**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

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

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**FORM 10-Q**

**(Mark One)**
| **x**                                                                                                                                                                                                                                                                         | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                          |                                                                                          |
| **For the  quarterly period ended March 31, 2007**                                                                                                                                                                                                                            |
| ** **                                                                                                                                                                                                                                                                    |
| **OR**                                                                                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                                                                    |
| **o**                                                                                                                                                                                                                                                                         | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                          |                                                                                          |
| **For the  transition period from                     to                     ** |

** **

**Commission file number: 333-115046**

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

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

YES x NO o

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

Large AcceleratedFiler o                          AcceleratedFiler o                             Non-acceleratedfiler x

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

On May14, 2007, 100 common interests of registrant were outstanding, all of which areheld by an affiliate.  There is noestablished trading market for registrant's common interests.

 

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

**TABLE OFCONTENTS**
| **PART I – FINANCIAL  INFORMATION** |                                                                                                                             |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                             |   |
| Item 1.                                  | Financial Statements  (Unaudited)                                                                                                |   |
|                                     |                                                                                                                             |   |
|                                     | Condensed  Consolidated Balance Sheets as of March 31, 2007 and December 30, 2006                                                |   |
|                                     |                                                                                                                             |   |
|                                     | Condensed  Consolidated Statements of Operations and Comprehensive Loss for the 13 weeks  ended March 31, 2007 and April 1, 2006 |   |
|                                     |                                                                                                                             |   |
|                                     | Condensed  Consolidated Statements of Cash Flows for the 13 weeks ended March 31, 2007  and April 1, 2006                        |   |
|                                     |                                                                                                                             |   |
|                                     | Notes to Condensed  Consolidated Financial Statements                                                                            |   |
|                                     |                                                                                                                             |   |
| Item 2.                                  | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                           |   |
|                                     |                                                                                                                             |   |
| Item 3.                                  | Quantitative  and Qualitative Disclosures About Market Risk                                                                      |   |
|                                     |                                                                                                                             |   |
| Item 4.                                  | Controls and  Procedures                                                                                                         |   |
|                                     |                                                                                                                             |   |
| **PART II – OTHER  INFORMATION**    | ** **                                                                                                                       |
|                                     |                                                                                                                             |   |
| Item 1.                                  | Legal Proceedings                                                                                                                |   |
|                                     |                                                                                                                             |   |
| Item 1A.                                 | Risk Factors                                                                                                                     |   |
|                                     |                                                                                                                             |   |
| Item 6.                                  | Exhibits                                                                                                                         |   |
|                                     |                                                                                                                             |   |
| SIGNATURES                               |                                                                                                                             |

 

2

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# **PART I –FINANCIAL INFORMATION**

# **Item 1. Financial Statements**

**MRS. FIELDSFAMOUS BRANDS, LLC**

**Condensed Consolidated Balance Sheets**

(in thousands)

(Unaudited)
| ** **                                                                                 | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                 | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ASSETS:                                                                                    |       |               |       |                  |       |
| Cash and cash  equivalents                                                                 |       | $                  | 5,676      |                  | $          | 15,963 |   |
| Receivables, net  of allowance for doubtful accounts of $809 and $692, respectively        |       | 8,388              |       | 10,639                |       |
| Amounts due from  affiliates                                                               |       | 41                 |       | —                |       |
| Inventories                                                                                |       | 3,799              |       | 3,977                 |       |
| Prepaid expenses  and other                                                                |       | 686                |       | 720                   |       |
| Deferred tax  asset                                                                        |       | —             |       | 734                   |       |
| Total current  assets                                                                      |       | 18,590             |       | 32,033                |       |
|                                                                                       |       |               |       |                  |       |
| Property and  equipment, net                                                               |       | 7,655              |       | 8,169                 |       |
| Goodwill                                                                                   |       | 64,115             |       | 64,115                |       |
| Trademarks and  other intangible assets, net                                               |       | 10,253             |       | 10,745                |       |
| Deferred loan  costs, net of accumulated amortization of $11,097 and $10,810, respectively |       | 5,830              |       | 6,118                 |       |
| Deferred tax  asset                                                                        |       | —             |       | 9                     |       |
| Other assets                                                                               |       | 358                |       | 531                   |       |
| Total assets                                                                               |       | $                  | 106,801    |                  | $          | 121,720 |   |
|                                                                                       |       |               |       |                  |       |
| LIABILITIES AND MEMBER’S  DEFICIT:                                                    |       |               |       |                  |       |
| Accounts payable                                                                           |       | $                  | 4,558      |                  | $          | 9,621 |   |
| Accrued  liabilities                                                                       |       | 8,764              |       | 14,750                |       |
| Amounts due to  affiliates                                                                 |       | 3,439              |       | 3,788                 |       |
| Current portion  of capital lease obligations                                              |       | 121                |       | 119                   |       |
| Current portion  of deferred revenues                                                      |       | 1,138              |       | 1,069                 |       |
| Total current  liabilities                                                                 |       | 18,020             |       | 29,347                |       |
|                                                                                       |       |               |       |                  |       |
| Long-term debt                                                                             |       | 195,747            |       | 195,747               |       |
| Capital lease  obligations, net of current portion                                         |       | 353                |       | 385                   |       |
| Deferred  revenues, net of current portion                                                 |       | 667                |       | 751                   |       |
| Other  liabilities                                                                         |       | 1,202              |       | 1,254                 |       |
| Total  liabilities                                                                         |       | 215,989            |       | 227,484               |       |
|                                                                                       |       |               |       |                  |       |
| Commitments and  Contingencies                                                             |       |               |       |                  |       |
|                                                                                       |       |               |       |                  |       |
| Member’s deficit                                                                      |       | (109,035           | )          | (105,614              | )          |
| Accumulated  other comprehensive loss                                                      |       | (153               | )          | (150                  | )          |
| Total member’s  deficit                                                               |       | (109,188           | )          | (105,764              | )          |
| Total liabilities and  member’s deficit                                               |       | $                  | 106,801    |                  | $          | 121,720 |   |

 

**See accompanying notes tounaudited condensed consolidated financial statements.**

3

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Condensed Consolidated Statements of Operations andComprehensive Loss**

(in thousands)

(Unaudited)
| ** **                                       | ** ** | **13 Weeks Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **March 31,**           | ** ** | **April 1,** | ** ** |
| ** **                                       | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| REVENUES:                                        |       |                         |       |   |   |
| Mrs. Fields                                      |       | $                            | 11,482     |   | $ | 7,962 |   |
| GAC/Pretzels                                     |       | 7,736                        |       | 7,490 |   |
| Dairy                                            |       | 2,345                        |       | 2,763 |   |
| Total revenues                                   |       | 21,563                       |       | 18,215 |   |
|                                             |       |                         |       |   |   |
| OPERATING COSTS  AND EXPENSES:                   |       |                         |       |   |   |
| Mrs. Fields                                      |       | 10,058                       |       | 7,401 |   |
| GAC/Pretzels                                     |       | 3,717                        |       | 3,795 |   |
| Dairy                                            |       | 1,842                        |       | 1,595 |   |
| General and administrative                       |       | 2,406                        |       | 2,908 |   |
| Depreciation                                     |       | 526                          |       | 416 |   |
| Amortization                                     |       | 517                          |       | 538 |   |
| Gain on sale of land held for sale               |       | (128                         | )          | — |   |
| Total operating costs and expenses               |       | 18,938                       |       | 16,653 |   |
| Income from operations                           |       | 2,625                        |       | 1,562 |   |
| Interest expense, net                            |       | (5,293                       | )          | (5,230 | ) |
| Other income                                     |       | —                       |       | 122 |   |
| Loss before provision (benefit) for income taxes |       | (2,668                       | )          | (3,546 | ) |
| Provision  (benefit) for income taxes            |       | 10                           |       | (1,441 | ) |
|                                             |       |                         |       |   |   |
| Net loss                                         |       | $                            | (2,678     | ) | $ | (2,105 | ) |
|                                             |       |                         |       |   |   |
| COMPREHENSIVE  LOSS:                             |       |                         |       |   |   |
| Net loss                                         |       | $                            | (2,678     | ) | $ | (2,105 | ) |
| Foreign currency translation adjustment          |       | (3                           | )          | (2 | ) |
| Comprehensive  loss                              |       | $                            | (2,681     | ) | $ | (2,107 | ) |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

4

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Condensed Consolidated Statements of Cash Flows**

(in thousands)

(Unaudited)
| ** **                                                                   | ** ** | **13 Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,**           | ** ** | **April 1,** | ** ** |
| ** **                                                                   | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                       |       |                         |       |   |   |
| Net loss                                                                     |       | $                            | (2,678     | ) | $ | (2,105 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                         |       |   |   |
| Depreciation and amortization                                                |       | 1,043                        |       | 954 |   |
| Amortization of deferred loan costs                                          |       | 288                          |       | 300 |   |
| Gain on non-marketable securities                                            |       | —                       |       | (122 | ) |
| Gain on sale of land held for sale                                           |       | (128                         | )          | — |   |
| Deferred income taxes                                                        |       | —                       |       | (160 | ) |
| Changes in assets and liabilities:                                           |       |                         |       |   |   |
| Receivables                                                                  |       | 2,251                        |       | 1,064 |   |
| Inventories                                                                  |       | 178                          |       | 318 |   |
| Prepaid expenses and other                                                   |       | 34                           |       | (598 | ) |
| Other assets                                                                 |       | (2                           | )          | (89 | ) |
| Accounts payable                                                             |       | (5,063                       | )          | (3,754 | ) |
| Accrued liabilities                                                          |       | (5,986                       | )          | (5,817 | ) |
| Amounts due to/from affiliates                                               |       | (390                         | )          | (1,459 | ) |
| Deferred revenues                                                            |       | (15                          | )          | 247 |   |
| Other liabilities                                                            |       | (52                          | )          | — |   |
| Net cash used in operating activities                                        |       | (10,520                      | )          | (11,221 | ) |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                       |       |                         |       |   |   |
| Proceeds from sale of non-marketable securities                              |       | —                       |       | 122 |   |
| Proceeds from sale of land held for sale                                     |       | 278                          |       | — |   |
| Purchases of property and equipment                                          |       | (12                          | )          | (522 | ) |
| Net cash provided by (used in) investing activities                          |       | 266                          |       | (400 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                       |       |                         |       |   |   |
| Principal payments on capital leases                                         |       | (30                          | )          | (26 | ) |
| Net cash used in financing activities                                        |       | (30                          | )          | (26 | ) |
| Effect of  foreign exchange rate changes on cash                             |       | (3                           | )          | (2 | ) |
| Net decrease in  cash and cash equivalents                                   |       | (10,287                      | )          | (11,649 | ) |
| Cash and cash  equivalents at beginning of period                            |       | 15,963                       |       | 23,664 |   |
| Cash and cash  equivalents at end of period                                  |       | $                            | 5,676      |   | $ | 12,015 |   |
|                                                                         |       |                         |       |   |   |
| **Supplemental  Disclosures of Cash Flow Information:**                      | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Cash paid for interest                                                       |       | $                            | 10,261     |   | $ | 10,261 |   |
| **Supplemental  Disclosure of Noncash Investing and Financing Activities:**  | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Distribution to  parent under tax allocation agreement                       |       | $                            | 743        |   | $ | — |   |

 

**See accompanying notes to unaudited condensed consolidatedfinancial statements.**

5

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to Condensed Consolidated Financial Statements**

(Unaudited)

**1. Description of Business**

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

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

·      Mrs. Fields Branded Retail

·      Mrs. Fields Franchising

·      Mrs. Fields Licensing

·      GAC/Pretzels

·      Dairy |  | (collectively “Mrs. Fields”) |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|----------------------------------------|

 

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

**2.     Basisof Presentation**

The accompanyingunaudited condensed consolidated financial statements of the Company have beenprepared in accordance with U.S. generally accepted accounting principles (“GAAP”)for interim financial information the instructions to Form 10-Q and Article 10of Regulation S-X.   Accordingly they donot include all of the information and footnotes required by GAAP for completefinancial statements.  In the opinion ofmanagement, all adjustments, consisting only of normal recurring accruals,considered necessary for a fair presentation have been included. Income percommon interest information is not presented because the Company iswholly-owned by MFOC and, therefore, its common interests are not publiclytraded.  These unaudited condensedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements and notes thereto for the fiscal yearended December 30, 2006 contained in the Company’s Annual Report on Form 10-K.

The preparation offinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from theseestimates.

In connection with theCompany’s reorganization and change in business segments, certain prior yearamounts in the audited consolidated financial statements and supporting notedisclosures have been reclassified to conform to the current year presentation.The Company reclassified prior year revenues and expenses as follows:

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

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

Such reclassification didnot impact previously reported net loss or accumulated deficit.

6

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**3. Receivables**

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

Prior to fiscal 2001,TCBY Systems, LLC (“TCBY”), a wholly-owned subsidiary of the Company, extendedcredit from time to time in the form of notes receivable to franchisees andcertain of these notes receivable remain outstanding.  Notes receivable from franchisees areprimarily collateralized by equipment located at the franchisees’ stores.  These notes bear interest at market rates atthe time the notes were issued and mature at various dates throughApril 2009.  TCBY regularly reviewsthe notes for non-performance.  Notesthat are considered non-performing are placed on a non-accrual status when thecollectibility of principal or interest becomes uncertain.  During the 13 weeks ended March 31, 2007 andApril 1, 2006, TCBY recognized no interest income pertaining to these notesreceivable.

Prior to fiscal 2001,TCBY factored various notes receivable aggregating $2.1 million.  Under the terms of the factoring agreement,TCBY is ultimately responsible to the factoring agent for the realizability ofthe notes receivable.  In the event ofnon-performance, the factoring agent has recourse against TCBY to a maximumlevel of $233,000 and $269,000 as of March 31, 2007 and December 30, 2006,respectively, which the Company has reserved 100 percent for this potentialrecourse liability.  This reserve isincluded in accrued liabilities in the accompanying condensed consolidatedbalance sheets.

Notes receivable arecomposed of the following (in thousands):
|                                  | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|----------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Performing notes                 |       | $                  | 44         |                  | $          | 59 |   |
| Allowance for  doubtful accounts |       | (16                | )          | (19                   | )          |
|                             |       | $                  | 28         |                  | $          | 40 |   |

 

The activity in theallowance for doubtful accounts for notes receivable is as follows (inthousands):
|                   | ** ** | **For the 13 Weeks Ended** | ** ** |
|-------------------|------------|------------------------------------------------|------------|
| ** **        | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** **        | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Beginning balance |       | $                                              | 19         |   | $ | 69 |   |
| Reversals, net    |       | (3                                             | )          | (11 | ) |
|              |       | $                                              | 16         |   | $ | 58 |   |

 

7

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**4. Inventories**

Inventories,consisting of finished goods, raw materials, novelties and packaging, arestated at the lower of cost (first-in, first-out method) or market value.  Inventories are composed of the following (inthousands):
|                | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|----------------|------------|--------------------|------------|-----------------------|------------|
| ** **     | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Finished goods |       | $                  | 1,534      |                  | $          | 1,663 |   |
| Raw Materials  |       | 983                |       | 1,071                 |       |
| Novelties      |       | 905                |       | 803                   |       |
| Packaging      |       | 377                |       | 440                   |       |
|           |       | $                  | 3,799      |                  | $          | 3,977 |   |

 

**5. Property and Equipment**

Equipment and fixturesare stated at cost less accumulated depreciation and are depreciated over threeto seven years using the straight-line method. Leasehold improvements are stated at cost less accumulated depreciationand are depreciated over the shorter of the term of the lease or the estimateduseful life using the straight-line method. Property and equipment are composed of the following (in thousands):
|                                | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|--------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Equipment and fixtures         |       | $                  | 11,689     |                  | $          | 11,682 |   |
| Leasehold  improvements        |       | 7,003              |       | 6,997                 |       |
| Land                           |       | 240                |       | 240                   |       |
|                           |       | 18,932             |       | 18,919                |       |
| Less accumulated  depreciation |       | (11,277            | )          | (10,750               | )          |
|                           |       | $                  | 7,655      |                  | $          | 8,169 |   |

 

Property andequipment at March 31, 2007 and December 30, 2006 included gross assetsacquired under capital leases of $718,000 and related accumulated depreciationof $290,000 and $259,000, respectively.

Expenditures thatmaterially extend useful lives of property and equipment are capitalized.  Routine maintenance, repairs and renewalcosts are expensed as incurred.  Gains orlosses from the sale or retirement of property and equipment are recorded inincome from operations.

Included inleasehold improvements at March 31, 2007 is $1.3 million, less $115,000 ofaccumulated depreciation, representing amounts for tenant improvements providedas lease incentives by the lessor related to the lease for the Company’s newgifting operations facility.  Deferredrent at March 31, 2007 and December 31, 2006 of $125,000 is included in accruedliabilities and $1.0 million in other liabilities relating to these leaseincentives.  The total amount of theseleasehold improvements and deferred rent are amortized over the life of thelease.

During the 13weeks ended March 31, 2007, the Company sold land held for sale for $278,000,resulting in a gain of $128,000.  Landheld for sale at December 30, 2006 was included in other assets.

8

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

The Companyaccounts for goodwill and other intangible assets in accordance with SFASNo. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.”  Goodwill and intangible assets acquired in apurchase business combination and determined to have an indefinite useful lifeare not amortized, but are tested for impairment at least annually inaccordance with the provisions of SFAS 142.  SFAS 142 also requires that intangibleassets with estimable useful lives be amortized over their respective estimateduseful lives to their estimated residual values and be reviewed for impairmentin accordance with SFAS No. 144 (“SFAS 144”), “Accounting for Impairmentor Disposal of Long-Lived Assets.”

Thefollowing outlines the Company’s goodwill by operating segment (in thousands):

|                          | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|--------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| GAC/Pretzels             |       | $                  | 54,913     |                  | $          | 54,913 |   |
| Mrs. Fields  Franchising |       | 5,491              |       | 5,491                 |       |
| Mrs. Fields  Gifts       |       | 1,859              |       | 1,859                 |       |
| Mrs. Fields  Licensing   |       | 1,852              |       | 1,852                 |       |
|                     |       | $                  | 64,115     |                  | $          | 64,115 |   |

 

The Mrs. Fields Branded Retail and Dairyoperating segments had no goodwill at March 31, 2007 and December 30,2006.

**7. Accrued Liabilities**

Accrued liabilities arecomposed of the following (in thousands):

|                                    | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Accrued  liabilities               |       | $                  | 5,310      |                  | $          | 5,452 |   |
| Accrued  compensation and benefits |       | 1,602              |       | 1,408                 |       |
| Accrued  severance                 |       | 941                |       | 1,856                 |       |
| Accrued interest  payable          |       | 911                |       | 6,034                 |       |
|                               |       | $                  | 8,764      |                  | $          | 14,750 |   |

 

The accruedseverance at March 31, 2007 and December 30, 2006 relates primarily toseverance accrued as a result of the Company’s reorganization in January 2007resulting in a reduction of personnel. In accordance with SFAS No. 112, “Employers’ Accounting forPostemployment Benefits – An Amendment to FASB Statements No. 5 and No. 43,”the Company accrued approximately $1.7 million of severance costs in fiscal2006 related to this reorganization as it was probable and estimable atDecember 30, 2006.

The activity in accrued severance for the13 weeks ended March 31, 2007 is as follows (in thousands):

|                    | ** ** | **March 31,** | ** ** |
|--------------------|------------|--------------------|------------|
| ** **         | ** ** | **2007**           | ** ** |
| Beginning  balance |       | $                  | 1,856      |   |
| Payments           |       | (915               | )          |
|               |       | $                  | 941        |   |

 

9

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**8. Related-Party Transactions**

The amounts due to/from affiliates are composed of thefollowing (in thousands):
|                              | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Amounts due from  affilates: |       |               |       |                  |       |
| MFOC                         |       | $                  | 41         |                  | $          | — |   |
|                         |       |               |       |                  |       |
| Amounts due to  affilates:   |       |               |       |                  |       |
| MFC - tax sharing            |       | $                  | 3,166      |                  | $          | 3,166 |   |
| MFOC                         |       | —             |       | 349                   |       |
| MFH                          |       | 273                |       | 273                   |       |
|                         |       | $                  | 3,439      |                  | $          | 3,788 |   |

 

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

Additionally, the tax allocation agreement with MFCdoes not allow for the carry-back of net operating losses.  Under the tax allocation agreement, theCompany’s net operating losses must be carried forward when determining paymentto MFC.  As a result, the current benefitof the federal net operating loss of $743,000 was recorded as a distribution toparent for the 13 weeks ended March 31, 2007.

**9. Reportable Segments**

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

The Company has the following six reportable operatingsegments:
|  | ·      Mrs. Fields Gifts

·      Mrs. Fields Branded Retail

·      Mrs. Fields Franchising

·      Mrs. Fields Licensing

·      GAC/Pretzels

·      Dairy |  | (collectively “Mrs.  Fields”) |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|-----------------------------------------|

 

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

10

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

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

The Mrs. Fields Branded Retail operating segmentincludes sales generated directly from the sale of Mrs. Fields products throughvarious retail channels.  As discussed inNote 9 “Reportable Segments” in the Company’s Annual Report on Form 10-K, filedwith the Securities and Exchange Commission on March 21, 2007, the Companycommenced selling shelf stable cookies in July 2006 directly through retailchannels following the termination of certain license agreements.  Prior to this time, our branded retailactivities consisted only of sales of Mrs. Fields branded cookie dough directlythrough retail channels.

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

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

Segment revenues and contribution are presented in thefollowing table (in thousands):
|                            | ** ** | **For the 13 Weeks Ended** | ** ** |
|----------------------------|------------|------------------------------------------------|------------|
| ** **                 | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** **                 | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Revenues:                  |       |                                           |       |   |   |
| Mrs. Fields Gifts          |       | $                                              | 4,895      |   | $ | 5,178 |   |
| Mrs. Fields Branded Retail |       | 4,503                                          |       | 34 |   |
| Mrs. Fields Franchising    |       | 1,884                                          |       | 2,110 |   |
| Mrs. Fields Licensing      |       | 200                                            |       | 640 |   |
| Total Mrs. Fields          |       | 11,482                                         |       | 7,962 |   |
| GAC/Pretzels               |       | 7,736                                          |       | 7,490 |   |
| Dairy                      |       | 2,345                                          |       | 2,763 |   |
|                       |       | $                                              | 21,563     |   | $ | 18,215 |   |
| Contribution:              |       |                                           |       |   |   |
| Mrs. Fields Gifts          |       | $                                              | (484       | ) | $ | (1,454 | ) |
| Mrs. Fields Branded Retail |       | 394                                            |       | (1 | ) |
| Mrs. Fields Franchising    |       | 1,324                                          |       | 1,605 |   |
| Mrs. Fields Licensing      |       | 190                                            |       | 411 |   |
| Total Mrs. Fields          |       | 1,424                                          |       | 561 |   |
| GAC/Pretzels               |       | 4,019                                          |       | 3,695 |   |
| Dairy                      |       | 503                                            |       | 1,168 |   |
|                       |       | $                                              | 5,946      |   | $ | 5,424 |   |

 

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The reconciliation of contribution to loss before provision(benefit) for income taxes is as follows (in thousands):
|                                                   | ** ** | **For the 13 Weeks Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                        | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** **                                        | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Contribution                                      |       | $                                              | 5,946      |   | $ | 5,424 |   |
| General and  administrative expenses              |       | (2,406                                         | )          | (2,908 | ) |
| Depreciation and  amortization                    |       | (1,043                                         | )          | (954 | ) |
| Gain on sale of  land held for sale               |       | 128                                            |       | — |   |
| Interest  expense, net                            |       | (5,293                                         | )          | (5,230 | ) |
| Other income                                      |       | —                                         |       | 122 |   |
| Loss before  provision (benefit) for income taxes |       | $                                              | (2,668     | ) | $ | (3,546 | ) |

 

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

Revenues from franchisees,customers and licensees within the United States of America were $20.8 millionand $17.9 million or 96.3 percent and 98.4 percent of total revenues for the 13weeks ended March 31, 2007 and April 1, 2006, respectively.  Revenues from international franchisees,customers and licensees were $800,000 and $300,000 or 3.7 percent and 1.6percent of total revenues for the 13 weeks ended March 31, 2007 and April 1,2006, respectively.  Revenues from anysingle foreign country were not material. Providing geographical information regarding long-lived assets isimpracticable.

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

The Mrs. FieldsGifts operating segment has one customer that accounted for $743,000 and$918,000, or 15.2 percent and 17.7 percent of revenues for the 13 weeksended March 31, 2007 and April 1, 2006, respectively.

The Mrs. FieldsBranded Retail operating segment is not dependent upon any single customer.

For the 13 weeksended March 31, 2007 and April 1, 2006, respectively, the Mrs. Fields Licensingoperating segment had one licensee that accounted for approximately $84,000 and$119,000 or 41.9 percent and 18.6 percent of the revenues; one licensee thataccounted for approximately $32,000 and $0 or 15.9 and 0 percent of therevenues; one licensee that accounted for approximately $30,000 and $30,000 or15.0 percent and 4.7 percent of the revenues; one licensee that accounted forapproximately $18,000 and $365,000 or 9.0 percent and 57.1 percent of therevenues; and one licensee that accounted for approximately $0 and $91,000 or 0percent and 14.2 percent of the revenues. A majority of the 2006 licensing revenues were attributable to licensesthat have been terminated.

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**10.  Share-Based Compensation**

***Phantom Stock Plan***

Effective May 23, 2004, the Board of Directors of MFCapproved adoption of the Phantom Stock Plan of Mrs. Fields’ Companies, Inc.(the “Phantom Plan”).  The purpose of thePhantom Plan is to provide long-term incentives to key employees of MFC or itssubsidiaries (the “Participants”) as determined by the Compensation Committeeof the Board of Directors (the “Committee”). The Phantom Plan is unfunded and Participants do not receive any paymentunder the Phantom Plan until the completion of the first to occur of: (i) asale of substantially all of the assets of MFC; (ii) a public offering of MFC’sCommon Stock where MFC receives proceeds, net of any underwriter’s discountsand expenses, of not less than $50 million; or (iii) any stock sale, merger orother transaction where the owners of Common Stock immediately before thetransaction do not own in excess of 50 percent of the common stock of theentity surviving such sale, merger or other transaction (a “Triggering Event”).

Participants receive performance units in amountsrecommended by the Chief Executive Officer and determined by theCommittee.  Once issued, performanceunits may only be forfeited upon certain events, such as a participant’svoluntary termination or termination for cause. Additionally, the Phantom Plan may be terminated by the Board ofDirectors at any time at its sole discretion. Upon the completion of a Triggering Event, Participants receive paymentsreflecting the number and value of their performance units at the time of thecompletion of the Triggering Event. Payments to Participants may be made in cash or through issuance ofequity securities of MFC, as determined by the Committee, at which time compensationexpense will be recognized.  The value ofa performance unit at the completion of a Triggering Event is the value of oneshare of common stock of MFC as determined in good faith by the Board ofDirectors.  If the Board of Directorsdetermines the need, it may seek the advice of an independent advisor.

The maximum number of performance units that may begranted under the Phantom Plan is one million units. Subdivisions, splits orcombinations involving MFC’s Common Stock will proportionately affect thenumber of performance units that have been awarded under the Phantom Plan.  In May 2004, the Committee approved the grantof up to 392,418 performance units allocated among Participants as determinedby the Committee.  In March 2006, theCommittee approved the grant of up to 182,274 additional units to Participantsidentified by the Committee, resulting in total authorized grants of up to574,692 performance units.  During the 13weeks ended March 31, 2007, there were no performance units granted to Participants.Future grants, if any, shall also be determined by the Committee.  As of March 31, 2007 and December 31, 2006, atotal of 460,130 performance units are issued and outstanding.

SFAS No. 123(R) (“SFAS (R)”), “Share-Based Payment”,applies to all of the Company’s outstanding grants under the Phantom Plan.  There are no other employee share-basedpayment awards outstanding.  Compensationcosts for the grants under the Phantom Plan will be recognized upon the completionof a Triggering Event.  Accordingly, nocompensation costs have been recognized in the statement of operations for the13 weeks ended March 31, 2007 or April 1, 2006.

***EmployeeStock Option Plan***

EffectiveSeptember 1, 2004, MFC terminated its Employee Stock Option Plan pursuant tothe provisions of the plan.  No furtheroptions will be granted under the plan. Valid and outstanding options granted to plan participants prior totermination were unaffected by the termination. The remaining 10,000 outstanding options expired without exercise inMarch 2007.  As of the 13 weeks endedMarch 31, 2007, there were no issued or outstanding options under the EmployeeStock Option Plan.

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***DirectorStock Option Plan***

Members of the Company’s Board of Managers, other thanofficers of the Company, are qualified to participate in MFC’s Director StockOption Plan.  Under MFC’s Director StockOption Plan, a committee of the Board of MFC is authorized to administer thePlan and has the power, among other things, to grant awards of options forcommon stock of MFC to outside directors of MFC and its subsidiaries, includingthe Company.  MFC’s Director Stock OptionPlan provides for the issuance of time vested options, which vest25 percent per year on the anniversaries of the dates on which they aregranted and vest in full upon a change of control of MFC or the Company.  A total of 100,000 shares of common stock ofMFC are reserved for issuance under MFC’s Director Stock Option Plan and as ofMarch 31, 2007 there were outstanding options providing for the issuance of upto 60,672 of those shares.  During thequarter ended March 31, 2007, there were no additional stock option grantsawarded to the non-executive Managers. Common stock of MFC issued under the Director Stock Option Plan issubject to customary restrictions on transfer. Compensation costs for the grants under the Director Stock Option Planare recognized over the vesting period of the grant.  The compensation costs for the 13 weeks endedMarch 31, 2007 or April 1, 2006 were insignificant.

**11.  Commitments and Contingencies**

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

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

**12.  Supplemental Condensed ConsolidatingFinancial Information**

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 subsidiaryof the Company.  The Senior Secured Notesare fully and unconditionally guaranteed on a joint and several basis by all ofthe Company’s domestic subsidiaries other than immaterial subsidiaries.  The Company has no independent assets oroperations.  Therefore, supplementalfinancial information on a condensed consolidating basis of the guarantorsubsidiaries is not required.  There areno restrictions on the Company’s ability to obtain cash dividends or otherdistributions of funds from the guarantor subsidiaries, except those imposed byapplicable law.

**13. Recently Adopted Accounting Pronouncements**

On December31, 2006, the Company adopted the provisions of Financial Accounting StandardsBoard Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty inIncome Taxes,” an interpretation of FASB Statement No. 109, “Accountingfor Income Taxes.”  FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  The interpretationrequires that the Company recognize the impact of a tax position in thefinancial statements if that position is more likely than not of beingsustained on audit, based on the technical merits of the position.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods and disclosure.  In accordancewith the provisions of FIN 48, any cumulative effect resulting from the changein accounting principle is to be recorded as an adjustment to the openingbalance of deficit.

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Theadoption of FIN 48 did not have an impact on the Company’s consolidatedfinancial statements.  At December 31,2006 and through March, 31, 2007, the Company had no unrecognized taxbenefits.  As of the date of adoption,there were no tax positions for which it is reasonably possible that the totalamounts of unrecognized tax benefits will significantly increase or decreasewithin twelve months from the date of adoption of FIN 48 or from March 31,2007.

TheCompany recognizes interest and penalties related to unrecognized tax benefitsin interest expense.  There have been nointerest or penalties recognized in the financial statements of the Company.

TheCompany is included in the consolidated income tax returns of MFC in the U.S.federal jurisdiction and in various state jurisdictions.  MFC is currently not under examination by anyfederal or state tax authority, but remains subject to income tax examinationsfor each of its open tax years which extend back to 2003 for federal income taxpurposes and 2002 for state income tax purposes.

OnDecember 31, 2006, the Company adopted Emerging Issues Task Force (“EITF”)issued EITF Issue No. 06-3 (“EITF 06-3”), “How Taxes Collected fromCustomers and Remitted to Government Authorities Should Be Presented in theIncome Statement (That Is, Gross Versus Net Presentation)”.  EITF 06-3 addresses which taxes assessed by agovernment authority should be considered and how these taxes should bepresented in the income statement (i.e., gross versus net).  The Company records revenues net of state andlocal sales taxes.  The adoption of EITF06- did not have a material impact on the Company’s financial position orresults of operations.

**14.  Accounting Pronouncements Not Yet Adopted**

In February2007, the FASB issued SFAS No. 159, (“SFAS 159”), “The Fair Value Optionfor Financial Assets and Financial Liabilities—Including an Amendment of FASBStatement No. 115”.  SFAS 159expands the use of fair value accounting but does not affect existing standardswhich require assets or liabilities to be carried at fair value.  Under SFAS 159, a company may elect to usefair value to measure accounts and loans receivable, available-for-sale andheld-to-maturity securities, equity method investments, accounts payable,guarantees and issued debt.  Othereligible items include firm commitments for financial instruments thatotherwise would not be recognized at inception and non-cash warrantyobligations where a warrantor is permitted to pay a third party to providewarranty goods or services.  If the useof fair value is elected, any upfront cost and fees related to the item must berecognized in earnings and cannot be deferred. The fair value election is irrevocable and generally made on aninstrument-by-instrument basis even if a company has similar instruments thatit elects not to measure at fair value.  Atthe adoption date, unrealized gains and losses on existing items for which thefair value option has been elected are reported as a cumulative adjustment tobeginning retained earnings.  Subsequentto the adoption of SFAS 159, changes to fair value are recognized in earnings.  SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007 and is required to be adopted by theCompany in the first quarter of 2008.  The Company is currently determining whetherfair value accounting is appropriate for any of its eligible items and cannotcurrently estimate the impact, if any, which SFAS 159 will have on the Company’sconsolidated results of operation and financial condition.

InSeptember 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair ValueMeasurements,” to define fair value, establish a framework for measuring fairvalue in generally accepted accounting principles and expand disclosures aboutfair value measurements, but does not change existing guidance as to whether ornot an instrument is carried at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007and interim periods within those fiscal years. The Company is currently evaluating the effect, if any, that theadoption of SFAS 157 will have on the Company’s consolidated financial positionand results of operations.

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**15.  Liquidity and Capital Resources**

Management hasimplemented plans to reduce operating costs, as evidenced by its managementreorganization plan.  The Companybelieves, based on historical results and current projections, and itsreorganization and control of operating expenses, that the cash currently onhand and expected cash flows from future operations will be sufficient tocontinue operations for at least the next 12 months.  The Company is also exploring potentialequity contributions, permissible loans and other financing as additionalsources of cash.  Failure to achieve theanticipated benefit from its management reorganization may result in the Company’sinability to continue operations in its current state and would have a materialadverse impact on its operations. Accordingly, there can be no assurance that actual results will meet orexceed the Company’s projections or that the Company’s future operatingactivities will generate sufficient cash to meet its cash requirements for the next12 months.

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

Certain information setforth in this report contains “forward-looking statements” within the meaningof the federal securities laws.  Forward-lookingstatements are those that do not relate solely to historical fact.  They include, but are not limited to, anystatement that may predict, forecast, indicate or imply future results,performance, achievements or events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,”“intend,” “project,” “plan,” “continue,” “will,” “may” or words or phrases ofsimilar 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 that could cause these differences includeall factors described under Part II, Item 1A. “Risk Factors” containedelsewhere in this report.

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

# **Executive Summary**

Mrs.Fields Famous Brands, LLC and subsidiaries (“we”, “us”, the “Company” orsimilar terms) is one of the largest franchisors in the premium snack-foodindustry, featuring Mrs. Fields®, Great American Cookies®, TCBY®, Pretzel Time®and Pretzelmaker® as our core brands. Through our franchisees’ retail stores; we are the largest retailer offreshly baked on-premises specialty cookies and brownies in the United Statesof America (the “United States”); the largest retailer of soft-serve frozenyogurt in the United States; and the second largest retailer of bakedon-premises pretzels in the United States. In addition, we operate a gifts and new branded retail business and haveentered into licensing arrangements that attempt to leverage awareness of ourcore brands among our retail customer base. We operate through a network of 2,162 retail concept locations, whichare located throughout the United States and in approximately 24 foreigncountries.

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

·      Mrs. Fields Branded Retail

·      Mrs. Fields Franchising

·      Mrs. Fields Licensing

·      GAC/Pretzels

·      Dairy |  |  

 

(collectively “Mrs. Fields”) |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------------------------------------------------|

 

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

Mrs.Fields, GAC/Pretzels and Dairy represented 53.2 percent, 35.9 percent and 10.9percent of total revenues, respectively, for the 13 weeks ended March 31, 2007and 43.7 percent, 41.1 percent, and 15.2 percent of total revenues,respectively, for the 13 weeks ended April 1, 2006. 

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Asof March 31, 2007, our store portfolio consisted of 1,676 domestic franchisedlocations, 341 international franchised locations and 145 licensedlocations.  Our franchisees’ andlicensees’ concept locations by brand are distributed as follows:
|                                | ** ** | **Domestic**   | ** ** | **International** | ** ** | **Licensed**  | ** ** | ** ** | ** ** |
|--------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                     | ** ** | **Franchised** | ** ** | **Franchised**    | ** ** | **Locations** | ** ** | **Total**  | ** ** |
| Mrs. Fields                    |       | 336            |       | 94                |       | 42            |       | 472        |       |
| Great American  Cookies        |       | 283            |       | 1                 |       | —        |       | 284        |       |
| Pretzel Time                   |       | 183            |       | 4                 |       | 6             |       | 193        |       |
| Pretzelmaker                   |       | 138            |       | 46                |       | 1             |       | 185        |       |
| Hot Sam                        |       | —         |       | —            |       | 1             |       | 1          |       |
| GAC/Pretzels subtotal          |       | 604            |       | 51                |       | 8             |       | 663        |       |
| TCBY -  traditional stores     |       | 348            |       | —            |       | —        |       | 348        |       |
| TCBY -  non-traditional stores |       | 375            |       | 196               |       | 93            |       | 664        |       |
| Yovana - test  stores (1)      |       | 2              |       | —            |       | 2             |       | 4          |       |
| Beriyo by TCBY -  test stores  |       | 11             |       | —            |       | —        |       | 11         |       |
| Dairy subtotal                 |       | 736            |       | 196               |       | 95            |       | 1,027      |       |
| Total                          |       | 1,676          |       | 341               |       | 145           |       | 2,162      |       |

 

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(1)   Includedin the domestic franchised Yovana test stores is one store currently owned andoperated by us, which may be refranchised, relocated or closed in fiscal2007.  We assumed operations from afranchisee in an effort to more closely monitor the results of the test.

Theprevious table counts each concept location individually.  For example, if a physical location had aMrs. Fields store and a Pretzel Time store together, it would be counted as twoconcept locations in the table above.  Ifactual physical stores were counted rather than concept locations, total storecounts would be reduced by 298 locations to 1,864.

Ourparent company, Mrs. Fields’ Original Cookies, Inc. (“MFOC”) and certain of itssubsidiaries own two franchised and licensed retail concept locations as ofMarch 31, 2007, representing 0.1 percent of the total retail conceptlocations.  During the 13 weeks endedMarch 31, 2007, we recognized $8,000 of franchise royalties relating to theretail concept locations owned by MFOC. MFOC expects that these remaining retail concept locations will be soldto other franchisees or will be closed during fiscal 2007.

Duringthe 13 weeks ended March 31, 2007, our store portfolio declined from 2,313concept locations to 2,162 concept locations, as follows:
|                               | ** ** | **Total Company** | ** ** |
|-------------------------------|------------|------------------------|------------|
| ** **                    | ** ** | **Domestic**           | ** ** | **International** | ** ** | **Licensed** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Franchised**         | ** ** | **Franchised** | ** ** | **Locations** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 1,804                  |       | 356 |   | 153 |   | 2,313 |   |
| New development  openings     |       | 13                     |       | 8 |   | — |   | 21 |   |
| Permanent  closings           |       | (135                   | )          | (22 | ) | (9 | ) | (166 | ) |
| Other closings,  net          |       | (6                     | )          | (1 | ) | 1 |   | (6 | ) |
| Balance at March 31,  2007    |       | 1,676                  |       | 341 |   | 145 |   | 2,162 |   |

 

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Thefollowing tables provide additional detail of new development openings,permanent closings and other openings and closings of our concept locationsduring the 13 weeks ended March 31, 2007:
|                               | ** ** | **Domestic Franchised** | ** ** |
|-------------------------------|------------|------------------------------|------------|
| ** **                    | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                   | ** ** | ** ** | ** ** | **Traditional** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Mrs. Fields**         | ** ** | **GAC/Pretzels** | ** ** | **Dairy** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 360                          |       | 622 |   | 376 |   | 446 |   | 1,804 |   |
| New development  openings     |       | 1                            |       | 7 |   | 3 |   | 2 |   | 13 |   |
| Permanent  closings           |       | (22                          | )          | (21 | ) | (19 | ) | (73 | ) | (135 | ) |
| Other closings,  net          |       | (3                           | )          | (4 | ) | 1 |   | — |   | (6 | ) |
| Balance at March 31,  2007    |       | 336                          |       | 604 |   | 361 |   | 375 |   | 1,676 |   |

 
|                               | ** ** | **International Franchised** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|
| ** **                    | ** ** | ** **                        | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                        | ** ** | ** ** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Mrs. Fields**              | ** ** | **GAC/Pretzels** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 97                                |       | 55 |   | 204 |   | 356 |   |
| New development  openings     |       | 2                                 |       | 2 |   | 4 |   | 8 |   |
| Permanent  closings           |       | (5                                | )          | (5 | ) | (12 | ) | (22 | ) |
| Other closings,  net          |       | —                            |       | (1 | ) | — |   | (1 | ) |
| Balance at March 31,  2007    |       | 94                                |       | 51 |   | 196 |   | 341 |   |

 
|                               | ** ** | **Licensed Locations** | ** ** |
|-------------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | ** **                  | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                  | ** ** | ** ** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Mrs. Fields**        | ** ** | **GAC/Pretzels** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance at  December 30, 2006 |       | 44                          |       | 10 |   | 99 |   | 153 |   |
| Permanent  closings           |       | (2                          | )          | (2 | ) | (5 | ) | (9 | ) |
| Other openings,  net          |       | —                      |       | — |   | 1 |   | 1 |   |
| Balance at March 31,  2007    |       | 42                          |       | 8 |   | 95 |   | 145 |   |

 

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

Throughoutthis discussion, we refer to the total weeks that our franchised locationsoperate in any given period as “franchised unit weeks” and use that termcomparatively when describing factors that may affect performance.    Fewer franchised locations translatenaturally to fewer total franchised unit weeks that our franchisees operate andcontribute revenues to us.  The Dairyoperating segment is composed of both larger, traditional locations and a significantnumber of smaller, non-traditional locations. We measure franchise unit weeks a bit differently for the Dairyoperating segment, based on our calculation that it takes approximately threeaverage non-traditional locations to equal the revenues of one averagetraditional location.  We therefore referto “traditional equivalent unit weeks” to describe the total number of weeksthat TCBY franchised locations operate in any given period, adjusted to accountfor the different impact that non-traditional TCBY store openings and closingsmay have when compared to similar events affecting traditional TCBY stores.

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# **Recent Developments**

InJanuary 2007, we restructured our personnel to further focus our efforts andrefine our strategy around one key objective:

·                  weintend to focus on the growth of each of our brands by increasing the number ofretail units and profitable sales.

Toaccomplish this objective, we have reorganized all of our resources to focusprimarily on those key areas we have identified as vital to the future growthof our brands.  We believe our neworganization provides us with the structure necessary to maintain that focus.

Aswe work towards accomplishing our key objective for fiscal 2007, we will usesimilar performance indicators to those we utilized in fiscal 2006 to measureour progress:

·                  year-over-yearsame store franchise sales;

·                  net change innumber of retail concept locations; and

·                  growthin branded retail, licensing and gifts revenues.

Aspart of our reorganization, we have appointed presidents for each of ourbusiness units organized around brand groups, including Mrs. Fields,GAC/Pretzels and Dairy.  While theirrespective responsibilities differ somewhat, these presidents will focus solelyon their brands and will be accountable for their future growth anddevelopment.  They also haveresponsibility for each of the support functions necessary for brand success.

*Mrs.Fields*

OurMrs. Fields brand is headed by a president responsible for overseeing each ofthe sales channels through which we approach customers under the Mrs. Fieldsname.  These channels include Mrs. FieldsGifts, Mrs. Fields Branded Retail, Mrs. Fields Franchising and Mrs. FieldsLicensing.

Withall of the sales channels under the Mrs. Fields brand name now folded into asingle organization, we believe we will be better able to strengthen the brand’sidentity and present it more consistently to consumers.

ThePresident of Mrs. Fields is also responsible for overseeing functions insupport of the brand, including operations, development, real estate andmarketing.

*GAC/Pretzels*

TheCompany’s Great American Cookies, Pretzel Time and Pretzelmaker brands(collectively “GAC/Pretzels”) are headed by a president responsible for theoperations, development, real estate and marketing functions that support thesebrands.  The president also oversees theGreat American Cookies manufacturing facility.

Amongour brands, Great American Cookies, Pretzel Time and Pretzelmaker share anumber of challenges and opportunities. Great American Cookies is beginning to see increases in new storeopenings and each of these brands has enjoyed year-over-year same store salesgrowth for the last two fiscal years.

20

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*Dairy*

Wehave invested in the TCBY brand and have implemented many new initiatives thathave re-positioned TCBY in line with its core brand equity of yogurt. Through a product reformulation, TCBY yogurt now has more types of live activecultures than the leading brands of yogurt sold in the grocery storesstrengthening the brand’s healthy image.  In addition, ice cream productshave been removed and have been replaced with hand scooped frozen yogurt. TCBY is now in the process of implementing a new, contemporary store designthat we believe will provide the environment that will take the brand into thefuture.

Wecontinue to believe, that the TCBY brand has great potential withconsumers.  As a result, the President and CEO of the Company  also serves as President of TCBY, assuming adirect role in the day-to-day work necessary to turn around thatbusiness.  The President of TCBY oversees operations, development, realestate and marketing, as well as the further testing and development of a newdairy concept, YovanaäYogurt Café (“Yovana”) and our new line of Beriyoäsmoothies.

*Administration*

Aspart of our reorganization, the Company’s Executive Vice President and ChiefLegal Officer continues to oversee the legal, human resources, training,purchasing and distribution and internal audit departments and also assumesresponsibility for international operations and development.

*Finance, Accounting and Strategy Development*

TheCompany’s Executive Vice President & Chief Financial Officer hasresponsibility for finance, accounting, information technology, mergers andacquisitions and strategic analysis.

*Blue Line Distributing*

UntilMarch 2007, Blue Line Distributing (“Blue Line”) continued to deliver productsunder the term of the Extension Agreement to a small number of franchiseesserved by one of its distribution centers. Under the terms of the Extension Agreement we agreed to make certainpayments directly to Blue Line in order to delay distribution cost increases tofranchisees and agreed to guarantee certain amounts during the extensionperiod.  As of March 31, 2007, theExtension Agreement has been terminated.

**Reclassifications**

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

·              Franchising to theMrs. Fields, GAC/Pretzels and Dairy business units; and

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

Suchreclassification did not impact previously reported net loss or accumulateddeficit.

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**Results of Operations**

The following table sets forth, for the periodsindicated, certain information relating to our operations and percentagechanges from period to period (in thousands):
|                                                  | ** ** | **13 Weeks Ended** | ** ** | ** **        | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|-------------------|------------|
| ** **                                       | ** ** | **March 31,**           | ** ** | **April 1,** | ** ** | **%** | ** ** |
| ** **                                       | ** ** | **2007**                     | ** ** | **2006**          | ** ** | **Change** | ** ** |
| REVENUES:                                        |       |                         |       |              |       |   |   |
| Mrs. Fields Gifts                                |       | $                            | 4,895      |              | $          | 5,178 |   | (5.5 | ) |
| Mrs. Fields Branded Retail                       |       | 4,503                        |       | 34                |       | NM |   |
| Mrs. Fields Franchising                          |       | 1,884                        |       | 2,110             |       | (10.7 | ) |
| Mrs. Fields Licensing                            |       | 200                          |       | 640               |       | (68.8 | ) |
| Total Mrs. Fields                                |       | 11,482                       |       | 7,962             |       | 44.2 |   |
| GAC/Pretzels                                     |       | 7,736                        |       | 7,490             |       | 3.3 |   |
| Dairy                                            |       | 2,345                        |       | 2,763             |       | (15.1 | ) |
| Total revenues                                   |       | 21,563                       |       | 18,215            |       | 18.4 |   |
| OPERATING COSTS  AND EXPENSES:                   |       |                         |       |              |       |   |   |
| Mrs. Fields Gifts                                |       | 5,379                        |       | 6,632             |       | (18.9 | ) |
| Mrs. Fields Branded Retail                       |       | 4,109                        |       | 35                |       | NM |   |
| Mrs. Fields Franchising                          |       | 560                          |       | 505               |       | 10.9 |   |
| Mrs. Fields Licensing                            |       | 10                           |       | 229               |       | (95.6 | ) |
| Total Mrs. Fields                                |       | 10,058                       |       | 7,401             |       | 35.9 |   |
| GAC/Pretzels                                     |       | 3,717                        |       | 3,795             |       | (2.1 | ) |
| Dairy                                            |       | 1,842                        |       | 1,595             |       | 15.5 |   |
| General and administrative                       |       | 2,406                        |       | 2,908             |       | (17.3 | ) |
| Depreciation                                     |       | 526                          |       | 416               |       | 26.4 |   |
| Amortization                                     |       | 517                          |       | 538               |       | (3.9 | ) |
| Gain on sale of land held for sale               |       | (128                         | )          | —            |       | NM |   |
| Total operating costs and expenses               |       | 18,938                       |       | 16,653            |       | 13.7 |   |
| Income from operations                           |       | 2,625                        |       | 1,562             |       | 68.1 |   |
| Interest expense, net                            |       | (5,293                       | )          | (5,230            | )          | 1.2 |   |
| Other income                                     |       | —                       |       | 122               |       | (100.0 | ) |
| Loss before provision (benefit) for income taxes |       | (2,668                       | )          | (3,546            | )          | (24.8 | ) |
| Provision (benefit) for income taxes             |       | 10                           |       | (1,441            | )          | NM |   |
| Net loss                                         |       | $                            | (2,678     | )                 | $          | (2,105 | ) | 27.2 |   |
|                                             |       |                         |       |              |       |   |   |
| Cash flows from operating activities             |       | $                            | (10,520    | )                 | $          | (11,221 | ) | 6.2 |   |
| Cash flows from investing activities             |       | $                            | 266        |              | $          | (400 | ) | NM |   |
| Cash flows from financing activities             |       | $                            | (30        | )                 | $          | (26 | ) | (15.4 | ) |

 

----

NM - Calculation not meaningful.

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**13 Weeks Ended March 31, 2007**

**Comparedto the 13 Weeks Ended April 1, 2006**

*IncomeFrom Operations—Overview*. Income from operations was $2.6 million for the 13 weeks endedMarch 31, 2007, an increase of $1.0 million or 68.1 percent from$1.6 million for the 13 weeks ended April 1, 2006.  The increase in income from operations wasprimarily due to the following:

·                  increasedcontribution from our business units of $500,000;

·                  decreasedgeneral and administrative expenses of $500,000; and

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

The foregoing increasesin income from operations were partially offset by an increase in depreciationand amortization expense of $100,000.

The increase incontribution from our business units of $500,000 is composed of the following:

·                  Mrs.Fields business unit contribution increase of $900,000;

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

·                  Dairy businessunit contribution decrease of $700,000.

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

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

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

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

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

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

The following table setsforth the contribution from each of our business units (in thousands):
|              | ** ** | **For the 13 Weeks Ended** | ** ** |
|--------------|------------|------------------------------------------------|------------|
| ** **   | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** **   | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Mrs. Fields  |       | $                                              | 1,424      |   | $ | 561 |   |
| GAC/Pretzels |       | 4,019                                          |       | 3,695 |   |
| Dairy        |       | 503                                            |       | 1,168 |   |
|         |       | $                                              | 5,946      |   | $ | 5,424 |   |

 

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**Mrs. Fields**

The following tabledetails the revenues and operating expenses of the Mrs. Fields business unit(in thousands):
|                                      | ** ** | **For the 13 Weeks Ended** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|-------------------|------------|
| ** **                           | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** | **%** | ** ** |
| ** **                           | ** ** | **2007**                                       | ** ** | **2006**          | ** ** | **Change** | ** ** |
| Mrs. Fields  Gifts                   |       | $                                              | 4,895      |              | $          | 5,178 |   | (5.5 | ) |
| Mrs. Fields  Branded Retail          |       | 4,503                                          |       | 34                |       | NM |   |
| Mrs. Fields  Franchising             |       | 1,884                                          |       | 2,110             |       | (10.7 | ) |
| Mrs. Fields  Licensing               |       | 200                                            |       | 640               |       | (68.8 | ) |
| Total Mrs. Fields revenues           |       | 11,482                                         |       | 7,962             |       | 44.2 |   |
| Mrs. Fields  Gifts                   |       | 5,379                                          |       | 6,632             |       | (18.9 | ) |
| Mrs. Fields  Branded Retail          |       | 4,109                                          |       | 35                |       | NM |   |
| Mrs. Fields  Franchising             |       | 560                                            |       | 505               |       | 10.9 |   |
| Mrs. Fields  Licensing               |       | 10                                             |       | 229               |       | (95.6 | ) |
| Total Mrs. Fields operating expenses |       | 10,058                                         |       | 7,401             |       | 35.9 |   |
| Total Mrs. Fields  contribution      |       | $                                              | 1,424      |              | $          | 561 |   | 153.8 |   |

 

***Mrs. Fields Gifts***

*Mrs.Fields Gifts Revenues.* Mrs. Fields Gifts revenues were $4.9 million for the 13 weeks endedMarch 31, 2007, a decrease of $300,000 or 5.5 percent from $5.2 million for the13 weeks ended April 1, 2006.  Theserevenues consist of sales through our catalog and website as well asaffiliations with other websites and sales to large corporate accounts forgifting purposes.  This decrease inrevenues was primarily attributable to the following:

·                  catalogdriven sales of $1.0 million due to decreased circulation of catalogs; and

·                  nationalaccounts of $100,000.

The foregoing decreases in revenues were partiallyoffset by the following increases:

·                  Internetsearch engines of $400,000 due to additional providers­­;

·                  partnersand affiliates of $300,000 due to expanded product offerings; and

·                  other revenuesof $100,000.

*Mrs.Fields Gifts Expenses.* Mrs. Fields Gifts expenses is composed of cost of sales for productssold, selling and promotional expenses and direct operating expenses of thissegment.  Expenses were $5.4 millionfor the 13 weeks ended March 31, 2007, a decrease of $1.2 million or 18.9percent from $6.6 million for the 13 weeks ended April 1, 2006.  This decrease in expenses was primarily dueto the following:

·                  catalogand advertising expenses of $900,000 due to decreased circulation of ourcatalogs;

·                  costof goods sold of $200,000 due to decreases in raw materials as a result of anew formula and decreases in production labor due to reduced head count;

·                  compensationand related costs of $100,000 due to the management reorganization thatoccurred in January 2007; and

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

The foregoing decreasesin expenses were partially offset by increases in rent and occupancy expensesof $100,000 related to the new gifts facility.

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***Mrs. Fields Branded Retail***

*Mrs. Fields Branded Retail Revenues. *Mrs. Fields Branded Retail revenues were $4.5million and $34,000 for the 13 weeks ended March 31, 2007 and April 1, 2006,respectively.  The increase is due to therevenues generated from the sale of Mrs. Fields branded shelf stablecookies.  As discussed in the AnnualReport, we commenced selling Mrs. Fields branded shelf stable cookies in July2006 directly through retail channels following the termination of certainlicense agreements.

*Mrs. Fields**Branded Retail Expenses.*  Mrs. Fields Branded Retail expenses iscomposed of cost of sales for product sold, selling and promotional expensesand other direct operating expenses of this segment.  These expenses were $4.1 million and $35,000for the 13 weeks ended March 31, 2007 and April 1, 2006, respectively.  The increase is associated with the brandedretail activities which commenced in July 2006.

***Mrs. FieldsFranchising***

The following tabledetails the year-over-year (“YOY”) percentage decrease in same store sales:
|             | ** ** | **For the 13 Weeks Ended** | ** ** |
|-------------|------------|------------------------------------------------|------------|
| ** **  | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** **  | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Mrs. Fields |       | (3.5                                           | )          | (1.3 | ) |

 

Our Mrs. Fields concept’sYOY same store sales decrease of 3.5 percent for the 13 weeks ended March31, 2007 was a result of a continued decline in customer counts at thestores partially offset by increases in our average ticket price.

*Mrs. Fields**Franchising Revenues. *Mrs. Fields Franchisingrevenues were $1.9 million for the 13 weeks ended March 31, 2007, adecrease of $200,000 or 10.7 percent from $2.1 million for the 13 weeks endedApril 1, 2006.  This decrease in revenueswas primarily attributable to approximately 300 or 6.2 percent fewer unit weeksand a decrease in same store YOY sales of 3.5 percent.

*Mrs. Fields Franchising Expenses.*  Mrs. Fields Franchising expenses is composedof operation and supervision expenses wherein we provide support, direction andsupervision to the franchisees; development and support expenses includingproduct development costs, expenses relating to new franchise development,marketing and advertising, bad debt expense and other direct franchisingexpenses.  These expenses were $600,000for the 13 weeks ended March 31, 2007, an increase of $100,000 or 10.9 percentfrom $500,000 for the 13 weeks ended April 1, 2006.  Total compensation and related costsincreased $100,000 due to the management reorganization that occurred inJanuary 2007 and bonus expense increased $100,000 for accrued bonuses forfiscal year 2007.  These increases werepartially offset by decreased allocated costs of $100,000 related to sharedresources related to product development, purchasing, training and customerservice.

***Mrs. FieldsLicensing***

*Mrs. Fields Licensing Revenues. *Mrs. Fields Licensing revenues were $200,000 forthe 13 weeks ended March 31, 2007, a decrease of $400,000 or 68.8 percentfrom $600,000 for the 13 weeks ended April 1, 2006.  This decrease in revenues was due tolicensing royalties earned in 2006 of $300,000 under our terminated licensingagreement for the sale of Mrs. Fields branded shelf stable cookies androyalties of $100,000 under our terminated licensing agreement for the sale ofTCBY frozen food specialty products through retail channels that were notrepeated in 2007.

*Mrs. Fields Licensing Expenses. *Mrs. Fields Licensing expenses is composed ofselling and promotional expenses, bad debt and other direct operating expensesof this segment.  These expenses werenegligible for the 13 weeks ended March 31, 2007, a decrease of $200,000 or100.0 percent from $200,000 for the 13 weeks ended April 1, 2006.  This decrease in expenses was primarily dueto a decrease in compensation and related costs of $100,000 due to themanagement reorganization that occurred in January 2007 and a decrease inlegal, advertising and promotion expenses totaling approximately $100,000.

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**GAC/Pretzels**

The following table details the YOY percentageincrease in same store sales:
|                         | ** ** | **For the 13 Weeks Ended** | ** ** |
|-------------------------|------------|------------------------------------------------|------------|
| ** **              | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** **              | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Great American  Cookies |       | 1.1                                            |       | 4.9 |   |
| Pretzel Time            |       | 10.6                                           |       | 4.5 |   |
| Pretzelmaker            |       | 7.3                                            |       | 11.0 |   |
| Total  GAC/Pretzels     |       | 4.4                                            |       | 5.0 |   |

 

OurGreat American Cookies concept increased YOY same store sales during thisperiod primarily due to a price increase of approximately 5.0 percent,effective April 2006 and product introductions aimed at driving impulse buying,and a continued focus on Cookie Cakes and decorating tables for the holiday.

OurPretzel Time and Pretzelmaker concepts increased in YOY same store salesprimarily due to the “Fresh for All” campaign emphasizing fresh pretzels andbeverages introduced in 2007 and an in-store game sweepstakes aimed atpromoting volume and frequency purchases.

*GAC/PretzelsRevenues. *GAC/Pretzels revenues were $7.7 million forthe 13 weeks ended March 31, 2007, an increase of $200,000 or 3.3 percentfrom $7.5 million for the 13 weeks ended April 1, 2006.  This increase in revenues was primarily attributableto increases in sales of products by our Great American Cookies manufacturingfacility to our franchisees of $200,000 or 4.0 percent.  This increase by our Great American Cookiesmanufacturing facility was primarily due to a price increase to our franchiseesof approximately 5.0 percent effective April 2006.

*GAC/PretzelsExpenses. *GAC/Pretzels expenses were $3.7 million forthe 13 weeks ended March 31, 2007, a decrease of $100,000 or 2.1 percentfrom $3.8 million for the 13 weeks ended April 1, 2006.  This decrease in expenses was primarilyattributable to decreases in cost of product associated with our Great AmericanCookies manufacturing facility of $200,000 as a result of decreased batterpurchases by our franchisees.  Thisdecrease in cost of product was partially offset by an increase in bonusexpense of $100,000 for accrued bonuses for fiscal year 2007.

**Dairy**

The following tabledetails the YOY percentage (decrease) increase in same store sales:
|            | ** ** | **For the 13 Weeks Ended** | ** ** |
|------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** ** | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Dairy      |       | (3.8                                           | )          | 3.1 |   |

 

Our Dairy Franchisesegment’s YOY same store sales decreased 3.8 percent for the 13 weeksended March 31, 2007.  The decrease inYOY same store sales is a result of unseasonably cold and wet weather incertain parts of the United States.  Inaddition, while we have improved our product and menu, we continue to preparethe existing TCBY traditional store base for the implementation of the updatedstore décor which we expect will strengthen our YOY results.

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*Dairy Franchise Revenues. *DairyFranchise revenues were $2.3 million for the 13 weeks ended March 31,2007, a decrease of $400,000 or 15.1 percent from $2.7 million for the 13 weeksended April 1, 2006.  This decrease inrevenues was due to decreases in product formulation revenues generated bypurchases of TCBY products by franchisees of $300,000 and royalties of$100,000.  These decreases wereprincipally attributable to approximately 1,200 or 15.0 percent fewer unitweeks and a decrease in YOY same store sales. We anticipate that our dairy unit weeks will continue to decline in thenear future, at least until our reconcepting tests for Yovana, the rolloutduring fiscal year 2007 of the new store décor, and the line of Beriyo smoothieproducts into TCBY stores are completed.

*DairyFranchise Expenses.* Dairy expenses were $1.8 million for the 13weeks ended March 31, 2007, an increase of $200,000 or 15.5 percent from$1.6 million for the 13 weeks ended April 1, 2006.  This increase in expenses was primarilyattributable to the following:

·                  brandinitiatives of $600,000 to test the Beriyo and Yovana concepts and to preparefor the TCBY new store décor initiative;

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

·                  bad debt expenseof $100,000.

The foregoing increases in expenses were partiallyoffset by the following decreases:

·                  compensationand related costs of $200,000 due to the decrease in headcount resulting fromour reorganization;

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

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

·                  travel andrelated costs of $100,0000.

**Other**

*Generaland Administrative Expenses.* General and administrative expenses were $2.4 million for the 13 weeksended March 31, 2007, a decrease of $500,000 or 17.3 percent from $2.9 millionfor the 13 weeks ended April 1, 2006. This decrease in general and administrative expenses was primarilyattributable to the following:

·                  compensationand related costs of $300,000 primarily due to the decrease in headcountresulting from our reorganization;

·                  severancecosts of $300,000 paid in 2006; and

·                  legal expensesof $200,000.

The foregoing decreasesin expenses were partially offset by an increase in bonus accrual of $300,000for accrued bonuses for fiscal year 2007.

*Depreciationand Amortization Expense.* Total depreciation and amortization expense was $1.1 million for the 13weeks ended March 31, 2007, an increase of $100,000 or 9.3 percent from $1.0million for the 13 weeks ended April 1, 2006. Depreciation expense was $500,000 for the 13 weeks ended March 31, 2007,an increase of $100,000 or 26.4 percent from $400,000 for the 13 weeks endedApril 1, 2006.  This increase was due toadditional depreciation expense of approximately $100,000 associated with thenew gifting facility.  Amortizationexpense was $500,000 for the 13 weeks ended March 31, 2007 and April 1, 2006.

**Consolidated Financial Condition**

Total assets at March 31,2007 were $106.8 million, a decrease of $14.9 million or 12.3 percentfrom $121.7 million at December 30, 2006. This decrease in assets was primarily attributable to the following:

·                  cashand cash equivalents of $10.3 million due to the semi-annual interest paymentmade in March 2007;

·                  accountsreceivable, net of $2.3 million;

·                  deferredtax asset of $700,000;

·                  propertyand equipment of $500,000;

·                  trademarksand other intangible assets, net of $500,000;

·                  deferredloan costs of $300,000;

·                  inventoriesof $200,000; and

·                  other assets of$100,000.

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Total liabilities atMarch 31, 2007 were $216.0 million, a decrease of $11.5 million or5.1 percent from $227.5 million at December 30, 2006.  This decrease in liabilities was primarilyattributable to the following:

·                  accruedliabilities of $6.0 million, primarily related to accrued interest;

·                  accountspayable of $5.1 million;

·                  amountsdue to affiliates of $300,000; and

·                  deferredrevenues and other liabilities of $100,000.

***Consolidated Cash Flows for the13 Weeks Ended March 31, 2007 Compared to April 1, 2006***

Net cash flows used inoperating activities were $10.5 million for the 13 weeks ended March 31, 2007,a decrease in cash used of $700,000 from net cash flows used in operatingactivities of $11.2 million for the 13 weeks ended April 1, 2006.  This decrease in cash used in operatingactivities was principally due to an increase in contribution by our operatingsegments of $500,000 and a decrease in general and administrative expenses of$500,000 partially offset by a decrease in cash used for working capital assetsand liabilities of $300,000.

Net cash flows providedby investing activities were $300,000 for the 13 weeks ended March 31, 2007, anincrease in cash provided of $700,000 from cash used in investing activities of$400,000 for the 13 weeks ended April 1, 2006. This increase in cash from investing activities was attributable to thenonrecurrence of the purchase of property and equipment of $500,000 principallyassociated with our new gifts facility and from proceeds from the sale of landof $300,000 that occurred in 2007.  Thesechanges were partially offset by proceeds from sale of non-marketablesecurities of $100,000 that occurred in 2006.

Net cash flows used infinancing activities were negligible for the 13 weeks ended March 31, 2007 andfor the 13 weeks ended April 1, 2006 and relate to principal payments oncapital leases.

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

Our principal sources of liquidity are cash on handand cash flows generated from operations. At March 31, 2007, we had $5.7 million of cash on hand.  During the next 12 months, we expect that ourprincipal uses of cash will be for working capital, capital expenditures andsemi-annual interest payments of $10.3 million on our 9 percent senior securednotes and our 111⁄2 percent senior secured notes (together, the “Senior SecuredNotes”), of which $10.3 million will be due on September 15, 2007 and March 15,2008.  In addition, to the extent we havecash available and it is permitted by the indenture governing the SeniorSecured Notes, we may pay dividends to our parent companies for uses such asacquisitions, debt repayments and dividends. During the next 12 months, we do not expect to be required, but we mayoffer, to repurchase a portion of the Senior Secured Notes as described below.

We are highly leveraged.  At March 31, 2007, we had $195.7 million oflong-term debt represented 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 borrowingrestrictions under the indenture governing the Senior Secured Notes, ourability to obtain additional debt financing is significantly limited.  The Senior Secured Notes require us to offerto repurchase a portion of the notes at 100 percent of the principalamount, 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 amount exceeds$10.0 million.  We do not anticipate thatour “excess cash flow” will exceed the levels that would require us to offer torepurchase a portion of the notes described above.

We have implemented plans to reduce operating costs,as evidenced by our management reorganization plan.  We believe, based on historical results andcurrent projections, our reorganization and control of operating expenses, thatthe cash currently on hand and expected cash flows from future operations willbe sufficient to continue operations for at least the next 12 months.  We are also exploring potential equitycontributions, permissible loans and other financing as additional sources ofcash.  Failure to achieve the anticipatedbenefit from our management reorganization may result in our inability tocontinue operations in our current state and would have a material adverseeffect on our operations.  Accordingly,there can be no assurance that actual results will meet or exceed our projectionsor that our future operating activities will generate sufficient cash to meetour cash requirements for the next 12 months.

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**Inflation**

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

**Seasonality**

Our sales and contribution from franchisees’ storeoperations are highly seasonal, but our various brands experience counteractingseasonal effects.  Our Mrs. Fields, GreatAmerican Cookies, Pretzel Time and Pretzelmaker stores, primarily located in malls,tend to mirror customer traffic flow trends in malls, which increasesignificantly during the fourth quarter, primarily between Thanksgiving and theend of the calendar year.  Holiday giftpurchases also are a significant factor in increased sales in the fourthquarter.  However, Dairy storesexperience their strongest sales periods during the warmer months from lateSpring through early Fall, which helps to balance the impact of seasonality onour operations.  The combined revenuesfor each quarter of the Mrs. Fields Franchising, GAC/Pretzels Franchising, andDairy Franchising operating segments as a percentage of total combined revenuesfor the fiscal year ended December 30, 2006 were 23.3 percent for the firstquarter, 25.6 percent for the second quarter, 25.2 percent for the thirdquarter and 25.9 percent for the fourth quarter.

Our sales and contribution from our Mrs. Fields Giftsoperating segment are highly seasonal primarily due to holiday gift purchasesthat increase sales in the fourth quarter. Sales in the fourth quarter of fiscal 2006 were $16.7 million, whichrepresents 54.5 percent of total sales of the gifts segment for the year endedDecember 30, 2006.

**Critical Accounting Policies**

The preparation of financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, disclosure of contingent assets and liabilities andthe reported amounts of revenues and expenses in our consolidated financialstatements.  Management has reviewed withour Audit Committee the accounting policies that it uses to prepare ourconsolidated financial statements and believes that the following policies arethe most important to the portrayal of our financial condition and the resultsof our operations while requiring the use of judgments and estimates about theeffects of matters that are inherently uncertain.

*Revenue Recognition*.  We recognize revenues from our initialfranchising fees and licensing fees when all material services or conditionsrelating to the franchising or licensing have been substantially performed orsatisfied, which is generally upon the opening of a store by a franchisee orlicensee.  Franchise and licenseroyalties, which are based on a percentage of gross store sales, are recognizedas earned, which is generally upon sale of product by franchisees orlicensees.  Minimum royalty paymentsunder certain licensing agreements are deferred and recognized on astraight-line basis over the term of the agreement.  Revenues from the sale of cookie dough thatwe produce and sell to certain franchisees are recognized at the time ofshipment and classified in franchising revenues.  Revenues, net of sales discounts andallowances, from the sale of branded retail products such as cookie dough andshelf stable cookies to grocery stores and wholesale clubs are recognized upondelivery and included in branded retail revenues.  Revenues, net of state and local sales tax,from gift sales are recognized at the time of shipment.

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We receive cash payments for product formulation feesand allowances from suppliers based on the amount of product purchased directlyby our distributors and franchisees. These product formulation fees and allowances include cash payments tous for the right to use our proprietary formulations and recipes to manufacturethe frozen dough, dough mixes and TCBY products these suppliers sell to ourfranchisees.  Formulation fees andallowances are recorded as franchising revenues upon shipment of product to ourdistributors or franchisees.  Included infranchising revenues in each of operating segments for such formulation feesand allowances are as follows:
|              | ** ** | **For the 13 Weeks Ended** | ** ** |
|--------------|------------|------------------------------------------------|------------|
| ** **   | ** ** | **March 31,**                             | ** ** | **April 1,** | ** ** |
| ** **   | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Mrs. Fields  |       | $                                              | 415        |   | $ | 494 |   |
| GAC/Pretzels |       | 299                                            |       | 316 |   |
| Dairy        |       | 1,518                                          |       | 1,838 |   |
|         |       | $                                              | 2,232      |   | $ | 2,648 |   |

 

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

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

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

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

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*Allowance for Doubtful Accounts.*  We sell products to and receive royaltiesfrom our franchisees and sell products to other customers.  Sometimes these franchisees and customers areunable or unwilling to pay for the products that they receive or royalties thatthey owe.  Factors that affect ourability to collect amounts that are due to us include the financial strength ofa franchisee or customer and its operations, the economic strength of the mallwhere the franchisee is located and the overall strength of the 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.  Toestablish this allowance, we evaluate the customer’s or franchisee’s financialstrength, payment history, reported sales and the availability of collateral tooffset 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.

*Deferred Income Tax Assets.*  Deferred income tax assets are assessed forrecoverability and valuation allowances are provided as necessary to reducedeferred income tax assets to amounts expected to be realized.  Should expectations of taxable income changein future periods, it may become necessary to change the valuation allowance,which could affect our results of operations in the period such determinationis made.  We record an income taxprovision or benefit at a rate that is based on expected results for the fiscalyear.  If future changes in marketconditions cause actual results to be more or less favorable, adjustments tothe effective income tax rate on a quarterly basis could be required.

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

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

**AccountingPronouncements Not Yet Adopted**

In February 2007, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)No. 159, (“SFAS 159”), “The Fair Value Option for Financial Assets andFinancial Liabilities—Including an Amendment of FASB Statement No. 115.”  SFAS 159 expands the use of fair valueaccounting but does not affect existing standards which require assets orliabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measureaccounts and loans receivable, available-for-sale and held-to-maturity securities,equity method investments, accounts payable, guarantees and issued debt.  Other eligible items include firm commitmentsfor financial instruments that otherwise would not be recognized at inceptionand non-cash warranty obligations where a warrantor is permitted to pay a thirdparty to provide warranty goods or services.  If the use of fair value is elected, anyupfront cost and fees related to the item must be recognized in earnings andcannot be deferred.  The fair valueelection is irrevocable and generally made on an instrument-by-instrument basiseven if a company has similar instruments that it elects not to measure at fairvalue.  At the adoption date, unrealizedgains and losses on existing items for which the fair value option has been electedare reported as a cumulative adjustment to beginning retained earnings.  Subsequent to the adoption of SFAS 159,changes to fair value are recognized in earnings.  SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007 and is required to be adopted by us inthe first quarter of 2008.  We arecurrently determining whether fair value accounting is appropriate for any ofour eligible items and cannot currently estimate the impact, if any, which SFAS159 will have on our consolidated results of operation and financial condition.

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

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

There have been no significant changes in market riskssince the end of our fiscal year ended December 30, 2006.  For more information, please read Item 7A andthe consolidated financial statements and notes thereto contained in our AnnualReport on Form 10-K filed with the SEC on March 21, 2007.

# **Item 4.  Controls and Procedures**

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

There has been nochange in our internal control over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) thatoccurred during our fiscal quarter ended March 31, 2007, that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

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**PART II –OTHER INFORMATION**

# **Item 1.  Legal Proceedings**

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

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

**Item1A.  Risk Factors**

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

***Risks Related to Our Business***

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

Webelieve that the implementation of our business strategy is key to enabling usto grow our revenues and profitability and, ultimately, our futuresuccess.  Our business strategy in 2007is focused on the growth of each of our brands by increasing the number ofretail units and profitable sales.

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

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

Thereare certain events that require us to make certain disclosure to stateauthorities.  Further, renewal of uniformfranchise offering circular registrations are required in several states withina certain period of time following our fiscal year end.  From time to time in the future, there willbe periods of time after certain events or in connection with renewal duringwhich we may be prohibited from selling our franchises in certain states.  Without limiting the foregoing, our financialcondition requires us to defer collection of certain fees in some states untilthe store opens, and in Virginia, prohibits us from offering new franchises forsale.  If we are unable to sell ourfranchises for an extended period of time in certain states, our businessoperations or financial condition could be adversely affected.

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

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

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

Webelieve that the amount and proximity of pedestrian traffic near our bakerybrand stores strongly influence sales of our products, which we believe arefrequently impulse purchases.  In recentyears, we believe visits to major shopping malls, where at March 31, 2007 themajority of our bakery franchisees’ stores are located, have experiencedperiods of decline.  This trend has had anegative impact on our revenues.  Wecannot be sure that this trend will not continue or that this trend can beoffset by increased sales per customer. A prolonged decline in mall traffic could adversely affect our financialcondition and results of operations.

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

Since the end offiscal 2004, 29 retail concept locations were closed by MFOC and 803 retailconcept locations were closed by other franchisees.  These closures represent 31.0 percent of thetotal number of stores open at the beginning of fiscal 2005.  In comparison, 300 retail concept locationshave opened since the end of fiscal 2004. Since the end of fiscal 2004, the number of Great American Cookies brandlocations has increased by 0.4 percent, the number of Mrs. Fieldsbrand locations has decreased by 9.4 percent, the number of TCBY brandtraditional locations has decreased by 25.8 percent, the number of TCBYbrand non-traditional locations has decreased by 31.1 percent, the numberof Pretzel Time brand locations has decreased by 17.2 percent and the number ofPretzelmaker brand locations has decreased by 7.5 percent.  Additional store closures could occur in thefuture and we may be unable to successfully open additional new stores in thefuture.  If this trend continues, ourfinancial condition and results of operations may be adversely affected.

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

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

*Wedepend heavily on our suppliers and distributors.*

Wedepend on several primary suppliers, including Countryside and Oak State, whichsupply products for our Mrs. Fields franchise system and branded retailbusiness.  We also depend on two mainsuppliers for production of our TCBY branded yogurt products under two newSupply Agreements with Scott Brothers and Yarnell.  The transition of business from Americana,our former supplier, to Scott Brothers and Yarnell is substantially completed,though we continue efforts to correct some product quality issues related todifferent manufacturing processes and methods used by our new suppliers.  The transition did not result in materialproduct shortages to franchisees. However, as with any new supplierrelationship, unforeseeable events may occur that could cause some disruptionto the TCBY supply chain.

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Wealso depend on our primary distributors for distribution of perishable andnon-perishable items to our franchisees. As described in “Business—Ingredients, Supplies and Distribution,”contained elsewhere in this report, Blue Line, our primary distributor to ourTCBY system, exercised its right to terminate our distribution agreement withthem.  We entered into an extensionagreement with them, under which Blue Line agreed to continue to perform underthe distribution agreement during our transition to new distributors.  Under the terms of the extension agreement,we agreed to make certain payments directly to Blue Line in order to delaydistribution cost increases to franchisees and agreed to guarantee certainamounts during the extension period.  Wehave now entered into supply agreements with eight regional distributors whowill provide service to our TCBY franchisees throughout the United States.  Blue Line continued to deliver products to asmall number of franchisees served by one of its distribution centers under theextension agreement until March 26, 2007, when services commenced under thefinal replacement distribution agreement. The distribution costs to most of our franchisees have not substantiallyincreased under the new regional agreements.

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

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

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

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

16of our franchisees or licensees own ten or more retail concept locations.  In total, these franchisees own 285 retailconcept locations and contributed approximately $1.2 million or 9.9percent of our franchise revenues for the quarter ended March 31, 2007.  For the same period, franchise revenues madeup 55.5 percent of our total revenues. The termination of these key franchise or retail license agreements orlower than anticipated sales may have an adverse affect on our financialcondition and results of operations.  Wecannot be sure that our relations with franchisees and licensees will notchange or that our licensees will continue to perform as they have in the past,which could result in franchise or license agreements being terminated by us orby our franchisees or licensees.

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

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

Ourfranchisees and licensees generally are independent contractors and are not ouremployees.  We require our franchiseesand licensees to adhere to strict production, display, storage and marketingspecifications and procedures and we provide training and support tofranchisees, but the quality of franchised store operations or licensedproducts may be diminished by any number of factors beyond our control.  Consequently, franchisees may not operatestores or licensees may not produce or market licensed products in a mannerconsistent with our standards and requirements, or may not hire and trainqualified managers and other store personnel. If they do not, our image, reputation and brand may suffer and our franchiseand license revenues as well as our ability to attract prospective franchiseesmay be adversely affected.

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

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

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

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

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

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

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

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

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

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

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

Inaddition to the risks we face from current competitors, we cannot be certainthat we can successfully compete with any new entrants into the specialty retailfood and snack food industry who may introduce new and successful products ormarketing.  Our inability to competeadequately would have a material adverse effect on our results of operations.

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

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

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

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

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

·                  importand export restrictions and tariffs;

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

·                  litigationin foreign jurisdictions;

·                  potentiallyadverse tax consequences;

·                  increasedcompetition as a result of subsidies to local companies;

·                  politicalinstability or war;

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·                  culturaldifferences;

·                  theimpact of business cycles and economic instability; and

·                  increasedexpense as a result of inflation.

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

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

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

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

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

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

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

Weare involved in routine litigation in the ordinary course of business, includingfranchise disputes.  Although we have notbeen significantly adversely affected in the past by litigation, there can beno assurance as to the effect of any future disputes.

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

*Quarterlyfluctuations and seasonality.*

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

***Risks Related to Our SubstantialIndebtedness***

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

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

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

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

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

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

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

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

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

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

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

·                  incuradditional indebtedness;

·                  repaysubordinated indebtedness prior to stated maturities;

·                  paydividends on or redeem or repurchase our stock;

·                  issuecapital stock;

·                  makeinvestments;

·                  createliens;

·                  sellcertain assets or merge with or into other companies;

·                  enterinto certain transactions with stockholders and affiliates;

·                  sellstock in our subsidiaries;

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

·                  otherwiseconduct necessary corporate activities.

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

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

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

# **Item 6. Exhibits**

31.1                           Certificationof Chief Executive Officer Pursuant to Rule 13a-15(e) or 15d-15(e) of theExchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

31.2                           Certificationof Chief Financial Officer Pursuant to Rule 13a-15(e) or 15d-15(e) of theExchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

32                                    Certificationof Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of2002.

# **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 14, 2007 |   |
|----------------------------------------|--------|--------------|--------|
| Stephen Russo                          | Date   |
| President and  Chief Executive Officer |   |
| *(Principal  Executive Officer)*       |   |
| * *                               |   |
| * *                               |   |
| /s/ Gregory K.  Barber                 |   | May 14, 2007 |   |
| Gregory K.  Barber                     | Date   |
| Chief Financial  Officer and Treasurer |   |
| *(Principal  Financial Officer)*       |   |

 

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