered into an Extension to Distribution Agreement (the “ExtensionAgreement”) effective February 2, 2006. Under the Extension Agreement, BlueLine agreed to continue to perform under the Food and Packaging DistributionAgreement (the “Distribution Agreement”) dated November 14, 2002, until theearlier to occur of (a) 30 days following the date when TCBY notifies Blue Linein writing that it has obtained a new distributor and (b) 30 days following thedate, if any, when Blue Line notifies TCBY in writing that Blue Line reasonablydetermines that TCBY is no longer making best efforts and progress to obtain anew distributor. Under the terms of the Extension Agreement, TCBY agreed tomake certain payments directly to Blue Line in order to delay distribution costincreases to franchisees and agreed to guarantee certain amounts during theextension period. TCBY is finalizing negotiations with a number ofregional distributors who will eventually replace Blue Line, including KaleelBrothers in the northeastern United States and Southwest Traders in certainregions of the west. TCBY believes it will be able to identify distributors forthe remaining regions of the United States before Blue Line ceases its servicesunder the Extension Agreement. However, we anticipate the distribution costs tomany of our franchisees will increase under the new regional agreements, whichmay make it more difficult for them to operate profitably, potentiallyincreasing the number of permanent store closures.

 

**Shadewell Litigation**

 

As discussed elsewherein this report, Shadewell Grove IP, LLC (“Shadewell”) filed a VerifiedComplaint, Motion for Restraining Order and related documents (the “Action”) inthe Court of Chancery of the State of Delaware against Mrs. Fields Franchising,LLC, a wholly-owned subsidiary of the Company (“MFF”), in October 2005. TheAction arose from MFF’s termination of certain license agreements for Shadewell’sfailure to make certain payments to MFF in a timely manner. On May 8, 2006, thecourt ruled in our favor on all issues. Currently, the parties continue tofulfill their obligations under the terminated license agreements. Weanticipate the royalties earned under these terminated licensing agreements todecline during the transition of the licenses to either the Company or a newlicensee.

 

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**Results of Operations**

 

Thefollowing table sets forth, for the periods indicated, certain information relatingto our operations and percentage changes from period to period (in thousands).

 
| ** **                           | ** ** | **13 Weeks Ended** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|------------------------------|------------|-------------------|------------|
| ** **                           | ** ** | **April 1,**            | ** ** | **April 2,** | ** ** | **%** | ** ** |
| ** **                           | ** ** | **2006**                     | ** ** | **2005**          | ** ** | **Change** | ** ** |
| REVENUES:                            |       |                         |       |              |       |   |   |
| Franchising                          |       | $                            | 12,363     |              | $          | 12,354 |   | 0.1 |   |
| Gifts                                |       | 5,178                        |       | 4,960             |       | 4.4 |   |
| Licensing                            |       | 640                          |       | 1,138             |       | (43.8 | ) |
| Other                                |       | 34                           |       | 52                |       | (34.6 | ) |
| Total revenues                       |       | 18,215                       |       | 18,504            |       | (1.6 | ) |
| OPERATING COSTS AND EXPENSES:        |       |                         |       |              |       |   |   |
| Franchising                          |       | 5,944                        |       | 5,088             |       | 16.8 |   |
| Gifts                                |       | 6,632                        |       | 5,248             |       | 26.4 |   |
| Licensing                            |       | 229                          |       | 142               |       | 61.3 |   |
| General and administrative           |       | 2,859                        |       | 2,005             |       | 42.6 |   |
| Depreciation                         |       | 416                          |       | 279               |       | 49.1 |   |
| Amortization                         |       | 538                          |       | 705               |       | (23.7 | ) |
| Other operating expenses, net        |       | 35                           |       | 37                |       | (5.4 | ) |
| Total operating costs and expenses   |       | 16,653                       |       | 13,504            |       | 23.3 |   |
| Income from operations               |       | 1,562                        |       | 5,000             |       | (68.8 | ) |
| Interest expense, net                |       | (5,230                       | )          | (5,355            | )          | (2.3 | ) |
| Other income                         |       | 122                          |       | —            |       | NM |   |
| Loss before benefit for income taxes |       | (3,546                       | )          | (355              | )          | NM |   |
| Benefit for income taxes             |       | (1,441                       | )          | (120              | )          | NM |   |
| Net loss                             |       | $                            | (2,105     | )                 | $          | (235 | ) | NM |   |
|                                 |       |                         |       |              |       |   |   |
| Cash flows from operating activities |       | $                            | (11,221    | )                 | $          | (6,187 | ) | (81.4 | ) |
| Cash flows from investing activities |       | $                            | (400       | )                 | $          | (176 | ) | (127.3 | ) |
| Cash flows from financing activities |       | $                            | (26        | )                 | $          | (8 | ) | NM |   |

 

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**13 WeeksEnded April 1, 2006**

**Compared tothe 13 Weeks Ended April 2, 2005**

 

*Income From Operations—Overview*. Income from operations was$1.6 million for the 13 weeks ended April 1, 2006, a decrease of $3.4million or 68.8 percent from $5.0 million for the 13 weeks ended April 2,2005. This decrease was primarily attributable to a decrease in contributionfrom our business segments of $2.6 million and an increase in general andadministrative expenses of $900,000. Decreases in contribution from ourbusiness segments of $2.6 million was comprised of decreases in our giftingsegment contribution of $1.2 million, our franchising segment contribution of$800,000 and our licensing segment contribution of $600,000.

 

*Segment Contribution.*The following table sets forth thecontribution from each of our reporting segments (in thousands). Franchisingcontribution is comprised of sales of new franchises and royalties fromexisting franchises less direct operating expenses. Gifts contribution iscomprised of sales of products through our catalog and Internet business lessdirect operating expenses. Licensing contribution is comprised of licensingfees received from third parties for the sale of products bearing our brandnames less direct operating expenses.

 
| ** **                 | ** ** | **For the 13 Weeks Ended** | ** ** |
|----------------------------|------------|------------------------------------------------|------------|
| ** **                 | ** ** | **April 1,**                              | ** ** | **April 2,** | ** ** | **%** | ** ** |
| **Reporting Segment** | ** ** | **2006**                                       | ** ** | **2005** | ** ** | **Change** | ** ** |
| Franchising                |       | $                                              | 6,419      |   | $ | 7,266 |   | (11.7 | ) |
| Gifts                      |       | (1,454                                         | )          | (288 | ) | (404.9 | ) |
| Licensing                  |       | 411                                            |       | 996 |   | (58.7 | ) |
| Total segment contribution |       | $                                              | 5,376      |   | $ | 7,974 |   | (32.6 | ) |

 

**Franchising**

 

The following table details the revenues and operatingexpenses of the franchising segment for the 13 weeks ended April 1, 2006 andApril 2, 2005 (in thousands):

 
| ** **                           | ** ** | **For the 13 Weeks Ended** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|-------------------|------------|
| ** **                           | ** ** | **April 1,**                              | ** ** | **April 2,** | ** ** | **%** | ** ** |
| ** **                           | ** ** | **2006**                                       | ** ** | **2005**          | ** ** | **Change** | ** ** |
| Bakery revenues                      |       | $                                              | 9,596      |              | $          | 9,138 |   | 5.0 |   |
| Dairy revenues                       |       | 2,767                                          |       | 3,216             |       | (14.0 | ) |
| Total franchising revenues           |       | 12,363                                         |       | 12,354            |       | 0.1 |   |
| Bakery operating expenses            |       | 4,442                                          |       | 3,885             |       | 14.3 |   |
| Dairy operating expenses             |       | 1,502                                          |       | 1,203             |       | 24.9 |   |
| Total franchising operating expenses |       | 5,944                                          |       | 5,088             |       | 16.8 |   |
| Total franchising contribution       |       | $                                              | 6,419      |              | $          | 7,266 |   | (11.7 | ) |

 

The following table details the year-over-year (“YOY”)percentage increase (decrease) in same store sales for the 13 weeks ended April1, 2006 and April 2, 2005:

 
| ** **                                      | ** ** | **For the 13 Weeks Ended** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                      | ** ** | **April 1,**                              | ** ** | **April 2,** | ** ** |
| **YOY % Change by Concept** | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| Mrs. Fields                                     |       | (1.3                                           | )          | 1.5 |   |
| Great American Cookies                          |       | 4.9                                            |       | 3.4 |   |
| Pretzel Time                                    |       | 4.5                                            |       | 4.4 |   |
| Pretzelmaker                                    |       | 11.0                                           |       | 11.0 |   |
| Total Bakery                                    |       | 3.3                                            |       | 3.5 |   |
| TCBY                                            |       | 3.1                                            |       | (1.4 | ) |
| Total Company                                   |       | 3.3                                            |       | 2.3 |   |

 

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*Year-Over-Year Same Store Sales.*Year-over-yearsame store sales were positive for all our concepts excluding our Mrs. Fieldsconcept during the 13 weeks ended April 1, 2006.

 

Our bakery concepts year-over-year same store salesgrowth was 3.3 percent for the 13 weeks ended April 1, 2006 compared to 3.5percent for the 13 weeks ended April 2, 2005. This positive trend is due tocontinued improvement in execution by our franchisees. Our Great American Cookiesconcept experienced positive year-over-year sales growth primarily due tocontinued emphasis on cookie cakes and a retail price increase. Our PretzelTime and Pretzelmaker concepts experienced positive year-over-year sales growthdue to continued focus on pretzel bites and BreezerTM smoothies. Our pretzelbites have proven to be a significant incremental sales driver for our pretzelconcepts. Our Mrs. Fields concept experienced negative year-over-year salesdecline due in part to the impact of Easter weekend falling in the secondquarter of the current fiscal year compared to last year when Easter fellwithin the first quarter of the fiscal year.

 

Our TCBY concept year-over-year same store salesgrowth was 3.1 percent for the 13 weeks ended April 1, 2006 compared to anegative 1.4 percent for the 13 weeks ended April 2, 2005. This positive trendwas a result of an increased focus on improving store level standards andoperations as well as improved weather in 2006 relative to 2005. In addition,the same store sales growth was positively impacted by Easter falling in thesecond quarter of the current fiscal year compared to last year when Easterfell within the first quarter of the fiscal year. Since most of our TCBY storesare closed Easter Day, there was one more sales day in the current year than inthe prior year.

 

*Franchising Revenues.*Franchising revenues were $12.4 millionfor the 13 weeks ended April 1, 2006, compared to $12.4 million for the 13weeks ended April 2, 2005. The comparative sales were due to increased revenuesfrom our bakery franchise system of $400,000 or 5.0 percent offset by adecrease in revenues from our dairy franchise system of $400,000 or 14.0percent.

 

The increase in revenues from our bakery franchisesystem was principally attributable to increases in sales of products by ourGreat American Cookies manufacturing facility to our franchisees of $500,000 or14.4 percent and royalties of $200,000 or 5.1 percent, partially offset byreductions of product formulation revenues generated by purchases of certainbakery products by franchisees of $300,000 or 23.7 percent. The increase insales by our Great American Cookies manufacturing facility was primarily due toa price increase to our franchisees of 8.3 percent effective April 2005 andincreases in batter purchases by our Great American Cookies franchisees. Theincrease in royalties was principally due to increases in year-over-year salesby our franchisees. The reduction in product formulation revenues was theresult of lower product formulation revenues earned through our Mrs. Fieldsbakery franchise system of $200,000 and lower allowances earned from ourbeverage vendors of $100,000.

 

The decrease in revenues from our dairy franchisesystem was principally comprised of decreases in product formulation revenuesgenerated by purchases of TCBY products by franchisees of $200,000 or 10.7percent and royalties of $200,000 or 20.4 percent. The decrease in royaltiesand product formulation is principally attributable to approximately 900 or10.8 percent fewer unit weeks partially offset by the increase inyear-over-year same store sales. We anticipate that our dairy unit weeks willcontinue to decline in the near future, at least until our reconcepting testsare completed and we have developed a plan to implement the reconcepting inqualified TCBY traditional stores. We anticipate our reconcepting tests forBeriyo by TCBY and Yovana will be completed in the fourth quarter of fiscal2006. While we are encouraged by consumer data we have collected, there can beno assurances that our reconcepting tests or implementation will be successful,or that a reconcepting will slow or reverse the declining TCBY store count orcontribution, which may adversely affect our results of operations.

 

*Franchising Expenses.*Franchisingexpenses are comprised of operation and supervision expense wherein we providesupport, direction and supervision to the franchisees; development and supportexpenses including product development costs, expenses relating to new franchisedevelopment, marketing and advertising, bad debt expense and other directfranchising expenses; and cost of product sales associated with our GreatAmerican Cookies manufacturing facility including raw ingredients, labor andother manufacturing costs. Franchising expenses were $5.9 million for the13 weeks ended April 1, 2006, an increase of $800,000 or 16.8 percent, from$5.1 million for the 13 weeks ended April 2, 2005. This increase wasattributable to increases in distribution costs of $300,000 associated with thedistribution of our dairy products to our dairy franchise system resulting fromthe Blue Line Extension Agreement, product cost of sales associated with ourGreat American Cookies manufacturing facility of $200,000, franchise developmentand support of $200,000 and franchise operations and supervision of $100,000.

 

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The increase in franchisedevelopment and support costs of $200,000 was due to increases in salaries andrelated employee costs of $400,000, increase in bad debt expense of $100,000,and other support costs of $100,000 partially offset by a reduction in expensesfor brand investment initiatives of $300,000 and professional fees associatedwith our royalty assurance program of $100,000. The increase in operations andsupervision expense of $100,000 was due to an increase in severancecompensation of $100,000.

 

# **Gifts**

# ** **

*Gifts Revenues.*Gifts revenues were $5.2 million for the 13weeks ended April 1, 2006, an increase of $200,000 or 4.4 percent, from$5.0 million for the 13 weeks ended April 2, 2005. Gifts revenues consistof sales through our catalog and website as well as affiliations with otherwebsites and sales to large corporate accounts for gifting purposes andcommercial airlines. The increase in revenues for the 13 weeks ended April 1,2006 was due to increases in sales through our catalog and website of $100,000,national accounts of $300,000 and Internet search engines of $200,000,partially offset by reductions in sales to airline customers of $200,000 andour affiliations with other websites of $200,000.

 

*Gifts Expenses.*Gifts expenses were $6.6 million for the13 weeks ended April 1, 2006, an increase of $1.4 million or 26.4 percent,from $5.2 million for the 13 weeks ended April 2, 2005. This increase inexpenses was due to increases in cost of goods sold of $700,000, sellingexpenses of $500,000 principally for increased circulation of our catalogs andgeneral and administrative expenses of $200,000. The increase in general andadministrative expenses was due to increases in compensation and related costsof $100,000, recruiting and relocation costs of $100,000, severance costs of$100,000 and other administrative expenses of $200,000 partially offset by areduction in professional fees of $300,000.

 

**Licensing**

 

*LicensingRevenues.*Licensingrevenues were $600,000 for the 13 weeks ended April 1, 2006, a decrease of$500,000 or 43.8 percent, from $1.1 million for the 13 weeks ended April2, 2005. This decrease was due to decreases in licensing royalties earned underour licensing agreement for the sale of Mrs. Fields branded shelf stablecookies of $400,000, licensing royalties earned under an agreement for the saleof Mrs. Fields branded premium hot cocoa that was terminated in early 2005 of$100,000 and licensing royalties from the sale of TCBY frozen food specialtyproducts through retail channels of $100,000 partially offset by an increase inroyalties earned under our licensing agreement for the sale of TCBY yogurt coveredpretzels and other branded products of $100,000. Weanticipate the royalties earned under the terminated licensing agreement forthe sale of Mrs. Fields branded shelf stable cookies to continue to declineduring the transition of the license to either the Company or a new licensee.

 

*Licensing Expenses.*Licensing expenses were $200,000 for the 13weeks ended April 1, 2006, an increase of $100,000 or 61.3 percent, from$100,000 for the 13 weeks ended April 2, 2005. This increase was due to legalfees associated with litigation surrounding the termination of our licenseagreements for the sale of Mrs. Fields branded shelf stable cookies andready-to-eat, pre-baked cookie products.

 

**Other**

 

*General and Administrative Expense.*General andadministrative expenses were $2.9 million for the 13 weeks ended April 1, 2006,an increase of $900,000 or 42.6 percent, from $2.0 million for the 13 weeksended April 2, 2005. This increase was primarily due to reduction in thereimbursement amount for management services provided to our parent company,MFOC, of $500,000 as a result of the decrease in the number of stores operatedby MFOC, increases in severance costs of $300,000, salaries and relatedbenefits of $200,000 and health insurance expense of $100,000 partially offsetby a reduction in incentive compensation of $200,000.

 

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*Depreciation and AmortizationExpense.*Totaldepreciation and amortization expense was $900,000 for the 13 weeks ended April1, 2006, a decrease of $100,000 or 3.0 percent from $1.0 million for the13 weeks ended April 2, 2005. Depreciation expense was $400,000 for the 13weeks ended April 1, 2006, an increase of $100,000 or 49.1 percent, from$300,000 for the 13 weeks ended April 2, 2005. This increase was principallydue to the acceleration of depreciation expense associated with leaseholdimprovements in our existing gifting facility in anticipation of relocatingfrom that facility into a new facility in August 2006, which shortened theuseful life of these leasehold improvements. Amortization expense for the 13weeks ended April 1, 2006 was $500,000, a decrease of $200,000 or 23.7 percent,from $700,000 for the 13 weeks ended April 2, 2005. This decrease wasprincipally due to the impairment of certain intangible assets of TCBY in 2005which resulted in a lower carrying value of the intangible assets and loweramortization expense in future periods.

 

*Interest Expense, Net.*Interest expense, net was**$**5.2 million for the 13 weeksended April 1, 2006, a decrease of **$**200,000 or 2.3 percent, from$5.4 million for the 13 weeks ended April 2, 2005. The decrease ininterest expense, net was the result of a reduction in amortization of deferredloan costs and an increase in interest income earned on our cash balances.

 

**Consolidated Financial Condition**

 

Total assets at April 1, 2006 were $127.0 million, adecrease of $12.9 million or 9.2 percent, from $139.9 million atDecember 31, 2005. This decrease was primarily attributable to decreases incash and cash equivalents of $11.6 million as a result of our semi-annualinterest payment of $10.2 million, accounts receivables of $1.1 million,inventory of $300,000, trademarks and intangibles of $500,000 and deferred loancosts of $300,000 partially offset by increases in prepaid expenses and othercurrent assets of $600,000, property and equipment, net  of $100,000 and deferred tax assets of$200,000.

 

Total liabilities at April 1, 2006 were $210.5million, a decrease of $10.8 million or 4.9 percent, from$221.3 million at December 31, 2005. This decrease was primarily due todecreases in accounts payable of $3.8 million, accrued liabilities of $5.8million and amounts due affiliates of $1.4 million partially offset by anincrease in deferred revenues of $200,000.

 

###### ***Consolidated Cash Flows for the 13 Weeks Ended April 1, 2006Compared to April 2, 2006***

###### * *

Net cash flows used in operating activities were$11.2 million for the 13 weeks ended April 1, 2006, an increase of $5.0 millionfrom net cash flows used in operating activities of $6.2 million for the 13weeks ended April 2, 2005. This increase in cash used in operations wasprincipally due to a decrease in contribution by our operating segments of $2.6million, an increase in general and administrative expense of $900,000 anddecreases in cash provided from working capital assets and liabilities of $1.5million.

 

Net cash flows used in investing activities were$400,000 for the 13 weeks ended April 1, 2006, an increase of $200,000 fromcash used in investing activities of $200,000 for the 13 weeks ended April 2,2005. This increase was attributable to increases in purchases of property andequipment of $300,000 partially offset by proceeds from the sale of equitywarrants in Nonni’s Food Company of $100,000.

 

Net cash flows used in financing activities werenegligible for the 13 weeks ended April 1, 2006 and for the 13 weeks endedApril 2, 2005.

 

###### ***Liquidity and Capital Resources***

###### * *

Ourprincipal sources of liquidity are cash flows from operating activities andcash on hand. At April 1, 2006, we had $12.0 million of cash on hand. Duringfiscal 2006, we expect that our principal uses of cash will be for workingcapital, capital expenditures of approximately $4.0 million primarily forleasehold improvements and equipment for our new gifts facility and interestpayments on our Senior Secured Notes of $20.5 million, of which $10.25 millionwas paid on March 15, 2006. During fiscal 2006, we will not be required but wemay offer to repurchase a portion of the Senior Secured Notes as describedbelow. In addition, to the extent we have cash available and it is permitted bythe indenture agreement, we may pay dividends to our parent companies for usessuch as acquisitions, debt repayments and dividends. We believe that cashprovided by operating activities and cash on hand will be adequate to meet ourcash requirements for the next 12 months*.*

 

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We arehighly leveraged. At April 1, 2006, we had $195.7 million of long-term debtrepresented by the Senior Secured Notes. The Senior Secured Notes mature onMarch 15, 2011, with interest payable semi-annually on March 15 andSeptember 15. Due to borrowing restrictions under the indenture governingthe Senior Secured Notes, our ability to obtain additional debt financing issignificantly limited. The Senior Secured Notes require us to offer torepurchase a portion of the notes at 100 percent of the principal amount,plus accrued and unpaid interest thereon to the date of purchase, with50 percent of our “excess cash flow”, as defined in the indentureagreement, when the ratio of our net indebtedness to consolidated EBITDA isabove 3.75 to 1.0 and the cumulative unpaid excess cash flow offer amountexceeds $10.0 million. For a more detailed description of the material terms ofthe Senior Secured Notes, see Note 3 to our consolidated financial statementsincluded in our Annual Report on Form 10-K filed with the SEC on March 21,2006.

 

**Inflation**

 

The impact of inflation on our business has not beensignificant in recent years. Some of our employees are paid hourly wages at theFederal minimum wage level. Minimum wage increases will negatively impact ourpayroll 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.

 

**Critical Accounting Policies**

 

The preparation of financialstatements requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, disclosure of contingent assetsand liabilities and the reported amounts of revenues and expenses in ourconsolidated financial statements. Management has reviewed with our AuditCommittee the accounting policies that it uses to prepare our consolidatedfinancial statements and believes that the following policies are the mostimportant to the portrayal of our financial condition and the results of ouroperations while requiring the use of judgments and estimates about the effectsof matters that are inherently uncertain.

 

*Impairment ofGoodwill*. Goodwill is notamortized, but is subject to an annual assessment for impairment, or morefrequently if circumstances indicate potential impairment, through a comparisonof fair value to its carrying amount. The two-step approach to assess ourgoodwill impairment requires that we first compare the estimated fair value ofeach reporting unit with goodwill to the carrying amount of the reporting unit’sassets and liabilities, including its goodwill. If the fair value of thereporting unit is below its carrying amount, then the second step of theimpairment test is performed, in which the current fair value of the reportingunit’s assets and liabilities will determine the current implied fair value ofthe reporting unit’s goodwill.

 

On an annual basis (in the fourthquarter), we complete an evaluation of goodwill associated with our variousreporting units. To the extent that the fair value associated with goodwill isdetermined to be less than the recorded value, we write down the value of therelated goodwill. The estimated fair value of goodwill is affected by, amongother things, our business plan for the future, estimated results of futureoperations and the comparable companies and transactions that are used toestimate the fair value of our goodwill. Changes in the business plan oroperating results that are different than the projections used to develop thevaluation of goodwill may have an impact on the valuation of the goodwill.

 

In conducting our impairmentanalyses, we perform analyses and tests of our goodwill with respect to ourreporting units. The test methods employed involve assumptions concerninguseful lives of intangible assets, interest and discount rates, projections andother assumptions of future business conditions. The assumptions employed arebased on management’s judgment using internal and external data.

 

*Impairment ofLong-lived and Certain Identifiable Intangible Assets*. We review our long-lived assets for impairmentwhen circumstances indicate that the book value of an asset may not be fullyrecovered by the undiscounted net cash flow generated over the remaining lifeof the related asset or group of assets. If the cash flows generated by theasset are not sufficient to recover the remaining book value of the asset, weare required to write down the value of the asset to its estimated fair value. Inevaluating whether the asset will generate sufficient cash flow to recover itsbook value, we estimate the amount of cash flow that will be generated by theasset and the remaining life of the asset. In making our estimate, we considerthe performance trends related to the asset, the likelihood that the trendswill continue or change, both at the asset level as well as at the nationaleconomic level, and the length of time that we expect to retain the asset.

 

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*Allowance forDoubtful Accounts.*We sellproducts to and receive royalties from our franchisees and sell products toother customers. Sometimes these franchisees and customers are unable orunwilling to pay for the products that they receive or royalties that they owe.Factors that affect our ability to collect amounts that are due to us includethe financial strength of a franchisee or customer and its operations, theeconomic strength of the mall where the franchisee is located and the overallstrength of the retail economy. We are required to establish an estimatedallowance for the amounts included in accounts receivable that we will not beable to collect in the future. To establish this allowance, we evaluate thecustomer’s or franchisee’s financial strength, payment history, reported salesand the availability of collateral to offset potential losses. If theassumptions that are used to determine the allowance for doubtful accountschange, we may have to provide for a greater level of expense in future periodsor reverse amounts provided in prior periods.

 

*RevenueRecognition*. We recognizerevenues from our initial franchising fees and licensing fees when all materialservices or conditions relating to the franchising or licensing have beensubstantially performed or satisfied, which is generally upon the opening of astore by a franchisee or licensee. We recognize franchise and licenseroyalties, which are based on a percentage of gross store sales, as earned,which is generally upon sale of product by franchisees or licensees. Minimumroyalty payments under certain licensing agreements are deferred and recognizedon a straight-line basis over the term of the agreement. We recognize revenuesfrom the sale of cookie dough that we produce and sell to certain franchiseesat the time of shipment and classify them in franchising revenues. We recognizerevenues from the sale of cookie dough to grocery stores and wholesale clubsupon shipment and include them in other revenues. We recognize revenues fromgift sales at the time of shipment.

 

We receive cash payments for product formulationfees and allowances from suppliers based on the amount of product purchaseddirectly by our distributors and franchisees. These product formulation feesand allowances represent cash payments to us for the right to use ourproprietary formulations and recipes to manufacture the frozen dough, doughmixes and TCBY products these suppliers sell to our franchisees. Formulationfees and allowances are recorded as franchising revenues upon shipment ofproduct to our distributors or franchisees. For the 13 weeks ended April 1,2006 and April 2, 2005, we included in franchising revenues $2.6 million and$3.1 million, respectively, for product formulation fees and allowances.

 

# **Item3. Quantitative and Qualitative Disclosures About Market Risk**

# ** **

There have been no significant changes in marketrisks since the end of the Company’s fiscal year ended December 31, 2005. Formore information, please read Item 7A and the consolidated financial statementsand notes thereto included in our Annual Report on Form 10-K, filed with theSEC on March 21, 2006.

 

# **Item4. Controls and Procedures**

# ** **

The Company’s management, with the participation ofthe Company’s Chief Executive Officer and Chief Accounting Officer, evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of theend of the period covered by this report. Based on that evaluation, the ChiefExecutive Officer and Chief Accounting Officer concluded that the Company’sdisclosure controls and procedures, as of the end of the period covered by thisreport, are functioning effectively to provide reasonable assurance that theinformation required to be disclosed by the Company in reports filed under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms. A controlssystem, no matter how well designed and operated, cannot provide absoluteassurance that the objectives of the controls system are met, and no evaluationof controls can provide absolute assurance that all control issues andinstances of fraud, if any, within a company have been detected.

 

There has been no change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of 1934) that occurred during our fiscal quarter endedApril 1, 2006, that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**PART II –OTHER INFORMATION**

 

# **Item 1. Legal Proceedings**

# ** **

The Company and itsproducts 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 ordinary courseof business, the Company is involved in routine litigation, including franchisedisputes and trademark disputes. The Company is not a party to any legalproceedings (including the matter described below) that, in the opinion ofmanagement, after consultation with legal counsel, is material to its business,financial condition or results of operations.

 

As discussed in theCompany’s Annual Report on Form 10-K filed with the Securities andExchange Commission (“SEC”) on March 21, 2006, Shadewell Grove IP, LLC (“Shadewell”)filed a Verified Complaint, Motion for Restraining Order and related documents(the “Action”) in the Court of Chancery of the State of Delaware against Mrs.Fields Franchising, LLC, a wholly-owned subsidiary of the Company (“MFF”), inOctober 2005. The Action arose from MFF’s termination of certain licenseagreements for Shadewell’s failure to make certain payments to MFF in a timelymanner. In the Action, Shadewell alleged that the license agreements wereimproperly terminated by MFF. Among other relief, Shadewell sought a courtorder that the license agreements would remain in full force and effect andthat MFF must specifically perform its obligations under the agreements. On May8, 2006, the court ruled in our favor on all issues. Currently, the partiescontinue to fulfill their obligations under the terminated license agreements.

 

**Item1A. Risk Factors**

 

There have been nomaterial changes in our risk factors from those disclosed in our Annual Reporton Form 10-K filed with the SEC on March 21, 2006.

 

# **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 Accounting 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  Accounting Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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# **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                               |     | May  12, 2006 |   |
| *Stephen Russo*                                 | *Date*   |
| *President and Chief Executive  Officer*        | * * |
| *(Principal Executive  Officer)*                | * * |
| * *                                        | * * |
| * *                                        | * * |
| /s/ Mark C. McBride                             |     | May  12, 2006 |   |
| *Mark C. McBride*                               | *Date*   |
| *Chief Accounting Officer*                      | * * |
| *(Principal Financial  and Accounting Officer)* | * * |

 

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