**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

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| **(Mark One)** | ** ** |
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| **x** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------|

**For the fiscal year ended December 30, 2006**

**OR**
| o | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|---|-----------------------------------------------------------------------------------------------|

**For the transition periodfrom                  to**

**Commission file number:  333-115046**

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**MRS. FIELDS FAMOUS BRANDS, LLC**(Exact Name of RegistrantSpecified in Its Charter)

| **Delaware**                     |   | **80-0096938**                     |
|----------------------------------|--------|------------------------------------|
| (State or Other  Jurisdiction of |   | (IRS Employer  Identification No.) |
| Incorporation or  Organization)  |   |                               |

 

**2855 EastCottonwood Parkway, Suite 400****Salt Lake City, Utah 84121-1050** (Address of principal executiveoffices)

Registrant’stelephone number, including area code:**(801)736-5600**Securities registered pursuant to Section 12(b) of the Act: **None**Securities registered pursuant toSection 12(g) of the Act: **None**

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| Indicate by check mark if  the registrant is a well-known seasoned issuer, as defined in Rule 405 of the  Securities Act.      YES o NO x                                                                                                                                                                                                                                                                    |   |   |
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| Indicate by check mark if the registrant is not  required to file reports pursuant to Section 13 or Section 15(d) of the Act.      YES o NO x                                                                                                                                                                                                                                                                |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
| Indicate by check mark whether the registrant (1)  has filed all reports required to be filed by Section 13 or 15(d) of the  Securities Exchange Act of 1934 during the preceding 12 months (or for such  shorter period that the Registrant was required to file such reports), and  (2) has been subject to such filing requirements for the past 90   days.     YES x NO o                                     |   |   |
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| Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is  not contained herein, and will not be contained, to the best of registrant’s  knowledge, in definitive proxy or information statements incorporated by  reference in Part III of this Form 10-K or any amendment to this Form   10-K.           x |   |   |
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| Indicate by check mark whether the registrant is a  shell company (as defined in Rule 12b-2 of the Act).                                                                                                                                                                                                                                                                                                                                             |   |   |
| YES o  NO x                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |

 
| Indicate by check mark  whether the registrant is a large accelerated filer, an accelerated filer, or  a non-accelerated filer. See definition of “accelerated filer and large  accelerated filer” in Rule 12b-2 of the Exchange Act. (check one): |   |   |   |
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| Large  accelerated filer o    Accelerated  filer o    Non-accelerated  filer  x                                                                                                                                 |   |   |   |

 

On March 1, 2007,none of the registrant’s voting or non-voting equity was held bynon-affiliates.  There is no establishedtrading market for registrant’s common interests.

On March 1, 2007,100 common interests of registrant were outstanding.

### **DOCUMENTS INCORPORATED BY REFERENCE:  None**

 

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

**TABLE OFCONTENTS**
|            |   | PART I                                                                                          |   |
|------------|--------|-------------------------------------------------------------------------------------------------|--------|
| Item 1.    |   | Business                                                                                        |   |
|       |   |                                                                                            |   |
| Item 1A.   |   | Risk Factors                                                                                    |   |
|       |   |                                                                                            |   |
| Item 2.    |   | Properties                                                                                      |   |
|       |   |                                                                                            |   |
| Item 3.    |   | Legal Proceedings                                                                               |   |
|       |   |                                                                                            |   |
| Item 4.    |   | Submission of Matters to a Vote of Security Holders                                             |   |
|       |   |                                                                                            |   |
|       |   | PART II                                                                                         |   |
|       |   |                                                                                            |   |
| Item 5.    |   | Market for Registrant’s Common Equity and Related  Stockholder Matters                     |   |
|       |   |                                                                                            |   |
| Item  6.   |   | Selected  Financial Data                                                                        |   |
|       |   |                                                                                            |   |
| Item 7.    |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations     |   |
|       |   |                                                                                            |   |
| Item 7A.   |   | Quantitative and Qualitative Disclosures about Market  Risk                                     |   |
|       |   |                                                                                            |   |
| Item 8.    |   | Financial Statements and Supplementary Data                                                     |   |
|       |   |                                                                                            |   |
| Item 9.    |   | Changes In and Disagreements With Accountants on  Accounting and Financial Disclosure           |   |
|       |   |                                                                                            |   |
| Item 9A.   |   | Controls and Procedures                                                                         |   |
|       |   |                                                                                            |   |
| Item  9B.  |   | Other  Information                                                                              |   |
|       |   | PART III                                                                                        |   |
|       |   |                                                                                            |   |
| Item 10.   |   | Directors and Executive Officers of the Registrant                                              |   |
|       |   |                                                                                            |   |
| Item 11.   |   | Executive Compensation                                                                          |   |
|       |   |                                                                                            |   |
| Item 12.   |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters |   |
|       |   |                                                                                            |   |
| Item 13.   |   | Certain Relationships and Related Transactions                                                  |   |
|       |   |                                                                                            |   |
| Item 14.   |   | Principal Accounting Fees and Services                                                          |   |
|       |   | PART IV                                                                                         |   |
|       |   |                                                                                            |   |
| Item 15.   |   | Exhibits and Financial Statement Schedules                                                      |   |
|       |   |                                                                                            |   |
| SIGNATURES |   |

 

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Unless the context otherwise requires, references inthis report to the terms “Company,”  “we,”“us,” or “our” generally refer to Mrs. Fields Famous Brands, LLC, a Delawarelimited liability company, and its subsidiaries.

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

This report includes “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of1995.  Forward-looking statementsare 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 thatcould cause these differences include all factors described elsewhere in thisreport and in detail under “Item 1A. Risk Factors.”

You are cautioned not to place undue reliance on theseforward-looking statements, which reflect management’s analysis only as of thedate of this report.  We undertake noobligation to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise.  In light of these risks, uncertainties andassumptions, the forward-looking events discussed in this report may not occur.

This report includes references to trade names andtrademarks owned or registered by third parties, such as “Nabisco,” “Keebler”and “Dove.”  We have not identified theowners of such marks, who are unrelated to the Company.

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**PART I**

# **Item 1. Business**

# **Overview**

We are one of thelargest franchisors in the premium snack food industry, featuring Mrs. Fieldsâ,Great American Cookiesâ, TCBYâ,Pretzel Timeâ and Pretzelmaker® as our core brands.  Through our franchisees’ retail stores, weare the largest retailer in the United States of America (the “United States”)of freshly baked, on-premises specialty cookies and brownies and soft-servefrozen yogurt; and the second largest retailer of baked on-premises pretzels inthe United States.  In addition, weoperate a gifts and new branded retail business and have entered into licensingarrangements that attempt to leverage awareness of some of our core brandsamong our retail customer base.  Weoperate through a network of 2,313 retail concept locations, which are locatedthroughout the United States and in approximately 24 foreign countries.

### *Our History*

Wewere formed in March 2004 in connection with the reorganization of certainentities and segments that are under the common control of Mrs. Fields’Companies, Inc. (“MFC”), formerly known as Mrs. Fields FamousBrands, Inc.  We are 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 MFC.  The majorityshareholders of MFC are two affiliated private investment management firms:Capricorn Investors II, L.P. (“Capricorn II”) and Capricorn Investors III, L.P.(“Capricorn III,” together with Capricorn II, “Capricorn”).

In a related series oftransactions, we formed or acquired from MFOC new single member domesticlimited liability companies that are disregarded entities for U.S. federal income tax purposes for each ofour major brands, namely Mrs. Fields Franchising, LLC; Great AmericanCookie Company Franchising, LLC; TCBY Systems, LLC (“TCBY”); Pretzel TimeFranchising, LLC; and Pretzelmaker Franchising, LLC.  These subsidiaries hold certain assets of andact as the franchisor for their respective brands.  As part of these transactions, MFOC also madea capital contribution to us of all of its interests in several other entities,including Mrs. Fields Gifts, Inc. (which operates our giftsbusiness), as well as the Great American Cookies manufacturing facility, whichwe then contributed to our subsidiary, Great American Manufacturing, LLC.

Weare highly leveraged.  As ofDecember 30, 2006, our outstanding long-term debt consists of $80.7 million of9 percent senior secured notes (the “9 percent Senior Secured Notes”) and$115.0 million of 111⁄2 percentsenior secured notes (the “111⁄2percent Senior Secured Notes” together with the 9 percent Senior Secured Notes,the “Senior Secured Notes”).

### *Business Strategy*

We believe our businessstrategy aligns the interests of our company with the interests of our retailfranchisees and focuses our joint efforts on strengthening and broadening the appealof our brands through satisfying the wants and needs of consumers.  During fiscal 2006, our strategy focused onthree objectives:

·                  buildprofitable year-over-year franchise sales;

·                  accelerategrowth of new franchised store development; and

·                  growlicensing and gifts operations.

We used thefollowing key performance indicators to measure our success and progress:

·                  year-over-yearsame store franchise sales;

·                  netchange in number of retail concept locations; and

·                  year-over-yeargifts and licensing revenues.

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InDecember 2006, we decided to restructure our personnel, effective January 2007,to further focus our efforts and refine 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.

To accomplish thisobjective, we have reorganized all of our resources to focus primarily on thosekey areas we have identified as vital to the future growth of our brands.  We believe our new organization provides uswith the structure necessary to maintain that focus.

As we work towardsaccomplishing our key objective for fiscal 2007, we will use similarperformance indicators to those we utilized in fiscal 2006 to measure ourprogress:

·                  year-over-yearsame store franchise sales;

·                  netchange in number of retail concept locations; and

·                  growthin branded retail, licensing and gifts revenues.

Aspart of our new organization, we have appointed presidents for each of ourbrand groups, including Mrs. Fields, TCBY and the combined group of GreatAmerican Cookies, Pretzel Time and Pretzelmaker.  While their respective responsibilitiesdiffer somewhat, these presidents will focus solely on their brands and will beaccountable for their future growth and development.  They also have responsibility for each of thesupport functions necessary for brand success.

## ***Mrs. Fields***

Our Mrs. Fieldsbrand is headed by a president responsible for overseeing each of the saleschannels through which we approach customers under the Mrs. Fields name.  These channels include our franchised retailstores, our branded retail business, licensing and Mrs. Fields Gifts.

With all of thesales channels under the Mrs. Fields brand name now folded into a singleorganization, we believe we will be better able to strengthen the brand’sidentity and present it more consistently to consumers.

The President ofMrs. Fields is also responsible for overseeing functions in support of thebrand, including operations, development, real estate and marketing.

## ***Great AmericanCookies, Pretzel Time and Pretzelmaker***

 The Company’s Great American Cookies, PretzelTime and Pretzelmaker brands are headed by a president responsible for theoperations, development, real estate and marketing functions that support thesebrands.  The president also oversees theGreat American Cookies batter facility.

Among our brands,Great American Cookies, Pretzel Time and Pretzelmaker share a number ofchallenges and opportunities.  GreatAmerican Cookies is beginning to see very solid increases in new store openingsand each of these brands has enjoyed year-over-year same store sales growth forthe last two fiscal years.

Because they sharea similar spot on the development curve, we believe these brands can be managedmost effectively within the same organization.

## ***TCBY***

While we haveinvested significantly in the TCBY brand and worked to develop a vehicle forgrowing the TCBY business, the Company is still in the process of exploringways to build profitable sales and address store closures.

We continue to believe, however, that the TCBY brandhas great potential with consumers.   Asa result, the President and CEO of Mrs. Fields Famous Brands also serves asPresident of TCBY, assuming a direct role in the day-to-day work necessary toturn around that business.  The Presidentof TCBY oversees operations, development, real estate and marketing, as well asthe further testing and development of a new dairy concept, YovanaäYogurt Café (“Yovana”) and our new line of Beriyoäsmoothies.

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## ***Administration***

In the new organization,the Company’s Executive Vice President & Chief Legal Officer continues tooversee the legal, human resources, training, purchasing and distribution andinternal audit departments and also assumes responsibility for InternationalOperations and Development.

## ***Finance, Accountingand Strategy Development***

The Company’s ExecutiveVice President & Chief Financial Officer has responsibility for finance,accounting, information technology, mergers and acquisitions and strategicanalysis.

#### **Description of Business**

###### *Our Bakery Brands*

*Mrs. Fields. *Debbi Fields opened herfirst store in Palo Alto, California in 1977. The Mrs. Fields name quicklybecame associated with quality, freshly baked cookies right out-of-the-oven ina retail setting.  The strength of theMrs. Fields brand name enjoys high consumer brand awareness.  By building on its legendary chocolate chipand white chocolate macadamia nut cookies, the Mrs. Fields brand has developeda comprehensive product line that includes many of America’s most beloved snackfood treats.

*Great American Cookies.*  Great American Cookies became a retailsuccess in 1977 when the first store opened in Atlanta, Georgia’s PerimeterMall.  Founded on the strength of agenerations-old family chocolate chip cookie recipe, Great American Cookies hasgrown throughout malls and shopping centers nationwide.  All of the cookies and brownies at GreatAmerican Cookies begin with carefully tested recipes, highly controlledproduction and the finest premium ingredients from our batter productionfacility in Atlanta, Georgia.

*Pretzel Time. *Pretzel Time introduced itsfamous soft pretzel in 1991 and established itself in regional shopping centersacross the country.  From thenumber-one-selling traditional salted and buttered pretzel, to the developmentof the popular fresh Pretzel Bites, Pretzel Time’s menu provides many tastychoices for customers.  Products alsoinclude a variety of refreshing beverage options, including sweet, quenchinglemonade and the new, popular Breezer SmoothiesÒfrozen beverage.  These deliciousbeverages are an excellent complement to freshly baked Pretzel Time pretzels.

*Pretzelmaker. *The first Pretzelmakerpretzel was rolled, twisted and baked in 1991. Today, Pretzelmaker stores are found in a variety of venues.  Pretzelmaker pretzels are a greatlow-calorie, convenient snack.  Customerscan enjoy a freshly prepared pretzel topped with a variety of flavors andsauces and complemented with beverages like the new Breezer Smoothies frozenbeverage.

*OurDairy Brands*

*TCBY.* TCBY has been a frozen treats productinnovator since its first opening in Little Rock, Arkansas in 1981.  The great tasting, low-fat frozen yogurtconcept received an enthusiastic response from an increasingly health consciouspublic and was the first in a line of ground breaking menu items.  TCBY product milestones include (i)developing non-fat and no-sugar added frozen treats; (ii) launching a line offrozen yogurt and sorbet novelties; and (iii) introducing frozen yogurt toairports and travel plazas through its joint venture agreement with HMS Host,as successor-in-interest to Host International, Inc., Host Marriott ServicesUSA, Inc., and Host Marriott Tollroads Inc., (collectively “HMS Host”).  In fiscal2007, we will continue to explore ways to revitalize and reposition TCBY totake advantage of yogurt’s increasing appeal to today’s health consciousconsumer.

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*New Yogurt Tests - Yovana andBeriyo. * To explore further how we can use yogurt’scontinuing growth as a market category to benefit franchisees and enhance ourbrands, TCBY is testing an additional yogurt-focused concept — Yovana — and asmoothie focused product line — BeriyoÒ beverages — to besold in various iterations of TCBY stores. These new tests focus on different menu offerings, attempt to meet aspecific set of consumer needs and appeal to consumers at different times ofthe day.  For example, Beriyo attempts totake advantage of consumers’ demand for smoothies, as a complement to TCBYfrozen yogurt treats.  The Yovana testconcept introduces a menu that attempts to appeal to multiple day-parts and isbuilt around premium yogurt prepared fresh daily in the store, including freshyogurt, drinkable fruit and yogurt, smoothies and frozen yogurt treats.  During fiscal 2007 we plan on limiting theYovana test to a small number of stores in a few markets and captivelocations.   Beriyo, which has been testedas a stand-alone concept as well as a co-brand and menu offering, will be rolledout as a new line of smoothie products to TCBY traditional stores in fiscal2007.  We may continue to test Beriyo productsin different ways as we explore options for new development and arevitalization of the TCBY brand.  Wehave concluded our test of Beriyo as a conversion option for existing TCBYstores and do not currently plan on offering a Beriyo conversion program in thenear future.  We plan on paying certaincosts and expenses in fiscal 2007 in connection with the conclusion of thisphase of the Beriyo test.  We currentlyestimate these costs to be approximately $200,000.

#### *Our Products*

**Cookies, Brownies, Cookie Cakes and Other BakeryProducts**.  The franchised cookie retailstores continuously bake and serve numerous varieties of freshly baked cookies,brownies, Cookie Cakes and other bakery products.  Although cookie and brownie sales aregenerally impulse purchases, Cookie Cakes can be decorated with customizedmessages and designs for any special occasion and provide an opportunityfor the cookie stores to become destination locations.  Our bakery products are made using highquality ingredients and all dough is centrally manufactured and frozen orrefrigerated to maintain product quality and consistency.  All products pass strict quality assuranceand control steps at both the manufacturing plants and the stores.  Mrs. Fields and Great American Cookiescontinuously work on and test new products and promotions to give theircustomers a satisfying experience.

*Pretzels. *Pretzel Time’s primary productis a hand-rolled soft pretzel, freshly baked from our proprietary dry mix ateach store location.  Pretzel Time storesprepare pretzels with a variety of flavors and specialty toppings, includingcheddar cheese and cinnamon and sugar. Pretzelmaker sells hand-rolled soft pretzels freshly baked at each storelocation, using proprietary dough shipped frozen to each location.  Both brands are now using innovative newdough that improves freshness, quality and taste.  The stores also offer lemonade, soft drinksand the very popular Breezer frozen beverages. A selected number of Pretzel Time and Pretzelmaker locations arecurrently participating in tests that focus on changes in trade dress,merchandising and product mix.  Thepurpose of these tests is to identify best attributes for a store of the futurethat emphasizes our hot, fresh pretzels and cold refreshing beverages.

*FrozenSoft-Serve and Hand-Dipped Yogurt and Smoothies.*  We believe our premium soft-serve frozenyogurt has more types of live, active cultures than any other brand of frozenyogurt sold in the United States.  Ouryogurt contains seven different types of live, active yogurt cultures,including *Lactobacillus bulgaricus*and *Streptococcus thermophilus*,which convert pasteurized milk to yogurt during fermentation and which arerequired by U.S. Food and Drug Administration (“FDA”) standards for a productto be called yogurt.  One benefit ofthese yogurt cultures is that they act as friendly bacteria that “pre-digest”or break down the lactose so that yogurt may be tolerated by many individualswith lactose intolerance.  In addition,our yogurts provide a healthy dose of calcium, protein and vitamin D.  Studies suggest that live, active culturesmay help strengthen the immune system and provide other benefits such asimproved digestion and better absorption of nutrients.  Studies also show that calcium may helppromote weight loss and plays a role in strengthening bones.

Our TCBYfranchised retail stores are focused on providing our premium frozen yogurt toour customers in many different forms. TCBY offers our original 96% fat free soft-serve frozen yogurt, nonfatfrozen yogurt, no-sugar added/nonfat frozen yogurt and nonfat/nondairy sorbets.  Additionally, to capitalize on yogurt’scontinued strong consumer appeal, we launched a line of TCBY hand-dippedproducts in the second quarter of fiscal 2006. Franchised locations serve a variety of menu items based on theseproducts, including waffle cones, parfaits, shakes and sundaes.  They also offer a premium line of frozenyogurt cakes and deep-dish pies and our own TCBY Shiver® and CappuccinoChiller® products. TCBY yogurt is available in a variety of flavors.  Beriyo by TCBY was also tested in fiscal 2006and provided a range of products, including smoothies and TCBY frozen yogurttreats.  Beriyo smoothies formulas willbe rolled out into the TCBY system in fiscal 2007 based upon the results ofthis test.

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*YogurtTest Concept Products. *OurYovana test concept is the first concept of its kind to sell premium yogurtprepared fresh daily in the store.  Thisfresh yogurt is combined with fresh fruits and organic granolas to provideconsumers with a convenient source for healthy and nutritious foods in arelaxed and upscale setting.  These itemsare also combined with our premium frozen yogurt to provide consumers with ahealthy treat alternative to ice cream.

*Beverages.*  We sell Coca-Cola soft drinks, Dannon bottledwater and other products exclusively in all of our retail stores underagreements with Coca-Cola USA Fountain. Some of our bakery stores also sell a Breezer Smoothie drink thatincorporates certain products provided by Coca-Cola USA Fountain.  Our franchised locations may also sell otherbeverages such as coffee and teas, purchased from one or more of our approvedsuppliers.

*BrandedRetail Products. *Inaddition to products sold in our franchised retail stores, we sell Mrs. Fieldsbranded ready-to-eat shelf stable cookies and novelty frozen food itemswholesale to the retail grocery trade.

##### **Ingredients, Suppliers and Distributors**

We rely primarily on outside suppliers anddistributors for the ingredients used in our products and other items used inour franchisees’ stores.

*Cookies,Brownies, Muffins and Other Bakery Products.*  Countryside Baking, Inc., a Dawn FoodProducts Company (“Countryside”) manufactures the majority of Mrs. Fieldsbrand frozen cookie dough and bakery products, which are made according to ourproprietary recipes, for our domestic and international franchisedstores and our gifts segment. Countryside manufactures our products strictly in accordance with thestandards, procedures, specifications, formulations and recipes established byus, as well as all applicable federal, state and local laws or regulations towhich it is subject.

Our supply agreement with Countryside gives us theright to oversee the quality of the products, but also requires Countryside toexercise its own quality control to ensure that it meets all applicablestandards, including those established by the United States Food, Drug andCosmetic Act and Title 21 of the Code of Federal Regulations of the UnitedStates relating to Food Manufacturing Practices.  In December 2006, we signed a new agreementwith Countryside for making frozen products for us with an initial term of 5years, which replaces a supply agreement previously entered into withCountryside.

Our products manufactured by Countryside are then soldto our approved distributors, currently Dawn Food Products and KaleelBrothers, Inc. (“Kaleel Brothers”) for sale and distribution toMrs. Fields Cookie stores.  Theinitial term of the supply and distribution agreement with Dawn Food Productsexpired on August 8, 2003, when it automatically renewed for an additionalone-year term.  The supply and distributionagreement continues to renew automatically each year unless either party gives180 days notice of nonrenewal prior to the anniversary date and isotherwise terminable at will by either party upon 180 days notice.  We do not have a supply and distributionagreement with Kaleel Brothers.

Great American Cookies stores receive “ready to bake” refrigeratedbatter from our manufacturing facility in Atlanta, Georgia. The batter, whichhas a shelf life of approximately 90 days, is stored at the manufacturingfacility for an average of one to three weeks, depending on demand, beforebeing shipped to our franchisees’ stores. Paper products for Great American Cookies stores are distributed byNetwork Services Company.

Our shelf stable cookies sold in various distributionchannels by our branded retail group are manufactured by Oak State Products,Inc. (“Oak State”).  We are currentlynegotiating a new supply agreement with Oak State.

*Pretzels.*  Our Pretzel Time brand stores buy proprietarydry mix from our approved supplier, Pizza Blends, or current authorizeddistributors, Dawn Food Products and Kaleel Brothers.  Pretzels are mixed and baked at individualstores.   Our Pretzelmaker brand storespurchase our proprietary frozen dough from our approved supplier, LaytonBakery, or current authorized distributor, Dawn Food Products.  Individual stores then thaw, shape and bakethe pretzels on site.

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*Frozen Soft-Serve and Hand-DippedYogurt. * In December 2006, we entered into two newProduct Supply Agreements (each, a “Supply Agreement”), both dated effective asof December 5, 2006.  The first SupplyAgreement, between us and Scott Brothers Dairy, Inc. (“Scott Brothers”),provides for manufacturing of our soft-serve frozen yogurt.  The second Supply Agreement, between us andYarnell Ice Cream Company, Inc. (“Yarnell”), provides for manufacturing of ourhand-scooped frozen yogurt products.  Under the Supply Agreements, Scott Brothers and Yarnell will make thefrozen yogurt products available to TCBY’s designated distributors, who willpurchase the products for resale to TCBY franchisees.  Each Supply Agreement has an initial term ofthree years and includes provisions related to licensing of TCBY’s marks forpurposes of production; pricing, payment, invoicing and collection; inventorycontrols; quality standards and assurance; indemnification and confidentiality.

These new Supply Agreements replace our formerrelationship with Americana Foods LP (“Americana”), the company that previouslymanufactured TCBY’s proprietary yogurt products.  As disclosed in our Current Report on Form8-K filed on October 17, 2006, Americana ceased production under its supplyagreement with us when its general partner filed an involuntary petition withthe United States Bankruptcy Court for the Northern District of Texas, namingAmericana as a debtor under Chapter 7 of the Bankruptcy Code.

Our yogurt products manufactured by our new suppliersare then sold to our approved distributors for sale and distribution to TCBYand Yovana stores.  During fiscal 2006,we entered into new supply agreements with eight regional distributors,including Southwest Traders and the Merchants Group, who will service our dairystores in various regions throughout the United States.  These eight new distributors replace ourformer primary TCBY distributor, Blue Line Distributing (“Blue Line”).  Blue Line will continue to deliver productsto a small number of franchisees served by one of its distribution centersunder an extension of its former contract through March 2007.  Under the terms of this 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.

All of the products, supplies and equipment purchasedfor sale or use by our franchisees must meet our specifications and standardsfor quality, design, appearance, function and performance.  We have the right to designate certain suppliersand distributors for any of these items.

**Our Business Segments**

During fiscal2006, our business was divided into four primary business segments forfinancial reporting purposes: franchising, gifts, branded retail and licensing,which represented 54.9 percent, 31.8 percent, 11.4 percent and 1.9 percent oftotal revenues, respectively, for the year ended December 30, 2006.  The franchising segment consists of revenuesreceived either directly or indirectly from cookie, yogurt and pretzel stores,which are owned and operated by third parties. These revenues include initial franchise or license fees, monthlyroyalties based on a percentage of a franchisee’s gross sales, sales of cookiedough that we produce and certain product formulation fees and supplierallowances which are based upon sales to franchisees.  The gifts segment consists of sales generatedfrom our mail order gift catalog and website. The branded retail segmentconsists of sales generated directly from the sale of Mrs. Fields products throughvarious retail channels.  As a result ofterminating certain licensing agreements, we began operating a new brandedretail business in July 2006, as more fully described in the “Licensing”section included in Item 1 Business, contained elsewhere in this report.  We determined that with these new businessactivities, the branded retail segment constituted a reportable segment underSFAS No. 131 (“SFAS 131”), “Disclosures About Segments of an Enterprise andRelated Information” and have restated the corresponding items of segmentinformation for prior periods to conform to the current periodpresentation.  Prior to the third quarter2006, our revenues and operating expenses associated with branded retailactivities did not meet the quantitative thresholds of SFAS 131 and wereincluded in other revenues and other operating expenses.  The licensing segment consists of otherlicensing activity from third parties for the sale of products bearing ourbrand names.  For further disclosure ofreportable segments, see Note 9, Reportable Segments, to our consolidatedfinancial statements contained elsewhere in this report.

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## ***Franchising***

We operate through a network of franchised stores,which are located throughout the United States and in approximately 24 foreigncountries.  We actively recruit new franchiseesand enter into a number of franchise agreements each year.  We believe we will continue to recruit newfranchisees who will provide cash flow to our franchising segment by:

·                  emphasizingthe use of proprietary dough, fresh and frozen yogurt and dessert products,minimizing product quality issues and promoting a consistent product across alloutlets;

·                  requiringquality, service and cleanliness evaluations of franchised stores by trainedoperations support staff; and

·                  providinginitial and continuing training of franchisees and operational tools to helpimprove their financial and retail sales skills.

However, there can be no guarantee that we will beable to successfully recruit a significant number of new franchisees.

As of December 30, 2006, our storeportfolio consisted of 1,804 domestic franchised locations, 356international franchised locations and 153 licensed locations, which aredescribed in more detail below.  Ourfranchisees’ and licensees’ concept locations by concept are distributed as follows:

 
| ** **                     | ** ** | **Domestic**   | ** ** | **International** | ** ** | **Licensed**  | ** ** | ** ** | ** ** |
|--------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                     | ** ** | **Franchised** | ** ** | **Franchised**    | ** ** | **Locations** | ** ** | **Total**  | ** ** |
| Mrs. Fields                    |       | 360            |       | 97                |       | 43            |       | 500        |       |
| Great American                 |       | 291            |       | 1                 |       | —        |       | 292        |       |
| Original Cookie                |       | —         |       | —            |       | 1             |       | 1          |       |
| Cookie subtotal                |       | 651            |       | 98                |       | 44            |       | 793        |       |
| Pretzel Time                   |       | 188            |       | 4                 |       | 6             |       | 198        |       |
| Pretzelmaker                   |       | 143            |       | 50                |       | 1             |       | 194        |       |
| Hot Sam                        |       | —         |       | —            |       | 3             |       | 3          |       |
| Pretzel subtotal               |       | 331            |       | 54                |       | 10            |       | 395        |       |
| Bakery brands  subtotal        |       | 982            |       | 152               |       | 54            |       | 1,188      |       |
| TCBY - traditional  stores     |       | 365            |       | —            |       | —        |       | 365        |       |
| TCBY - non-traditional  stores |       | 446            |       | 204               |       | 98            |       | 748        |       |
| Yovana - test stores  (1)      |       | 2              |       | —            |       | 1             |       | 3          |       |
| Beriyo by TCBY - test  stores  |       | 9              |       | —            |       | —        |       | 9          |       |
| Dairy brands  subtotal         |       | 822            |       | 204               |       | 99            |       | 1,125      |       |
| Total                          |       | 1,804          |       | 356               |       | 153           |       | 2,313      |       |

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(1) Included in the domestic franchised Yovana test stores is one storecurrently owned and operated by us, which may be refranchised, relocated orclosed in fiscal 2007.  We assumedoperations from a franchisee in an effort to more closely monitor the resultsof the test.

The previous table counts each concept location individually.  For example, if a physical location had aMrs. Fields store and a Pretzel Time store together, this would be countedas two concept locations in the table above. If actual physical stores were counted rather than concept locations,total store counts would be reduced by 239 locations to 2,074.

MFOC and certain of its subsidiaries own twofranchised retail concept locations as of December 30, 2006, representing0.1 percent of the total retail concept locations.  During the year ended December 30, 2006, werecognized $120,000 of franchise royalties and $119,000 of product salesrelating to retail concept locations owned by MFOC.  MFOC expects that these remaining retailconcept locations will be sold to other franchisees or will be closed duringfiscal 2007.

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*Store Location and Configuration.*

Possibilities for franchised locations include highpedestrian traffic areas, including malls, airport concourses, office buildinglobbies and shopping and lifestyle centers. We have developed a number of retail configurations designed to adapt toa variety of retail environments.  Inaddition to the stores that have been designed for prime mall locations, wehave developed other formats, such as kiosks, in-line retail and carts intendedto extend our brands’ presence within and beyond mall locations.

*Cookies*.  Mrs. Fields and Great American Cookiesstores are primarily located in “A” and “B” grade malls in the UnitedStates.  These stores are uniformlydesigned in accordance with the Mrs. Fields or Great American CookiesCompany prototype, intended to create an upscale, open and inviting look.  Individual store sizes typically range from500 to 800 square feet, while kiosks tend to be somewhat smaller.

*Pretzels*.  Pretzel Time and Pretzelmaker outlets have anaverage size of 500 to 800 square feet in store locations and 200 square feetin kiosk locations.  The stores andkiosks are likely to be located in high traffic areas and are designed toenable customers to enjoy watching the pretzels being rolled, twisted and bakedin minutes, which underscores freshness and contributes to the product’sappeal.

*Dairy*.  Generally, traditional TCBY domesticfranchised stores are located in shopping centers, freestanding locations andshopping malls.  TCBY non-traditionallocations include TCBY stores operated in conjunction with other concepts, suchas Subway, Exxon and other convenience stores and petroleum outlets.  TCBY non-traditional locations also include “captive”outlets such as airports, toll road travel plazas, hospitals, office buildingsand sports arenas.  A traditional TCBYstore usually occupies 800 to 1,600 square feet and accommodates both carryoutand in-store business.  Our traditionalTCBY stores are designed as a “destination experience” and generally includesome customer seating as well as a display case for yogurt cakes and pies.  TCBY non-traditional domestic franchisedstores are generally much smaller, offer a limited menu as compared to atraditional TCBY store and often serve TCBY products through kiosks, soft-servevending carts and counter top units located within other branded premises orcaptive locations.  Yovana stores are inthe early stages of testing and we anticipate that their locations andconfiguration will evolve during the test period.  In addition, TCBY is currently testing a newstore design that may be available as a remodel package for existing stores, aswell as for new development.

###### *FranchiseAgreements*

Our franchises are typically granted for a specificsite selected by the franchisee and approved by us.  Franchisees must offer the products andservices that we designate.  We providefranchisees with suggested retail pricing for products and services, butfranchisees are generally free to set the retail prices at their stores.

*Cookies.*  Each Mrs. Fields brand franchiseetypically pays an initial franchise fee of $30,000 per Mrs. Fields brandstore location and is responsible for funding the build-out of the new storeand purchasing initial dough inventory and supplies.  Existing and prospective franchisees mayqualify for certain incentives when they purchase franchises.  The cost of opening a new store or purchasingan existing store can vary widely based on individual operating and locationcosts.  After a store is established, afranchisee pays weekly royalty fees of six percent of the franchised store’sgross sales for the prior week and a weekly advertising fee of from one tothree percent (currently one percent) of such gross sales.  Mrs. Fields franchisees are required topurchase proprietary dough from our authorized distributors or suppliers, whichmay pay us an amount based on total franchisee purchases.  Franchises are typically granted for a periodof seven years.  Franchisees in goodstanding have an option to renew for an additional seven years at terms setforth in the then-current form of the franchise agreement.

Each new Great American Cookies franchisee typicallypays an initial franchise fee of $30,000 per store and is responsible forfunding the build-out of the new store and purchasing initial batter inventoryand supplies.  Existing franchisees mayqualify for certain incentives when they purchase additional franchises.  The cost of opening a new store or purchasingan existing store can vary widely based on individual operating and locationcosts.  After a store is established, aGreat American Cookies franchisee pays monthly royalty fees to us of sixpercent of the franchised store’s gross sales for the prior month and a monthlyadvertising fee of one percent of such gross sales.  Great American Cookies Company franchiseesare required to purchase batter from our manufacturing facility, whichrecognizes a profit on batter sales.  Theterm of the franchise typically runs concurrently with the term of the GreatAmerican Cookies store lease and may be subject to an option to renew.

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*Pretzels*.  Each new Pretzel Time or Pretzelmakerfranchisee typically pays an initial franchise fee of $25,000 per new PretzelTime or Pretzelmaker store and is responsible for funding the development ofthe new store.  Existing and prospectivefranchisees may qualify for certain incentives when they purchasefranchises.  The initial investment canvary based on individual operating and location costs.  After a store is established, a Pretzel Timefranchisee pays weekly royalty fees to Pretzel Time of seven percent of thefranchised store’s gross sales for the prior week and a marketing fee of fromone to three percent (currently one percent, but may be increased to one andone-half percent during fiscal 2007) of such gross sales.  Franchisees are required to purchaseproprietary dough or dough mix from our authorized suppliers and distributors,which may pay us an amount based on total franchisee purchases.  New Pretzelmaker franchisees pay weeklyroyalty fees to Pretzelmaker of seven percent of the franchised store’s grosssales for the prior week and a marketing fee of from one to three percent(currently one and one-half percent) of such gross sales.  However, the majority of the Pretzelmakersystem operates under a franchise agreement that provides for payment of a sixpercent royalty fee, which will remain in effect until the current franchiseagreement is transferred, renewed or otherwise modified to change therate.  Franchises are typically granted foran initial term of seven years and franchisees in good standing have an optionto renew for an additional seven years upon terms set forth in the then-currentform of franchise agreement.

*Dairy.*  Each new TCBY franchisee typically pays aninitial franchise fee of $25,000 per traditional store and from $2,500 to$15,000 per non-traditional location and is responsible for funding thebuild-out of the new store and purchasing initial yogurt inventory andsupplies.  Existing and prospectivefranchisees may qualify for certain incentives when they purchasefranchises.  The cost for opening a newstore varies widely depending upon the size and location of the store.  TCBY franchisees purchase TCBY products onlyfrom authorized distributors.  TCBYreceives a formulation fee on purchases of yogurt products by franchisees.  As part of a new program to encouragefranchisees to remodel or relocate their existing stores and to support astronger business model for new development, some or all of thisformulation fee that we collect on purchases by participating TCBYfranchisees will be returned to them in the form of arebate.  Since we do not yet know the number of existingfranchisees that will participate in the program or the number of new TCBYstores that will open and take advantage of this rebate, we cannotestimate the impact this may have on the aggregate amount of formulationfees we collect in 2007 and beyond.

Franchises fortraditional TCBY stores are usually granted for a period of ten years.  Typically, franchisees in good standing havean option to renew for an additional ten years at then-current terms (fornon-traditional stores, the initial term is usually five years with a renewalterm of five years).  Currently, mostTCBY franchisees pay an ongoing royalty fee of four percent of its net revenuesand an ongoing advertising fee of three percent of its net revenues, thoughsome newer franchise agreements give TCBY the right to charge a five percentroyalty and up to a five percent advertising fee.  As part of the revitalization programdescribed above, participating franchisees will sign a new form of franchiseagreement that will change their royalty rate to six percent of net revenuesand will temporarily lower their advertising fee rate.  The advertisingfee rate will eventually increase in increments until it isrestored to a total of three percent of net revenues.  Franchisees currently pay the royalty andadvertising fees by way of a surcharge on TCBY products, either collected byour authorized distributor and remitted to us, or collected directly byus.  We anticipated last year that wewould begin transitioning TCBY to a different method of royalty and advertisingfee collection for its traditional store franchisees.  However, that transition has been postponedpending TCBY’s analysis of its new product, store design and concepttests.  These changes may occur duringfiscal 2007.

*Yogurt Test Concepts.*  The initial franchise fee and other fees forour yogurt test concepts are under review and remain subject to our testresults.  Test concept locations willreport their net revenues weekly to TCBY, will be required to use an approvedpoint-of-sale system and will pay their royalty and advertising fund feesdirectly to TCBY based on reported sales. Once the test is completed, TCBY will evaluate the data and may includea similar method in an overall plan to revitalize and reconcept qualifiedexisting TCBY traditional store franchised locations.

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*International*.  Generally, we adopt a master franchiseagreement form of relationship for international distribution of ourproducts.  A master franchisee is grantedthe right to develop a minimum number of locations in the defined territorywithin a certain time period.  We determine,on a country-by-country basis, whether we will export proprietary products fromthe United States to that country or license the production of products locallyor regionally (possibly to the master franchisee).  In addition, we may grant to the masterfranchisee the distribution rights of certain products in the defined country.  The master franchisee generally receivessub-franchising rights within the country that is the subject of the masterfranchise agreement if it maintains a specified level of its own locations.  International locations are generally smallerthan domestic locations and produce less sales and royalties per location.  Revenues from any single country (other thanthe United States) were not material.  Inthe aggregate, revenues from international locations, generated by ourfranchise and branded retail segments, for fiscal 2006, 2005 and 2004 were $3.6million, $1.5 million and $1.0 million, respectively, and represented3.7 percent, 1.7 percent and 1.1 percent of total revenues, respectively.

*Franchisee Training*

We believe training our franchisees is a critical component of creatingan effective retail environment, and accordingly, each of our brand conceptsrequire new franchisees to complete a training program conducted by ourtraining specialists at our training facility in Salt Lake City.  The initial training programs last from7-9 days, depending on the concept. We also make ongoing training programs available to franchisees toimprove their quality and effectiveness and may require certain franchisees toattend refresher training as part of operational compliance programs.  The training programs provide instruction tofranchisees regarding equipment use, food preparation and safety, customerservice, employee scheduling, methods of controlling operating costs,management, the job function of hourly employees and other aspects of retailstore operations.  Ongoing trainingcourses in new products, standards and procedures are available at our trainingfacilities or regional meetings throughout the year to all franchiseepersonnel.  We have the right to charge areasonable fee for refresher or additional training.  Franchisees pay their own costs, such asliving expenses and travel costs, to attend training.

*Franchise Concept Licensing*

We have developed a concept licensing program for certain non-mallretail outlets that enables us to enter difficult-to-reach markets andfacilitate brand exposure through “presence” and “prestige” marketing.  Our licensees duplicate our franchisee storeconcept and purchase our products from our various approved distributors.  Our licensees are generally food servicecorporations or contract management companies that manage and operate foodservice in “captive” locations.  Ourlicensees include HMS Host or its successor, which currently has an exclusivelicense to sell TCBY products in airports and travel plazas under a jointventure agreement with TCBY and a test license for Yovana stores within certaincaptive locations; and Marriott Management Services Corp. and SodexhoU.S.A., Inc. or their successors, which have non-exclusive licenses tosell certain Mrs. Fields products in licensed stores that they develop andoperate in specified locations where they provide food services, such ascommercial buildings or complexes, under a month-to-month extension oftrademark license agreements with a predecessor of MFOC.  Because these arrangements entail theoperation of an actual concept location, these licensed locations are includedin our franchising business segment rather than in our licensing businesssegment, which encompasses our brand licensing activities.

***Gifting***

We market a variety offreshly baked cookies, brownies, candies and other gift items under ourMrs. Fields brand name on the Internet and through gift catalogs.  We began our gifts business with just twoproduct offerings.  In fiscal 2006, we generated revenues of approximately$30.7 million and carried more than 375 gifting items thatrepresent 100 product groupings ranging from customized cookie tinswith company logos to birthday towers filled with cookies, brownies andjellybeans.  Our gifts business segmentis run through Mrs. Fields Gifts, Inc., our separate, wholly ownedsubsidiary for gifts operations.  The giftssegment has four direct sales channels: Internet, telephone, onlineaffiliate programs and strategic partnerships/corporate accounts.

*Internet.* We launched our Mrs. Fields website in 1997 and during fiscal 2006approximately 42.2 percent of all sales in the giftssegment where placed on-line.  Ourwebsite allows each customer to establish an account and track each order. Ourprincipal URL is at *www.mrsfields.com.*

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*Telephone.* Customers also may place orders using a toll-free telephone number “1-800-COOKIES.”  While sales from telephone orders continue tobe a significant portion of our gifts segment’s revenues, as a percentage oftotal sales in the gifts segment, they have *decreased*as customers have migrated to the Internet.

*Online Affiliate Programs.* In July 2001, we launched an online affiliate program with one of thelargest pay-for-performance affiliate marketing networks on the Internet.  We now have over 500 affiliates who havea text link or banner on their website to *www.mrsfields.com*.  We compensate online affiliates on acommission basis for each sale that originates from their website.

*Strategic Partnerships/CorporateAccounts.*  We have a number of partnerships with largeonline and catalog retailers that advertise Mrs. Fields brand products totheir customers for gifting purposes. Gifts are sold to partners at wholesale prices.  The partners are responsible for shipping tothe ultimate customer, advertising and customer service costs involved with theMrs. Fields gift program.  We alsohave corporate gift relationships with a number of large companies who useMrs. Fields brand products to motivate employees and reward customers.

*New Facility for Our Gifting Operations*

Effective as of March 1, 2006, we entered into anIndustrial Net Lease with Natomas Meadows Two, LLC, for the lease ofapproximately 159,000 square feet of space in Salt Lake City.  We developed this newly leased space to accommodate our new state-of-the-artgifting operations.  This new spacereplaced approximately 107,000 square feet of space we leased in areasthroughout Salt Lake City.   We movedinto this new facility in August 2006 and are attempting to terminate theleases for the former space or sublet it.

***Branded Retail***

In July 2006, we beganoperating a branded retail business to sell certain shelf stable Mrs. Fieldsproducts in various retail distribution channels, directly or through brokers,purchasing inventory from contract manufacturers and arranging for distributionof products to these customers.  Westarted this business in connection with our termination of certain trademarklicenses held by Shadewell Grove IP, LLC (“Shadewell”), as described in “Licensing,”We believe that the revenue generated by this business will not replace in thenear future revenues formerly generated by the Shadewell licenses that wereterminated.

***Licensing***

Over the past few years,we have pursued a “branding” strategy, using the registered trademarks of the Mrs. Fieldsand TCBY brands to reinforce the brands with consumers and improve marketshare.  Branded products targettraditional mass market and retail locations, complementing our existingbusinesses.  Examples of licenses grantedto third parties include those for Mrs. Fields chocolate chips, boxedchocolates, gourmet glazed popcorn and baking mixes.  Additionally, TCBY has entered into a licenseagreement for the distribution of high quality, yogurt covered pretzel productsutilizing certain TCBY trademarks and directly wholesales certain frozen yogurtnovelty items to the supermarket, drugstore and mass merchandise distributionmarkets.

During fiscal 2006, ourlargest licensee of Mrs. Fields branded products was Shadewell.  Shadewell currently has a license to marketand distribute high quality, pre-packaged chocolate chips utilizing the Mrs.Fields trademarks, service marks and trade names through designated retaildistribution channels.  During fiscal 2006,royalties earned from this license totaled approximately $67,000.

Shadewell also had alicense to market and distribute pre-packaged, ready-to-eat shelf stablebrownies and ready-to-eat shelf stable dessert toppings and syrups, eachutilizing the Mrs. Fields trademarks, service marks and trade names throughdesignated retail distribution channels. Shadewell never commenced distribution of these products and the licenseagreement terminated in accordance with its provisions.

Prior to August 13, 2005,Shadewell and Mrs. Fields Franchising, LLC (“MFF”) were parties to twoadditional license agreements that granted Shadewell a license to develop,manufacture, distribute and sell ready-to-eat shelf stable cookie products andhigh quality, pre-packaged, ready-to-eat, pre-baked cookie products (the “LicenseAgreements”) using certain Mrs. Fields trademarks, service marks and tradenames in designated distribution channels. MFF terminated the License Agreements effective August 13, 2005 forShadewell’s failure to make certain payments to MFF in a timely manner.

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On October 5, 2005,Shadewell filed a Verified Complaint, Motion for Restraining Order and relateddocuments (the “Action”) in the Court of Chancery of the State of Delaware (“theCourt”) against MFF.   In the Action,Shadewell alleged that they did not materially breach the shelf stable andready-to-eat, pre-baked cookie licenses, and that the License Agreements wereimproperly terminated by MFF.  Shadewellalso sought unspecified damages related to its claims that MFF breached certainobligations under the License Agreements. A trial on the Action was held on November 29, 2005.  On May 8, 2006, the Court ruled in MFF’sfavor on all issues.

Until June 27, 2006, Shadewellcontinued to operate under the terminated license agreements.  On July 5, 2006, MFF began operating its newbranded retail business.  As a result,management anticipates the use of cash for working capital and any operatinglosses to operate the business while it identifies a new licensee or developsanother strategy for the operations of the type of business formerly operatedby Shadewell.  During fiscal 2006, werecognized royalties of $353,000 from the License Agreements prior to theirtermination.

On December 19,2005, MFF entered into an Option Agreement and Amendment to License Agreement(the “Option”) with Maxfield Candy Company (“Maxfield”).  Maxfield is oneof our licensees, producing and selling Mrs. Fields branded premium candyproducts in certain distribution channels under a Trademark License Agreementdated January 3, 2000 (the “License”).  The Option grants MFF anoption to repurchase the License, exercisable during a period from the secondto the fifth anniversary of the date of the Option.  The Option purchaseprice is $1.0 million, one-half of which was paid by MFF when the Option wassigned by the parties and one-half of which was paid to Maxfield on the firstanniversary of that date.  The repurchase price for the License is dueonly if MFF exercises the Option and ranges from $4.5 million to $7.0 million, dependingon when the Option is exercised.  One-half of the Option purchase pricewill be credited to the License repurchase price in a manner described in theOption if MFF exercises the Option.  The parties agreed to certainmodifications of the License as part of the Option.

During fiscal 2006, ourlicensing segment received $600,000 under a license agreement with Americanafor its production and sale of TCBY branded frozen novelties. As a result ofAmericana’s bankruptcy, they have ceased performance and payments under thelicense agreement.

**Geographic Information**

Revenues from franchisees,customers and licensees within the United States were approximately $93.0million, $86.5 million and $86.1 million for fiscal 2006, 2005 and 2004,respectively, and represented 96.3 percent, 98.3 percent and 98.9 percent oftotal revenues for fiscal 2006, 2005 and 2004, respectively.  Revenues from international franchisees,customers and licensees were approximately $3.6 million, $1.5 million and $1.0million for fiscal 2006, 2005 and 2004, respectively, and represented 3.7percent, 1.7 percent and 1.1 percent of total revenues for fiscal 2006, 2005and 2004, respectively.  Revenues fromany single foreign country were not material. Providing geographical information regarding long-lived assets isimpracticable.

**Intellectual Property**

We are the holder of numerous trademarks that have been federallyregistered in the United States and in other countries located throughout theworld.  We are not currently a partyto any disputes with respect to our trademarks in any foreignjurisdictions, although we are challenging the use of certainregistered domain names that may infringe on our trademarks originating fromvarious sources, none of which, in the opinion of management, is material toour business, financial condition or results of operations.

As of December 30, 2006, we held 89 federaltrademark registrations in the United States and 491 trademark registrations inapproximately 90 countries and other jurisdictions outside the UnitedStates.  The trademarks consist ofvarious brand and product names and logos. We have also registered numerous domain names which correspond to ourbrand and product names.  Trademarks areregistered under United States laws for initial periods of 6 to 10 yearsand in other countries for initial periods of 7 to 20 years, and at anytime, we may have trademarks whose registration will soon expire and must berenewed.  Under some of our license agreements,our licensees receive the rights to use our recipes, proprietary productsand/or our registered trademarks.  Weview our trademarks, and the ability to license them to third parties, as someof our most valuable assets.

We have pending,or are in the process of filing, applications for trademark registrations in anumber of foreign countries.  In some ofthese countries it may not be possible to register the name TCBY where the lawsdo not permit the registration of acronyms. Similarly, registering offices in some limited jurisdictionsmay refuse to register marks such as FRESHNESS WITH A TWISTâ bytaking the position that it is merely descriptive of the product.  In a few foreign countries, unrelated thirdparties have filed applications for registration of one or more of ourtrademarks.  Upon discovery of suchfilings, we routinely contest such applications to preserve our ability toregister our trademarks in those countries or to protect our existingregistrations.

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**Employees**

As of December 30, 2006, we had approximately 796 employees, includingapproximately 470 temporary seasonal employees whose positions are largelyon-call or part-time.  We typicallyemploy seasonal labor in connection with our gifts operations in the fourthquarter in response to increased demand around the holidays.   None of our employees are covered bycollective bargaining agreements and very few employees, other than someemployees engaged in our gifts and manufacturing operations, are paid minimumwage.

As of December 30, 2006, a number of our employees provided certainmanagement functions to MFOC in return for a fee in accordance with theprovisions of a management agreement with MFOC. The number of our employees providing these services may decrease asMFOC continues to reduce its store operations. The initial term of the Management Agreement will run until December 31,2008, when it will automatically renew for 5 more years unless either partynotifies the other of its intention not to renew it.

### **Seasonality**

Our sales and contribution from franchisees’ store operations arehighly seasonal, but our various brands experience counteracting seasonaleffects.  Our cookie and pretzel stores,primarily located in malls, tend to mirror customer traffic flow trends inmalls, which increase significantly during the fourth quarter, primarilybetween Thanksgiving and the end of the calendar year.  Holiday gift purchases also are a significantfactor in increased sales in the fourth quarter.  However, TCBY stores experience theirstrongest sales periods during the warmer months from late Spring through earlyFall, which helps to balance the impact of seasonality on our operations.  Franchising segment revenues for each quarteras a percentage of total franchising segment revenues for the fiscal year endedDecember 30, 2006 were 23.3 percent for the first quarter, 25.6 percent for thesecond quarter, 25.2 percent for the third quarter and 25.9 percent for thefourth quarter.

Our sales and contribution from our gifts segment arehighly seasonal, primarily due to holiday gift purchases that increase sales inthe fourth quarter.  Sales in the fourthquarter of fiscal 2006 were $16.7 million, which represents 54.5 percent oftotal sales of the gifts segment for the year ended December 30, 2006.

### **Customers**

Our franchising segment is not dependent upon anysingle franchisee.

Our gifts segment has one customer that accounted for $4.0 million,$3.6 million and $4.2 million, or 13.0 percent, 11.8 percent and16.2 percent of revenues of the gifts segment for fiscal 2006, 2005 and2004, respectively.

Our branded retail segment is not dependent upon anysingle customer.

For fiscal 2006, 2005 and 2004, respectively, ourlicensing segment has one licensee that accounted for approximately $600,000,$700,000 and $900,000 or 33.1 percent, 17.7 percent and 18.8 percent of therevenues of the licensing segment; one licensee that accounted forapproximately $600,000, $700,000 and $700,000 or 30.7 percent, 17.0 percent and14.3 percent of the revenues of the licensing segment and; one licensee thataccounted for approximately $400,000, $2.3 million and $3.1 million or 22.9percent, 57.6 percent and 62.7 percent of the revenues of the licensingsegment.  A majority of these revenueswere attributable to licenses that have been terminated.

### **Competition**

In our franchising segment, we compete for customers with other cookie,pretzel, yogurt and ice cream retailers, as well as other confectionery, sweetsnack and specialty food retailers, including cinnamon rolls, baked goods andcandy shops.  The specialty retail foodand snack industry is highly competitive with respect to price, service,location and food quality and there are many well-established competitors withgreater resources than ours.  We competewith these retailers on the basis of price, quality, location and service.  We face competition from a wide variety ofsources, including such companies as Cinnabon, Auntie Anne’s SoftPretzels, Haagen-Dazs, Baskin-Robbins 31 Flavors and Cold StoneCreamery.  Our franchising segment alsocompetes for franchisees with a broad segment of other franchise companies,both within and beyond the food service industry.  These franchisors may have greater resourcesor more favorable business models than ours with which to attract newinvestors.

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In our mall based and captive locations, we tend to compete with a widevariety of food retailers, including both quick service restaurants and, to alesser extent, sit-down dining establishments and centrally located “foodcourts.”  In our strip mall andstand-alone retail stores, our competition tends to be with other foodretailers within a geographical radius of our franchisees’ stores, which varybased on store location.

Our gifting segment competes for customers primarily with other foodgifting and mail order companies.  Thefood gifting and mail order industry is highly competitive with respect toquality, freshness, selection, uniqueness, customer service and to a lesserextent, price.  There are manywell-established competitors with greater resources than ours.  Our competitors include such companies asCheryl and Company (acquired by 1-800-FLOWERS), Harry and David, Omaha Steaks,Popcorn Factory and Mrs. Beasley’s.

Our branded retail segment competes for customersprimarily with other cookie companies within the major retail channels.  The cookie category is highly competitive with respect to price, quality,packaging, selection, uniqueness and customer service.  There are many well-established competitorswith greater resources than ours pursuing aggressive promotional and pricingstrategies.  Our direct competitorsinclude such companies as Pepperidge Farms, Nabisco, Keebler, Hershey’s andDove.

### **EnvironmentalMatters**

Weare not aware of any federal, state or local environmental laws or regulationsthat will materially affect our earnings or competitive position, or result inmaterial capital expenditures.  However,we cannot predict the effect on our operations of possible future environmentallegislation or regulations.  Duringfiscal 2006, we did not incur any material capital expenditures forenvironmental control facilities and no such material expenditures areanticipated.

### **Additionalinformation**

We are subject tothe informational requirements of the Securities Exchange Act of 1934.  Accordingly, we file periodic reports andother information with the Securities and Exchange Commission (“SEC”).  We make our annual report on Form 10-K,quarterly reports on Form 10-Q, Current Reports on Form 8-K and amendments tothose reports available through our Internet site*, www.mrsfields.com* as soon as reasonably practicable afterelectronically filing such materials with the SEC.  They may also be obtained by writing to Mrs.Fields Famous Brands at 2855 East Cottonwood Parkway, Suite 400, Salt Lake City,UT 84121-1050.  In addition, copies ofthese reports may be obtained through the SEC website at *www.sec.gov*or by visiting the SEC’s Public Reference Room at 450 Fifth Street, NW,Washington, DC 20549 or by calling the SEC at 800-SEC-0330.

**Item1A.  Risk Factors**

The following riskfactors, among others, could cause our financial performance to differsignificantly from the goals, plans, objectives, intentions and expectationsexpressed in this report.  If any of thefollowing risks and uncertainties or other risks and uncertainties notcurrently known to us or not currently considered to be material actuallyoccur, our business, financial condition or operating results could be harmedsubstantially.

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***Risks Related to Our Business***

*The results of operations of our business in thefuture will depend upon whether we are able to successfully implement ourbusiness strategy, the implementation of which depends on factors that arebeyond our control.*

We believe thatthe implementation of our business strategy is key to enabling us to grow ourrevenues and profitability and, ultimately, our future success.  Our business strategy in 2007 is focused onthe growth of each of our brands by increasing the number of retail units andprofitable sales.

*From time to time, we may be restricted fromselling our franchises.*

The sale offranchises is regulated by various state laws as well as by the Federal TradeCommission.  The Federal Trade Commissionrequires that franchisors make extensive disclosure in a uniform franchiseprospectus to prospective franchisees but does not require registration.  However, a number of states require annualregistration of the uniform franchise prospectus with state authorities orother disclosure in connection with franchise offers and sales.  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.

There are certainevents that require us to make certain disclosure to state authorities.  Further, renewal of uniform franchiseoffering circular registrations are required in several states within a certainperiod of time following our fiscal year end. From time to time in the future, there will be periods of time aftercertain events or in connection with renewal during which we may be prohibitedfrom selling our franchises in certain states. Without limiting the foregoing, our financial condition requires us todefer collection of certain fees in some states until the store opens, and inVirginia, prohibits us from offering new franchises for sale.  If we are unable to sell our franchises foran extended period of time in certain states, our business operations orfinancial 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.*

We compete with abroad segment of other business opportunities and franchise companies forfranchisees.  There is also aggressive competition from many sourcesfor favorable sites for new stores, both within and outside the mallenvironment.  Many of our competitors have greater resources ormore favorable business models than ours with which to attract newinvestors and procure sites.  If we are unable to attract new orexisting franchisees to purchase new franchises, or represent acompetitive opportunity for leaseholders, it will limit our abilityto develop new franchised locations.

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

We believe thatthe amount and proximity of pedestrian traffic near our bakery brand storesstrongly influence sales of our products, which we believe are frequentlyimpulse purchases.  In recent years, webelieve visits to major shopping malls, where at December 30, 2006 the majorityof our bakery franchisees’ stores are located, have experienced periods ofdecline.  This trend has had a negativeimpact on our revenues.  We cannot besure that this trend will not continue or that this trend can be offset byincreased sales per customer.  Aprolonged decline in mall traffic could adversely affect our financialcondition and results of operations.

*We have experienced a number offranchise store closures since 2003.  Ifthis trend continues, our financial position and results of operations could beadversely affected.*

Since the end of fiscal 2003, 63 retail conceptlocations were closed by MFOC and 1,159 retail concept locations were closed byother franchisees.  These closuresrepresent 40.4 percent of the total number of stores open at the beginning offiscal 2004.  In comparison, 508 retailconcept locations have opened since the end of fiscal 2003.  Since the end of fiscal 2003, the number ofGreat American Cookies brand locations has increased by 3.2 percent, thenumber of Mrs. Fields brand locations has decreased by 6.4 percent,the number of TCBY brand traditional locations has decreased by 27.3 percent,the number of TCBY brand non-traditional locations has decreased by39.0 percent, the number of Pretzel Time brand locations has decreased by16.1 percent and the number of Pretzelmaker brand locations has decreased by8.5 percent.  Additional storeclosures could occur in the future and we may be unable to successfully openadditional new stores in the future.  Ifthis trend continues, our financial condition and results of operations may beadversely affected.

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*We believe 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.*

We believe that our trademarks have significant valueand are important to the marketing of our retail outlets and products and theoperations of our franchisees’ stores, gifts segment and licensingstrategy.  Most of our trademarks arefederally registered before the United States Patent and Trademark Office andregistered or pending in many foreign countries.  However, we cannot be sure that ourtrademarks cannot be circumvented or that our trademarks do not or will notviolate the proprietary rights of others. If a challenge to one of our trademarks is successful, we could beprevented from continuing to use that trademark.  A negative ruling concerning our use or thevalidity or enforceability of one of our trademarks would adversely affect oursales of the related products and our operating results.  In addition, we cannot be sure that we willhave the financial resources necessary to police the use of our trademarks byour franchisees and licensees or enforce or defend our trademarks, which couldresult in incorrect or unauthorized use of our trademarks.  Moreover, we may not be able to use orregister our existing trademarks abroad due to the application of foreign laws,which would force us to adopt new trademarks for use in those jurisdictionsthat 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.  Theoccurrence of any of these factors could diminish the value of our trademarkportfolio or trade secrets and negatively impact our sales, business operationsand strategies.

*We depend heavily on our suppliers and distributors.*

We depend on several primary suppliers, includingCountryside and Oak State, which supply products for our Mrs. Fieldsfranchise system and branded retail business. We also depend on two main suppliers for production of our TCBY brandedyogurt products under two new Supply Agreements with Scott Brothers andYarnell.  The transition of business fromAmericana, our former supplier, to Scott Brothers and Yarnell is well underwayand has not resulted in material product shortages to the system; however, aswith any new supplier relationship, unforeseeable events may occur that couldcause some disruption to the TCBY supply chain.

We also depend on our primary distributors fordistribution of perishable and non-perishable items to our franchisees.  As described in “Business—Ingredients,Supplies and Distribution,” contained elsewhere in this report, Blue Line, ourprimary distributor to our TCBY system, exercised its right to terminate ourdistribution agreement with them.  Weentered into an extension agreement with them, under which Blue Line agreed tocontinue to perform under the distribution agreement during our transition tonew distributors.  Under the terms of theextension agreement, we agreed to make certain payments directly to Blue Linein order to delay distribution cost increases to franchisees and agreed toguarantee certain amounts during the extension period.  We have now entered into supply agreementswith eight regional distributors who will provide service to our TCBYfranchisees throughout the United States. Blue Line will continue to deliver products to a small number of franchiseesserved by one of its distribution centers under the extension agreement untilMarch 26, 2007, when services commence under the final replacement distributionagreement.  The distribution costs tomost of our franchisees have not substantially increased under the new regionalagreements.

Our reliance on our suppliers and distributors,particularly newly-established ones, subjects us to a number of risks,including possible delays or interruptions in supplies, diminished control overquality and a potential lack of adequate raw material capacity.  Any disruption in the supply of ordegradation in the quality of the raw materials provided by our suppliers couldhave a material adverse effect on our business, operating results and financialcondition.  In addition, such disruptionsin supply or degradations in quality could have a long-term detrimental impacton our efforts to develop a strong brand identity and a loyal consumer base.  If any supplier or distributor fails toperform as anticipated, or if there is a termination or any disruption in anyof these relationships for any reason, it could have a material adverse effecton our results of operations.

*Our information systems are anintegral part of our gifts segment business. Systems disruptions and failures could cause our customers to becomedissatisfied with us and may impair our business.*

Our ability to maintain our website, network systemand telecommunications equipment in working order and to reasonably protectthem from interruption is critical to the success of our gifts businesssegment.  Our website must accommodateregular traffic, deliver information and complete transactions.  Our customers, advertisers and businessalliances may become dissatisfied by any systems failure that interrupts ourability to provide our products and services to them.

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*We believe that our relationshipwith our franchisees and retail licensees is critical to the success of ourbusiness.  If these franchise and retaillicense agreements were to be terminated or if we are unable to maintain theserelationships, our sales and our results of operations would be adverselyaffected.*

18 of our franchisees or licensees own ten or moreretail concept locations.  In total,these franchisees own 359 retail concept locations and contributedapproximately $4.8 million or 9.1 percent of our franchise revenues forthe year ended December 30, 2006.  Forthe same period, franchise revenues made up 54.9 percent of our total revenues.  The termination of these key franchise or retaillicense agreements or lower than anticipated sales may have an adverse affecton our financial condition and results of operations.  We cannot be sure that our relations withfranchisees and licensees will not change or that our licensees will continueto perform as they have in the past, which could result in franchise or licenseagreements being terminated by us or by our franchisees or licensees.

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

*We may be harmed by actions taken byour franchisees or licensees that are beyond our control.*

Our franchisees and licensees generally areindependent contractors and are not our employees.  We require our franchisees and licensees toadhere to strict production, display, storage and marketing specifications andprocedures and we provide training and support to franchisees, but the qualityof franchised store operations or licensed products may be diminished by anynumber of factors beyond our control. Consequently, franchisees may not operate stores or licensees may notproduce or market licensed products in a manner consistent with our standardsand requirements, or may not hire and train qualified managers and other storepersonnel.  If they do not, our image, reputationand brand may suffer and our franchise and license revenues as well as ourability to attract prospective franchisees may be adversely affected.

*We are vulnerable to fluctuations inthe cost, availability and quality of our ingredients.*

The cost, availability and quality of the ingredientswe use to prepare our products at the Great American Cookies manufacturingfacility and in our gifts operations are subject to a range of factors, many ofwhich are beyond our control. Fluctuations in economic and political conditions, weather and demandcould adversely affect the costs of our ingredients.  We have no control over fluctuations in theprice of commodities and we may not be able to pass through any cost increasesto our customers.  We are dependent onfrequent deliveries of fresh ingredients, thereby subjecting us to the risk ofshortages or interruptions in supply. All of these factors could cause adverse market conditions which couldadversely affect our financial results.

*Our branded retail business is inits start-up phase and we are only beginning to establish relationships withbrokers, vendors and customers.*

The sale of snack products to grocery, club stores andsimilar distribution channels is highly competitive and subject to ongoingexpenses related to slotting fees, advertising credits and discounts*. *Similarly, the business relies onrelationships with vendors,brokers and customers.  Since wecommenced this business very recently in July 2006, there can be no certaintythat we will successfullymaintain the level of business or relationships established by Shadewell, whooperated a similar business under a license agreement with us.  As with any new business, we may be unable topredict with any certainty the costs associated with operating the brandedretail group or the revenues we expect to generate.  We do not believe that the income for thisnew business will immediately replace or exceed the royalties that may havebeen generated by the terminated license agreements.

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*If we lose key management personnel,we may have difficulty in implementing the business strategy that currentmanagement has developed and may fail to achieve expected profits as a result.*

Our success depends on the continued services of oursenior management, particularly Stephen Russo, our President and ChiefExecutive Officer.  In addition, ourcontinued growth depends, in part, on attracting and retaining skilled managersand employees as well as management’s ability to utilize effectively our keypersonnel.  If Stephen Russo or any othersenior management 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.

*Our failure to respond todemographic trends, changes in consumer preferences and other factors and ourfailure to implement new marketing strategies could have a material adverseeffect on our results of operations.*

The specialty and snack food industry is affected bychanges in consumer preferences, tastes and eating habits, local, regional,national and international economic conditions, demographic trends and malltraffic patterns.  A number of factors,including increased food, labor and benefits costs, the availability ofexperienced management and hourly employees and difficulties or delays indeveloping and introducing new products to suit consumer preferences, mayadversely affect the specialty retail industry in general and our franchiseoutlets in particular.  Our failure toanticipate, identify and respond to changing consumer preferences and economicconditions and the failure of our customers to respond favorably to ourmarketing or new products could have a material adverse effect on our resultsof operations.

As an example, we believe our TCBY brand has struggledto stay relevant and differentiated from its competitors.  We believe it is important to the brand’sgrowth to reposition it in a way that capitalizes on yogurt’s currentpopularity and revitalize it through new store design and venues.  We are in the process of exploring ways toaccomplish this repositioning and revitalization, including the testing of ourYovana concept, Beriyo products and new store design.  However, we do not know how successful wewill be in developing or implementing this plan or the extent to which thecapital investment required to implement such a reconcepting plan will beavailable when needed.  If we are unableto successfully implement this or any other aspect of our business strategy,our business operations and our financial condition could be adverselyaffected.

*There is intense competition in thespecialty food retailers industry.*

The specialty retail food and snack food industry ishighly competitive with respect to price, service, location and food qualityand within the industry we compete with cookie, pretzel, frozen yogurt and icecream retailers, as well as other confectionary, sweet snack and specialtyfoods retailers, many of which have greater resources than we do.  Consequently, we cannot be certain that wecan compete successfully with these other food retailers.

In addition to the risks we face from currentcompetitors, we cannot be certain that we can successfully compete with any newentrants into the specialty retail food and snack food industry who mayintroduce new and successful products or marketing.  Our inability to compete adequately would havea material adverse effect on our results of operations.

*Adverse publicity, particularlyabout health concerns, could reduce our sales and adversely affect results ofoperations.*

Our ability to compete depends in part on maintainingour reputation with consumers.  We couldbe adversely affected by publicity resulting from food quality, illness, injuryor other health concerns, including food borne illness claims or operatingissues stemming from one store, a limited number of stores or even a competitor’sstore.  In addition, we use ingredientsin several of our products, such as nuts, to which some people may haveallergies, and butter and cream, which are high in fat.  There may be adverse publicity about thehealth risks relating to these or other ingredients.  Adverse publicity about these factors couldreduce sales of our products and adversely affect results of operations.

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*Our international operations areexposed to various risks that could have a material adverse effect on ourresults of operations and financial condition.*

We have franchised and licensed retail stores innumerous foreign countries.  While mostof our operations are in the United States, through our franchised retail storelocations and our branded retail activities, we also have operations innumerous other regions, including operations in Canada, Mexico, Australia,South America, the Caribbean, the Middle East and Asia, representingapproximately 3.7 percent of our total revenue during fiscal 2006.  We expect to expand into additional regionsin the future.  Our internationaloperations are subject to many additional risks, including:

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

·                  importand export restrictions and tariffs;

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

·                  litigationin foreign jurisdictions;

·                  potentiallyadverse tax consequences;

·                  increasedcompetition as a result of subsidies to local companies;

·                  politicalinstability or war;

·                  culturaldifferences;

·                  theimpact of business cycles and economic instability; and

·                  increasedexpense as a result of inflation.

Any one of these factors could have a material adverseaffect on our sales of products or services to our international customers andcurtail our expansion strategy.

*Government regulation of ourbusiness could adversely affect the results of our operations.*

Numerous governmental authorities have issuedregulations that apply to us and our franchisees’ stores, including, withoutlimitation, federal, state and local laws and regulations governing health,sanitation, environmental protection, safety, hiring and employment practices,including laws, such as the Fair Labor Standards Act, governing such matters asminimum wages, overtime and other working conditions.  The FDA administers regulations that apply toour products.  If we fail to obtain orretain the required food licenses or to comply with applicable governmentalregulations or if there is any increase in employee benefit costs or othercosts associated with employees, our costs could increase as we attempt tocomply with regulations.  Our revenuescould decrease if we or our suppliers are unable to manufacture or if ourfranchisees or licensees are unable to sell products in locations in which wedo not have required licenses.  Ourproducts, the manufacturers and their manufacturing facilities are also subjectto periodic inspection.  Discovery ofproblems may reduce our results of operations because of costs of compliance orinability to manufacture or sell products for failure to comply withregulations.

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In addition, the sale of franchises is regulated byvarious state laws as well as by the Federal Trade Commission.  The Federal Trade Commission requires thatfranchisors make extensive disclosure in a Uniform Franchise prospectus toprospective franchisees but does not require registration.  However, a number of states requireregistration of the Uniform Franchise prospectus with state authorities orother disclosure in connection with franchise offers and sales.  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.*

Many of our franchisees must obtain loans to purchaseand develop our franchises.  Onesignificant source of this 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 productliability litigation, could reduce our results of operations or increase ourlosses because of the cost of paying on successful claims and we may not beable to continue to obtain adequate insurance.*

We are involved in routine litigation in the ordinarycourse of business, including franchise disputes.  Although we have not been significantlyadversely affected in the past by litigation, there can be no assurance as tothe effect of any future disputes.

Although we currently are not subject to any productliability litigation, we could experience product liability litigation in thefuture involving our products.  Ourquality control program is designed to maintain high standards for the food andmaterials and food preparation 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.

*Quarterly fluctuations andseasonality.*

Our operating results are subject to quarterly andseasonal fluctuations.  Our sales andincome from franchisees’ store operations are seasonal given the significantimpact of the high number of mall based locations.  At these locations, sales tend to mirrorcustomer traffic flow trends in malls, which increase significantly during thefourth quarter, primarily between Thanksgiving and the end of the calendaryear.  Holiday gift purchases also are asignificant factor in increased sales in the fourth quarter.  However, our TCBY franchised stores tend tohave their strongest sales periods during the warmer months from late Springthrough early Fall, which helps to balance the impact of seasonality on ouroperations.  In addition, by marketingour cookie brands around holidays that occur in late Winter and early Spring,such as Valentine’s Day and Easter as well as holidays in the late Fall, suchas Halloween, we hope to continue to decrease the impact of seasonality on ourcash flow.  However, we may not be successfulin decreasing the impact of seasonality on our cash flow.  If we are unable to manage seasonalfluctuations of cash flow, our financial condition and results of operationsmay be adversely affected.

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***Risks Related to Our SubstantialIndebtedness***

*Our substantial level ofindebtedness could adversely affect our financial condition and prevent us fromfulfilling our obligations under our Senior Secured Notes.*

We have substantial indebtedness represented by ourSenior Secured Notes.  In addition,subject to restrictions in the Indenture governing the Senior Secured Notes, wemay incur additional indebtedness.

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.

We expect to obtain the money to pay our expenses andto pay the amounts due under the Senior Secured Notes and our other debtprimarily from our operations.  Ourability to meet our expenses and make these payments thus depends on our futureperformance, which will be affected by financial, business, economic and otherfactors, many of which we cannot control. Our available cash has decreased since 2004 and our business may notgenerate sufficient cash flow from operations in the future and our currentlyanticipated growth in revenue and cash flow may not be realized, either or bothof which could result in our being unable to repay indebtedness, including theSenior Secured Notes or to fund other liquidity needs.  If we do not have enough money, we may berequired to attempt to refinance all or part of our then existing debt(including the Senior Secured Notes), sell assets or borrow more money.  However, we may not be able to accomplish anyof these alternatives on terms acceptable to us, or at all.  In addition, the terms of existing or futuredebt agreements, including the Indenture, may restrict us from adopting any ofthese alternatives.  The failure togenerate sufficient cash flow or to achieve any of these alternatives couldhave a material adverse effect on our business and our ability to pay theamounts due under the Senior Secured Notes.

*The Indenture imposes significantoperating and financial restrictions, which may prevent us from pursuingcertain business opportunities and taking certain actions.*

The Indenture imposes significant operating andfinancial restrictions on us.  Theserestrictions 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;

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·                  enterinto certain transactions with stockholders and affiliates;

·                  sellstock in our subsidiaries;

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

·                  otherwiseconduct necessary corporate activities.

To the extent that we wish to conduct these restrictedactivities, we must do so in strict accordance with the provisions of theIndenture.  These restrictions couldadversely affect our ability to finance our future operations or capital needsand pursue available business opportunities. A breach of any of these restrictions could result in a default inrespect of the related indebtedness.  Ifa default occurs, the relevant lenders could elect to declare the indebtedness,together with accrued interest and fees, to be immediately due and payable andproceed against any collateral securing that indebtedness, which includessubstantially all of our assets. Acceleration of our other indebtedness could result in a default underthe terms of the Indenture and our assets may not be sufficient to satisfy ourobligations under our indebtedness, including the Senior Secured Notes.

*Our parent companies may takeactions that conflict with bondholder, franchisee and other interests.*

As a result of its direct control of our ultimateparent company and indirect control of MFH and MFOC, Capricorn II and CapricornIII together control the power to elect our managers, to appoint members ofmanagement and to approve all actions requiring the approval of the holders ofour common interests, including adopting amendments to our certificate offormation and limited liability company agreement as well as approving mergers,acquisitions or sales of all or substantially all of our assets.  The actions may conflict with the interestsof bondholders, franchisees and others. Similarly, the interests of our parent companies could conflict with otherstakeholder interests.  For example, ifwe encounter financial difficulties or are unable to pay our debts as theymature, the interests of MFOC as a holder of equity might conflict with holdersof the Senior Secured Notes.  Our parentcompanies also may have an interest in pursuing acquisitions, divestitures,financings or other transactions that, in their judgment, could enhance theirequity investment, even though such transactions might materially adverselyaffect our financial condition and results of operations.

# **Item 2. Properties**

We currently leaseapproximately 43,000 square feet of office space in Salt Lake City, which isused as our company headquarters and franchisee support center.  MFOC uses undivided portions of this space ascorporate headquarters pursuant to a sublease between MFOC and us.  We also currently lease approximately 13,000square feet of space in multiple other locations in Salt Lake City for productdevelopment and training associated with our franchise reporting segment and54,000 square feet of space formerly used for our gifts reporting segment.  We currently own the Great American Cookiesmanufacturing facility, located in a building of approximately 32,000 squarefeet in Atlanta, Georgia.  In addition,we lease approximately 5,200 square feet of warehouse space in Atlanta,Georgia, which we use for raw material and supply dry storage.  We own substantially all of the equipmentused in these facilities.

In addition to the 54,000square feet of leased space for our former gifts facility described above, weentered into an Industrial Net Lease, effective as of March 1, 2006, for thelease of approximately 159,000 square feet of space in Salt Lake City.  We developed this newly leased space toaccommodate our new state-of-the-art gifting operations, which opened duringthe third quarter of fiscal 2006.  Thisnew space replaced approximately 107,000 square feet of space we previouslyleased in areas throughout Salt Lake City for our gifting operations.  The leases on approximately 53,000 squarefeet of space formerly used for our gifts segment expired during fiscal2006.  We are attempting to terminate theleases on the remaining 54,000 square feet of space formerly used by our giftsreporting segment or sublet it.

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# **Item 3. Legal Proceedings**

We and our products are subject to regulation bynumerous governmental authorities, including, without limitation, federal,state and local laws and regulations governing franchising, health, sanitation,environmental protection, safety and hiring and employment practices.

In the ordinary course of business, the Company isinvolved in routine litigation, including franchise disputes and trademarkdisputes.  We are not a party to anylegal proceedings that, in the opinion of management, after consultation withlegal counsel, is material to its business, financial condition or results ofoperations.

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

None.

** **

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**PART II**

# **Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters**

**MarketInformation and Number of Stockholders**

We are a wholly ownedsubsidiary of Mrs. Fields’ Original Cookies, Inc. (“MFOC”).  There is no established trading market forMFOC’s or our common equity.

**Dividends**

For each of the threefiscal years in the period ended December 30, 2006, we did not declare or paycash dividends; however, we did pay Mrs. Fields’ Companies, Inc. (“ MFC”) $1.5million during fiscal 2004 for income taxes under a prior tax sharingagreement.  Our ability to declare or paycash dividends is restricted by the indenture pertaining to our 9 percentsenior secured notes (the “9 percent Senior Secured Notes”) and our 111⁄2 percentsenior secured notes (the “111⁄2 percent Senior Secured Notes” together with the9 percent Senior Secured Notes, the “Senior Secured Notes”).  For a description of these restrictions, seeNote 3 to our consolidated financial statements contained elsewhere in thisreport.

# **Item 6.  SelectedFinancial Data**

The following tablepresents our historical financial data as of the dates and for the periodsindicated.  We operate using a 52/53-weekyear ending on the Saturday closest to December 31.  Fiscal 2003 includes 53 weeks; whereas, allother fiscal years include 52 weeks.  Theselected historical financial data at December 30, 2006, December 31, 2005,January 1, 2005, January 3, 2004 and December 28, 2002 and for fiscal 2006,2005, 2004, 2003 and 2002 have been derived from our audited consolidatedfinancial statements.  The selectedhistorical financial data should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”
| ** **                                                                            | ** ** | **Fiscal Year Ended**      | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                            | ** ** | **December 30,**                | ** ** | **December 31,** | ** ** | **January 1,** | ** ** | **January 3,** | ** ** | **December 28,** | ** ** |
| ** **                                                                            | ** ** | **2006**                             | ** ** | **2005** | ** ** | **2005** | ** ** | **2004** | ** ** | **2002** | ** ** |
| ** **                                                                            | ** ** | **(Dollars in thousands)** | ** ** |
| **Income Statement Data:**                                                            |       |                                 |       |   |   |   |   |   |   |   |   |
| Total revenues                                                                        |       | $                                    | 96,588     |   | $ | 87,952 |   | $ | 87,060 |   | $ | 81,988 |   | $ | 95,392 |   |
| Income (loss) from  continuing operations before provision (benefit) for income taxes |       | (24,341                              | )          | (40,716 | ) | 4,816 |   | 6,916 |   | 10,881 |   |
| **Balance Sheet Data (at end of  period):**                                           |       |                                 |       |   |   |   |   |   |   |   |   |
| Total assets                                                                          |       | $                                    | 121,720    |   | $ | 139,897 |   | $ | 181,781 |   | $ | 162,602 |   | $ | 170,656 |   |
| Total debt (including capital lease obligations)                                      |       | 196,251                              |       | 196,336 |   | 196,210 |   | 185,762 |   | 187,776 |   |

** **

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# **Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

**Executive Summary**

Mrs. Fields FamousBrands, LLC (“we,” “us,” the “Company” or similar terms) is one of the largestfranchisors in the premium snack food industry, featuring Mrs. Fields®, GreatAmerican Cookies®, TCBY®, Pretzel Time® and Pretzelmaker® as our corebrands.  Through our franchisees’ retailstores, we are the largest retailer of freshly baked on-premises specialty cookiesand brownies in the United States of America (the “United States”); the largestretailer of soft-serve frozen yogurt in the United States; and the secondlargest retailer of baked on-premises pretzels in the United States.  In addition, we operate a gifts and newbranded retail business and have entered into licensing arrangements thatattempt to leverage awareness of our core brands among our retail customerbase.  We operate through a network of2,313 retail concept locations, which are located throughout the United Statesand in approximately 24 foreign countries.

Our business is dividedinto four primary business segments for financial reporting purposes:franchising, gifts, branded retail and licensing, which represented 54.9percent, 31.8 percent, 11.4 percent and 1.9 percent of total revenues,respectively, for the year ended December 30, 2006. 

We believe our businessstrategy aligns the interests of our company with the interests of our retailfranchisees and focuses our joint efforts on strengthening and broadening theappeal of our brands through satisfying the wants and needs of consumers.  During fiscal 2006, our strategy focused onthree objectives:

·                  buildprofitable year-over-year franchise sales;

·                  accelerategrowth of new franchised store development; and

·                  growlicensing and gifts operations.

We used thefollowing key performance indicators in fiscal 2006 to measure our success andprogress:

·                  year-over-yearsame store franchise sales;

·                  netchange in number of retail concept locations; and

·                  year-over-yeargifts and licensing revenues.

Our performance againstthese key performance indicators is presented and discussed throughout this Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

As of December 30, 2006,our store portfolio consisted of 1,804 domestic franchised locations, 356international franchised locations and 153 licensed locations. Our franchisees’and licensees’ concept locations by brand are distributed as follows:
| ** **                    | ** ** | **Domestic**   | ** ** | **International** | ** ** | **Licensed**  | ** ** | ** ** | ** ** |
|-------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                    | ** ** | **Franchised** | ** ** | **Franchised**    | ** ** | **Locations** | ** ** | **Total**  | ** ** |
| Mrs. Fields                   |       | 360            |       | 97                |       | 43            |       | 500        |       |
| Great American                |       | 291            |       | 1                 |       | —        |       | 292        |       |
| Original Cookie               |       | —         |       | —            |       | 1             |       | 1          |       |
| Cookie subtotal               |       | 651            |       | 98                |       | 44            |       | 793        |       |
|                          |       |           |       |              |       |          |       |       |       |
| Pretzel Time                  |       | 188            |       | 4                 |       | 6             |       | 198        |       |
| Pretzelmaker                  |       | 143            |       | 50                |       | 1             |       | 194        |       |
| Hot Sam                       |       | —         |       | —            |       | 3             |       | 3          |       |
| Pretzel subtotal              |       | 331            |       | 54                |       | 10            |       | 395        |       |
| Bakery brands subtotal        |       | 982            |       | 152               |       | 54            |       | 1,188      |       |
|                          |       |           |       |              |       |          |       |       |       |
| TCBY - traditional stores     |       | 365            |       | —            |       | —        |       | 365        |       |
| TCBY - non-traditional stores |       | 446            |       | 204               |       | 98            |       | 748        |       |
| Yovana - test stores (1)      |       | 2              |       | —            |       | 1             |       | 3          |       |
| Beriyo by TCBY - test stores  |       | 9              |       | —            |       | —        |       | 9          |       |
| Dairy brands subtotal         |       | 822            |       | 204               |       | 99            |       | 1,125      |       |
|                          |       |           |       |              |       |          |       |       |       |
| Total                         |       | 1,804          |       | 356               |       | 153           |       | 2,313      |       |

 

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(1) Included in thedomestic 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.

28

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The previous table countseach concept location individually.  Forexample, if a physical location had a Mrs. Fields store and a Pretzel Timestore together, this would be counted as two concept locations in the tableabove.  If actual physical stores werecounted rather than concept locations, total store counts would be reduced by239 locations to 2,074.

MFOC and certain of itssubsidiaries own two franchised retail concept locations as of December 30,2006, representing 0.1 percent of the total retail concept locations.  During the year ended December 30, 2006, we recognized$120,000 of franchise royalties and $119,000 of product sales relating to theretail concept locations owned by MFOC. MFOC expects that these retail concept locations will be sold to otherfranchisees or will be closed during fiscal 2007.

During the three-yearperiod from January 3, 2004 to December 30, 2006, our store portfolio declinedfrom 3,027 concept locations to 2,313 concept locations, as follows:
| ** **                  | ** ** | **Total Company** | ** ** |
|-----------------------------|------------|------------------------|------------|
| ** **                  | ** ** | **Domestic**           | ** ** | **International** | ** ** | **Licensed** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Franchised**         | ** ** | **Franchised** | ** ** | **Locations** | ** ** | **Total** | ** ** |
| Balance January 3, 2004     |       | 2,380                  |       | 378 |   | 269 |   | 3,027 |   |
|                        |       |                   |       |   |   |   |   |   |   |
| New development  openings   |       | 147                    |       | 57 |   | 2 |   | 206 |   |
| Permanent closings          |       | (397                   | )          | (97 | ) | (62 | ) | (556 | ) |
| Other openings, net         |       | 15                     |       | — |   | (4 | ) | 11 |   |
| Balance, January 1,  2005   |       | 2,145                  |       | 338 |   | 205 |   | 2,688 |   |
|                        |       |                   |       |   |   |   |   |   |   |
| New development  openings   |       | 78                     |       | 59 |   | 2 |   | 139 |   |
| Permanent closings          |       | (259                   | )          | (74 | ) | (33 | ) | (366 | ) |
| Other openings, net         |       | 14                     |       | 5 |   | (1 | ) | 18 |   |
| Balance, December 31,  2005 |       | 1,978                  |       | 328 |   | 173 |   | 2,479 |   |
|                        |       |                   |       |   |   |   |   |   |   |
| New development  openings   |       | 79                     |       | 61 |   | — |   | 140 |   |
| Permanent closings          |       | (249                   | )          | (32 | ) | (19 | ) | (300 | ) |
| Other openings, net         |       | (4                     | )          | (1 | ) | (1 | ) | (6 | ) |
| Balance, December 30, 2006  |       | 1,804                  |       | 356 |   | 153 |   | 2,313 |   |

 

The following tablesprovide additional detail of new development openings and permanent closings ofour concept locations during the three-year period from January 3, 2004 toDecember 30, 2006:
| ** **                 | ** ** | **Domestic Franchised** | ** ** |
|----------------------------|------------|-------------------------|------------|
| ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | ** **              | ** ** | **Traditional** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | **Bakery**              | ** ** | **Dairy** | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance January 3, 2004    |       | 1,069                   |       | 502 |   | 809 |   | 2,380 |   |
|                       |       |                    |       |   |   |   |   |   |   |
| New development openings   |       | 63                      |       | 21 |   | 63 |   | 147 |   |
| Permanent closings         |       | (93                     | )          | (61 | ) | (243 | ) | (397 | ) |
| Other openings, net        |       | 6                       |       | 7 |   | 2 |   | 15 |   |
| Balance, January 1, 2005   |       | 1,045                   |       | 469 |   | 631 |   | 2,145 |   |
|                       |       |                    |       |   |   |   |   |   |   |
| New development openings   |       | 49                      |       | 15 |   | 14 |   | 78 |   |
| Permanent closings         |       | (93                     | )          | (61 | ) | (105 | ) | (259 | ) |
| Other openings, net        |       | 5                       |       | 1 |   | 8 |   | 14 |   |
| Balance, December 31, 2005 |       | 1,006                   |       | 424 |   | 548 |   | 1,978 |   |
|                       |       |                    |       |   |   |   |   |   |   |
| New development openings   |       | 64                      |       | 11 |   | 4 |   | 79 |   |
| Permanent closings         |       | (87                     | )          | (58 | ) | (104 | ) | (249 | ) |
| Other openings, net        |       | (1                      | )          | (1 | ) | (2 | ) | (4 | ) |
| Balance, December 30, 2006 |       | 982                     |       | 376 |   | 446 |   | 1,804 |   |

 

29

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| ** **                  | ** ** | **International Franchised** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|
| ** **                  | ** ** | ** **                        | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | ** **                        | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Bakery**                        | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance January 3, 2004     |       | 126                               |       | 252 |   | 378 |   |
|                        |       |                              |       |   |   |   |   |
| New development  openings   |       | 23                                |       | 34 |   | 57 |   |
| Permanent closings          |       | (19                               | )          | (78 | ) | (97 | ) |
| Other openings, net         |       | —                            |       | — |   | — |   |
| Balance, January 1,  2005   |       | 130                               |       | 208 |   | 338 |   |
|                        |       |                              |       |   |   |   |   |
| New development  openings   |       | 30                                |       | 29 |   | 59 |   |
| Permanent closings          |       | (19                               | )          | (55 | ) | (74 | ) |
| Other openings, net         |       | 1                                 |       | 4 |   | 5 |   |
| Balance, December 31,  2005 |       | 142                               |       | 186 |   | 328 |   |
|                        |       |                              |       |   |   |   |   |
| New development  openings   |       | 30                                |       | 31 |   | 61 |   |
| Permanent closings          |       | (19                               | )          | (13 | ) | (32 | ) |
| Other openings, net         |       | (1                                | )          | — |   | (1 | ) |
| Balance, December 30, 2006  |       | 152                               |       | 204 |   | 356 |   |

 
| ** **                  | ** ** | **Licensed Locations** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | ** **                  | ** ** | **Non-** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | ** **                  | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Bakery**                  | ** ** | **Dairy** | ** ** | **Total** | ** ** |
| Balance January 3, 2004     |       | 103                         |       | 166 |   | 269 |   |
|                        |       |                        |       |   |   |   |   |
| New development  openings   |       | 2                           |       | — |   | 2 |   |
| Permanent closings          |       | (21                         | )          | (41 | ) | (62 | ) |
| Other openings, net         |       | (4                          | )          | — |   | (4 | ) |
| Balance, January 1,  2005   |       | 80                          |       | 125 |   | 205 |   |
|                        |       |                        |       |   |   |   |   |
| New development  openings   |       | 1                           |       | 1 |   | 2 |   |
| Permanent closings          |       | (16                         | )          | (17 | ) | (33 | ) |
| Other openings, net         |       | (1                          | )          | — |   | (1 | ) |
| Balance, December 31,  2005 |       | 64                          |       | 109 |   | 173 |   |
|                        |       |                        |       |   |   |   |   |
| New development  openings   |       | —                      |       | — |   | — |   |
| Permanent closings          |       | (10                         | )          | (9 | ) | (19 | ) |
| Other openings, net         |       | —                      |       | (1 | ) | (1 | ) |
| Balance, December 30, 2006  |       | 54                          |       | 99 |   | 153 |   |

 

Numerousfactors have contributed to this declining store count over the past threefiscal years.  Some of the moresignificant factors may include periods of declining mall traffic, severalsignificant shifts in consumer tastes and preferences and challenges faced bysome franchises in lower volume, non-traditional venues, primarily in the TCBYfranchise system.  We believe our currentbusiness strategies, described in more detail in Item 1 of this annual report,will stabilize our store base and address many of these factors by (i)increasing the rate of new openings of franchised locations; (ii) developingnew products and menu items designed to align our concepts with consumerpreferences; (iii) creating incentives for qualified, existing franchisees toopen new stores; and (iv) implementing initiatives to improve operations andcustomer service at existing locations. However, our ability to stabilize our store base is uncertain and ifstores continue to close, it could have a material adverse effect on ourfinancial condition and results of operations.

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Throughout thisdiscussion, we refer to the total weeks that our franchised locations operatein any given period as “franchised unit weeks” and use that term comparativelywhen describing factors that may affect performance.    Fewer franchised locations translate naturallyto fewer total franchised unit weeks that our franchisees operate andcontribute revenues to us.  Otheroccurrences or considerations, such as the fact that our fiscal year sometimesincludes 53 weeks instead of the standard 52, may increase the relative numberof total weeks from period to period. Because the TCBY system is comprised of both larger, traditionallocations and a significant number of smaller, non-traditional locations, wemeasure franchise unit weeks a bit differently for the TCBY system, based onour calculation that it takes approximately three average non-traditionallocations to equal the revenues of one average traditional location.  We therefore refer to “traditional equivalentunit weeks” to describe the total number of weeks that TCBY franchisedlocations operate in any given period, adjusted to account for the differentimpact that non-traditional TCBY store openings and closings may have on thesystem when compared to similar events affecting traditional TCBY stores.

**Carve-OutAccounting**

The historicalconsolidated financial statements for the year ended January 1, 2005 includedin Item 8 of this report reflect the financial condition, results of operationsand cash flows of the businesses transferred or contributed from MFOC and TCBYto us.  The consolidated financialstatements for the year ended January 1, 2005 assume that the Company hadexisted as a separate legal entity with the following four business segments:franchising, gifts, branded retail and licensing.  The consolidated financial statements for theyear ended January 1, 2005, which have been carved out from the consolidatedfinancial statements of MFOC and TCBY using the historical results ofoperations and assets and liabilities of these businesses and activities andwhich exclude the company-owned stores segment of MFOC, reflect theaccounting policies adopted by MFOC and TCBY in the preparation of theirconsolidated financial statements and thus do not necessarily reflect theaccounting policies which we might have adopted had we been an independentcompany.  The historical consolidatedfinancial statements for the year ended January 1, 2005 of the Company includethose accounts specifically attributable to the Company and allocations ofexpenses relating to shared services and administrative functions incurred atMFOC.

Historically, MFOC hasnot allocated its various corporate overhead expenses and common general andadministrative expenses to its operating business units.  However, an allocation of such expenses hasbeen included in general and administrative expenses in the accompanyingconsolidated statements of operations and comprehensive income (loss).  MFOC’s general and administrative expensesrepresent portions of MFOC’s corporate functions such as human resources,legal, accounting and finance, treasury and information technology systems,that have been allocated to us based on percentage of labor hours devoted bythe functional department.  Theseallocated costs are not necessarily indicative of the costs that we would haveincurred had we operated as an independent, stand-alone entity for allperiods presented.

This “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section is presented as if we had existed as a stand-alone company on ahistorical basis and should be read in conjunction with the consolidatedfinancial statements and the accompanying notes to the consolidated financialstatements included in Item 8 of this report.

**RecentDevelopments**

***Impairmentof Goodwill and Intangible Assets***

On an annual basis (inthe fourth quarter), or more frequently if circumstances indicate potentialimpairment, we perform an assessment of goodwill and long-lived assetsassociated with our reporting units defined as Bakery Franchising, DairyFranchising, Gifts and Licensing.  To theextent that the fair value associated with goodwill and long-lived assets isdetermined to be less than the carrying value, we write down the value of therelated goodwill and long-lived assets. The estimated fair value of long-lived assets is affected by, amongother things, our business plan for the future and the estimated cash flows tobe generated by the long-lived assets. Changes in the business plan, operating results or the planned use of thelong-lived assets that are different than the projections used to develop thevaluation of goodwill and the long-lived assets may have an impact on thevaluation of goodwill and the long-lived assets.

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Inthe second quarter of 2006, we determined that a triggering event had occurredunder SFAS No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal ofLong-Lived Assets” for the Dairy Franchising reporting unit as a result of theeroding dairy franchise operations evidenced by fewer locations, consistentnegative year-over-year same store sales and our inability to locate and open asignificant number of new or additional franchise locations.  These factors have resulted in continueddecreases in franchise royalties and yogurt formulation revenues from our dairyfranchise system.  We performed theimpairment test as required by SFAS 144 for the long-lived assets of the DairyFranchising reporting unit in the second quarter of fiscal 2006 and determined thatleasehold improvements and equipment associated with a Yovana test store were impairedas of July 1, 2006.  Therefore, animpairment charge of $400,000 for these long-lived assets was required.  We did not identify any triggering event inthe third or fourth quarter of fiscal 2006.

Inaddition, we determined a triggering event had occurred under SFAS No. 142, “Goodwilland Other Intangible Assets” for the Dairy Franchising reporting unit and assuch, tested the goodwill related to the Dairy Franchising reporting unit, bycomparing its fair value with its carrying value.  To the extent that the carrying value of areporting unit exceeds it fair value, goodwill is written down to its impliedfair value.

Asa result, we compared the implied fair value of the Dairy Franchising reportingunit’s goodwill with the carrying amount of the goodwill and determined thatthe Dairy Franchising reporting unit’s goodwill of $14.6 million was impairedand accordingly recorded an impairment charge of $14.6 million, which wasrecorded in the second quarter of fiscal 2006. The implied fair value of the goodwill is determined by allocating thefair value of the reporting unit to all of the assets (recognized andunrecognized) and liabilities of the reporting unit in a manner similar to apurchase price allocation, in accordance with SFAS No. 141, “BusinessCombinations.”

In the fourth quarter of2006, we assessed whether an impairment of goodwill existed in any of our otherreporting units, specifically,Bakery Franchising, Gifts, and Licensing and determined that there was noimpairment of their goodwill.  We alsoassessed the fair value of our long-lived assets for a certain asset group anddetermined that there was no impairment as of December 30, 2006.

***Dairy Test Concepts***

New Yogurt Tests — Yovana Yogurt Café (“Yovana”) andBeriyo.  To explore further how we canuse yogurt’s continuing growth as a market category to benefit franchisees andenhance our brands, TCBY is testing an additional yogurt-focused concept —Yovana — and a smoothie focused product line — Beriyo beverages — to be sold invarious iterations of TCBY stores.  Thesenew tests focus on different menu offerings, attempt to meet a specific set ofconsumer needs and appeal to consumers at different times of the day.  For example, Beriyo attempts to takeadvantage of consumers’ demand for smoothies, as a complement to TCBY frozenyogurt treats.  The Yovana test conceptintroduces a menu that attempts to appeal to multiple day-parts and is builtaround premium yogurt prepared fresh daily in the store, including freshyogurt, drinkable fruit and yogurt, smoothies and frozen yogurt treats.  During fiscal 2007 we plan on limiting theYovana test to a small number of stores in a few markets and captivelocations.   Beriyo, which has beentested as a stand-alone concept as well as a co-brand and menu offering, willbe rolled out as a new line of smoothie products to TCBY traditional stores infiscal 2007.  We may continue to testBeriyo products in different ways as we explore options for new development anda revitalization of the TCBY brand.  Wehave concluded our test of Beriyo as a conversion option for existing TCBYstores and do not currently plan on offering a Beriyo conversion program in thenear future.  We plan on paying certaincosts and expenses in fiscal 2007 in connection with the conclusion of thisphase of the Beriyo test.  We currentlyestimate these costs to be approximately $200,000.

***Shadewell Grove IP, LLC***

Prior to August 13, 2005, Shadewell Grove IP, LLC (“Shadewell”) and Mrs.Fields Franchising, LLC (“MFF”) were parties to two license agreements(collectively, the “License Agreements”) that granted Shadewell a license todevelop, manufacture, distribute and sell ready-to-eat shelf stable cookieproducts and high quality, pre-packaged, ready-to-eat pre-baked cookie productsusing the Mrs. Fields trademarks, service marks and trade names in distributionchannels designated in the License Agreements. MFF terminated the License Agreements effective August 31, 2005 forShadewell’s failure to make certain payments to MFF in a timely manner.

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On October 5, 2005, Shadewell filed a VerifiedComplaint, Motion for Restraining Order and related documents (the “Action”) inthe Court of Chancery of the State of Delaware (the “Court”) against MFF.  In the Action, Shadewell alleged that theydid not materially breach the shelf stable and ready-to-eat pre-baked cookielicenses, and that the License Agreements were improperly terminated byMFF.  Shadewell also sought unspecifieddamages related to its claims that MFF breached certain obligations under theLicense Agreements.  A trial on theAction was held on November 29, 2005.  OnMay 8, 2006, the Court ruled in our favor on all issues.

On June 1, 2006, Shadewell’s first quarter royaltypayment to MFF under the terminated License Agreements became past due.  At that time, Shadewell notified us that itsbank had called its note due and exercised its right to sweep Shadewell’s cashdeposits to recover the amount of its note. As a result, management determined that the collectibility of Shadewell’sfirst quarter royalty was doubtful and established a bad debt reserve ofapproximately $345,000, which was subsequently written off during the thirdquarter of fiscal 2006.  In addition, weearned $268,000 in royalty revenues from Shadewell during the second quarter offiscal 2006; however, due to the uncertainty of its collectibility, we did notrecognize any royalty revenues under the terminated License Agreements in thesecond quarter of fiscal 2006.  Therewere no royalty revenues earned from Shadewell under the terminated LicenseAgreement during the third or fourth quarter of fiscal 2006.  During fiscal 2006, we recognized royaltiesof $353,000 from the License Agreements prior to their termination.

Until June 27, 2006, Shadewell continued to operateunder the terminated License Agreements. On June 27, 2006, MFF and Shadewell entered into a consulting agreement(the “Shadewell Consulting Agreement”) whereby Shadewell employees wouldprovide consulting and training services to MFF employees through August 28,2006 to assist MFF in establishing its own business selling products throughdesignated retail distribution channels. The Shadewell Consulting Agreement was extended through October 28,2006.  Shadewell received for itsservices a fee of $395,000, which was paid during the third quarter 2006.

On July 5, 2006, MFF began operating its new brandedretail business, including selling products to retail customers directly orthrough brokers, purchasing inventory from contract manufacturers and arrangingfor distribution of product to these customers. As a result, management anticipates the use of significant cash tooperate the business while it identifies a new licensee or develops anotherstrategy for the operation of the type of business formerly operated byShadewell.  We anticipate that the incomerealized by us from MFF’s new branded retail business activities will notimmediately replace or exceed the royalties that may have been generated by theterminated license agreements.

***Americana Foods Limited Partnership***

In December 2006, we entered into two new ProductSupply Agreements (each, a “Supply Agreement”), both dated effective as ofDecember 5, 2006.  The first SupplyAgreement, between us and Scott Brothers Dairy, Inc. (“Scott Brothers”),provides for manufacturing of our soft-serve frozen yogurt.  The second Supply Agreement, between us andYarnell Ice Cream Company, Inc. (“Yarnell”), provides for manufacturing of ourhand-scooped frozen yogurt products. Under the Supply Agreements, Scott Brothers and Yarnell will make thefrozen yogurt products available to our designated distributors, who will purchasethe products for resale to our franchisees. Each Supply Agreement has an initial term of three years and includesprovisions related to licensing of TCBY’s marks for purposes of production;pricing, payment, invoicing and collection; inventory controls; qualitystandards and assurance; indemnification and confidentiality.

These new Supply Agreements replace our formerrelationship with Americana Foods LP (“Americana”), the company that previouslymanufactured our proprietary yogurt products. As disclosed in our Current Report on Form 8-K filed on October 17,2006, Americana ceased production under its supply agreement with us when itsgeneral partner filed an involuntary petition with the United States BankruptcyCourt for the Northern District of Texas, naming Americana as a debtor under Chapter7 of the Bankruptcy Code.

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Our yogurt products manufactured by our new suppliersare then sold to our approved distributors for sale and distribution to TCBYand Yovana stores.  During fiscal 2006,we entered into new supply agreements with eight regional distributors,including Southwest Traders and the Merchants Group, who will service our dairystores in various regions throughout the United States.  These eight new distributors replace ourformer primary TCBY distributor, Blue Line Distributing (“Blue Line”).  Blue Line will continue to deliver productsto a small number of franchisees served by one of its distribution centersunder an extension of its former contract through March 2007.  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.

In addition, Americana owed us approximately $585,000for amounts collected by Americana on our behalf for product sold and fordecreases in the price of commodities that we were entitled to receive fromAmericana under TCBY’s Supply Agreement with Americana.  During the thirdquarter of fiscal 2006, we recorded bad debt expense of approximately $585,000and have written off this receivable.

***Countryside Baking, Inc.***

In December 2006, MFF approved a fully executed copyof a Product Supply Agreement (the “Countryside Supply Agreement”) dated as ofDecember 22, 2006 between MFF and Countryside Baking, Inc. (“Countryside”).  The Countryside Supply Agreement replaces asupply agreement previously entered into between Mrs. Fields and Countryside ortheir predecessors, which expired on December 31, 2006.  Countryside manufactures Mrs. Fields’ proprietaryfrozen dough for sale to designated distributors, who purchase the products forresale to Mrs. Fields franchisees.  TheCountryside Supply Agreement has an initial term of 5 years and includesprovisions related to licensing of Mrs. Fields’ marks for purposes ofproduction; pricing, payment, invoicing and collection; inventory controls;quality standards and assurance; indemnification and confidentiality.  Countryside is owned by Dawn Food ProductsCompany, a designated distributor of products for certain of our subsidiaries.

** **

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**Resultsof Operations**

Thefollowing table sets forth, for the periods indicated, certain informationrelating to our operations and percentage changes from period to period.  We operate using a 52/53-week year ending onthe Saturday closest to December 31. Fiscal 2006, 2005 and 2004 are all 52-week periods.
| ** **                                                                                 | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                 | ** ** | **December 30,**           | ** ** | **December 31,** | ** ** | **%** | ** ** | **January 1,** | ** ** | **%** | ** ** |
| ** **                                                                                 | ** ** | **2006**                        | ** ** | **2005** | ** ** | **Change** | ** ** | **2005** | ** ** | **Change** | ** ** |
| **Statement of  Operations Data:**                                                         | ** ** | ** **                      | ** ** | **(Dollars in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| REVENUES:                                                                                  |       |                            |       |   |   |   |   |   |   |   |   |
| Franchising                                                                                |       | $                               | 53,053     |   | $ | 53,528 |   | (0.9 | ) | $ | 55,913 |   | (4.3 | ) |
| Gifts                                                                                      |       | 30,708                          |       | 30,136 |   | 1.9 |   | 25,849 |   | 16.6 |   |
| Branded retail                                                                             |       | 10,989                          |       | 272 |   | NM |   | 353 |   | (22.9 | ) |
| Licensing                                                                                  |       | 1,838                           |       | 4,016 |   | (54.2 | ) | 4,945 |   | (18.8 | ) |
| Total revenues                                                                             |       | 96,588                          |       | 87,952 |   | 9.8 |   | 87,060 |   | 1.0 |   |
| OPERATING COSTS AND  EXPENSES:                                                             |       |                            |       |   |   |   |   |   |   |   |   |
| Franchising                                                                                |       | 24,040                          |       | 21,746 |   | 10.5 |   | 21,893 |   | (0.7 | ) |
| Gifts                                                                                      |       | 32,379                          |       | 28,418 |   | 13.9 |   | 20,733 |   | 37.1 |   |
| Branded retail                                                                             |       | 11,397                          |       | 219 |   | NM |   | 147 |   | 49.0 |   |
| Licensing                                                                                  |       | 1,411                           |       | 1,132 |   | 24.6 |   | 1,516 |   | (25.3 | ) |
| General and  administrative                                                                |       | 11,661                          |       | 8,527 |   | 36.8 |   | 9,727 |   | (12.3 | ) |
| Stock  compensation expense                                                                |       | —                          |       | — |   | NM |   | 75 |   | NM |   |
| Costs associated  with debt refinancing, net                                               |       | —                          |       | — |   | NM |   | 249 |   | NM |   |
| Depreciation                                                                               |       | 2,442                           |       | 1,145 |   | 113.3 |   | 1,221 |   | (6.2 | ) |
| Amortization                                                                               |       | 2,111                           |       | 2,831 |   | (25.4 | ) | 2,832 |   | (0.0 | ) |
| Impairment of  goodwill and intangible assets                                              |       | 14,568                          |       | 43,707 |   | (66.7 | ) | — |   | NM |   |
| Total operating  costs and expenses                                                        |       | 100,009                         |       | 107,725 |   | (7.2 | ) | 58,393 |   | 84.5 |   |
| Income (loss)  from operations                                                             |       | (3,421                          | )          | (19,773 | ) | (82.7 | ) | 28,667 |   | NM |   |
|                                                                                       |       |                            |       |   |   |   |   |   |   |   |   |
| Interest  expense, net                                                                     |       | (20,892                         | )          | (20,943 | ) | (0.2 | ) | (24,905 | ) | (15.9 | ) |
| Other (expense)  income                                                                    |       | (28                             | )          | — |   | NM |   | 1,054 |   | NM |   |
|                                                                                       |       |                            |       |   |   |   |   |   |   |   |   |
| Income (loss)  from continuing operations before provision (benefit) for income taxes      |       | (24,341                         | )          | (40,716 | ) | (40.2 | ) | 4,816 |   | NM |   |
| Provision  (benefit) for income taxes                                                      |       | (2,413                          | )          | (2,808 | ) | (14.1 | ) | 2,254 |   | NM |   |
|                                                                                       |       |                            |       |   |   |   |   |   |   |   |   |
| Income (loss)  from continuing operations                                                  |       | (21,928                         | )          | (37,908 | ) | (42.2 | ) | 2,562 |   | NM |   |
| Income from  discontinued operations (net of income taxes of $0, $0 and $65, respectively) |       | —                          |       | — |   | NM |   | 104 |   | NM |   |
| Net income (loss)                                                                          |       | $                               | (21,928    | ) | $ | (37,908 | ) | (42.2 | ) | $ | 2,666 |   | NM |   |
|                                                                                       |       |                            |       |   |   |   |   |   |   |   |   |
| Cash flows from  operating activities                                                      |       | $                               | (2,236     | ) | $ | 6,564 |   | NM |   | $ | 7,437 |   | (11.7 | ) |
| Cash flows from  investing activities                                                      |       | $                               | (5,359     | ) | $ | (2,674 | ) | 100.4 |   | $ | 195 |   | NM |   |
| Cash flows from financing activities                                                       |       | $                               | (105       | ) | $ | (72 | ) | 45.8 |   | $ | 10,918 |   | NM |   |

 

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**Fiscal Year Ended December 30, 2006(Fiscal 2006)****Compared to the Fiscal Year Ended December31, 2005 (Fiscal 2005)**

*Loss From Operations—Overview*.  Loss from operations was $3.4 millionfor fiscal 2006, a decrease of $16.4 million from loss from operations of$19.8 million for fiscal 2005.  Thisdecrease was attributable to a decrease in the impairment of goodwill andintangible assets of $29.1 million, partially offset by a decrease incontribution (as defined below) from our business segments of $9.1 million, anincrease in general and administrative expenses of $3.1 million and an increasein depreciation and amortization of $500,000. Decreases in contribution from our business segments of $9.1 million wascomprised of decreases in our franchising segment contribution of $2.8 million,our gifting segment contribution of $3.4 million, our branded retail segment of$500,000 and our licensing segment contribution of $2.4 million.

The decrease in contribution from our franchisingsegment of $2.8 million was primarily due to a decrease in revenues from ourfranchising segment of $500,000 and an increase in franchising expense of $2.3million.  The decrease in franchiserevenues was comprised of lower product formulation revenues of $1.4 million,initial fees of $900,000 partially offset by increases in product sales tofranchisees from our Great American Cookies manufacturing facility of $1.6million and royalty revenues of $200,000. The increase in franchising expense was due to increases in compensationand related benefits of $800,000, operating expenses at our Great AmericanCookies manufacturing facility of $700,000 as a result of its increased sales,severance compensation of $500,000 as a result of our managementreorganization, advertising costs of $500,000, distribution costs associatedwith the dairy franchise system of $500,000, bad debt expense of $400,000associated with Americana, our former dairy product manufacturer which declaredbankruptcy in 2006, franchise development costs of $300,000, costs associatedwith Beriyo and Yovana new store designs and concept testing of $200,000 andbad debt expense of $200,000.  Theseincreases were partially offset by reductions in brand investment initiativesof $1.5 million and costs associated with royalty assurance of $300,000.

The decrease in contribution from our gifting segmentof $3.4 million was primarily due to increased sales of $600,000 offset byincreases in costs of goods sold of $3.0 million partially related to theincrease in sales, general and administrative costs of $1.0 million principallydue to facility expenses of $1.0 million resulting from accrued rents on theformer gifting facility, severance compensation related to this businesssegment of $400,000, compensation and related costs of $300,000 associated withour new gifting management team, utilities and occupancy costs of $200,000,insurance costs of $100,000, moving costs to our new facility of $100,000 andother costs of $100,000.  These increaseswere partially offset by a decrease in professional fees of $800,000,recruiting and relocation costs of $300,000 and bad debt expense of$100,000.  The decrease in professionalfees reflects fees paid to consultants in fiscal 2005 for assistance in developingour gifting business strategy.  Thisproject was competed in fiscal 2005.

The decrease in contribution from our branded retailsegment of $500,000 was due to increases in severance costs of $400,000associated with the management reorganization and professional fees paid toShadewell of $400,000.  These increaseswere partially offset by the additional contribution from the sale of Mrs.Fields’ branded shelf stable cookies which we commenced selling in July 2006,as more fully discussed in “Recent Developments” contained elsewhere in thisreport.

The decrease in contribution from our licensingsegment of $2.4 million was principally due to decreased royalties earned of$1.9 million, increased bad debt expense of $300,000 as a result of the terminationof our license agreements for the sale of Mrs. Fields’ branded shelf stablecookies and ready-to-eat pre-baked cookie products and bad debt expense of$300,000 related to Americana, our former manufacturer and distributor of TCBYbranded frozen products.  The decreasedcontribution was partially offset by a decrease in other costs of $100,000.

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*Segment Contribution.*  The following table sets forth thecontribution from each of our reporting segments.  Franchising contribution is comprised ofsales of new franchises and royalties from existing franchises less directoperating expenses.  Gifts contributionis comprised of sales of products through our catalog and Internet businessless direct operating expenses.  Brandedretail contribution is comprised of net sales of our branded products throughretail channels by us and through food brokers less related cost of sales anddirect selling and operating expenses. Licensing contribution is comprised of licensing fees received fromthird parties for the sale of products bearing our brand names less directoperating expenses.

|                             | ** ** | **For the Fiscal Year Ended** | ** ** | ** **            | ** ** |
|-----------------------------|------------|---------------------------------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **December 30,**                             | ** ** | **December 31,** | ** ** | **%** | ** ** |
| **Reporting Segment**  | ** ** | **2006**                                          | ** ** | **2005**              | ** ** | **Change** | ** ** |
| ** **                  | ** ** | **(Dollars in thousands)**              | ** ** | ** **            | ** ** |
| Franchising                 |       | $                                                 | 29,013     |                  | $          | 31,782 |   | (8.7 | ) |
| Gifts                       |       | (1,671                                            | )          | 1,718                 |       | NM |   |
| Branded retail              |       | (408                                              | )          | 53                    |       | NM |   |
| Licensing                   |       | 427                                               |       | 2,884                 |       | (85.2 | ) |
| Total segment  contribution |       | $                                                 | 27,361     |                  | $          | 36,437 |   | (24.9 | ) |

 

**Franchising**

The following table details the revenues and operatingexpenses of the franchising segment for fiscal 2006 and 2005:

|                                       | ** ** | **Fiscal Year Ended**      | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **December, 30**                | ** ** | **December, 31** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **2006**                             | ** ** | **2005** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(Dollars in thousands)** | ** ** | ** ** | ** ** |
| Bakery revenues                       |       | $                                    | 40,326     |   | $ | 38,945 |   | 3.5 |   |
| Dairy revenues                        |       | 12,727                               |       | 14,583 |   | (12.7 | ) |
| Total  Franchising Revenues           |       | 53,053                               |       | 53,528 |   | (0.9 | ) |
|                                  |       |                                 |       |   |   |   |   |
| Bakery operating  expenses            |       | 17,984                               |       | 17,129 |   | 5.0 |   |
| Dairy operating  expenses             |       | 6,056                                |       | 4,617 |   | 31.2 |   |
| Total  Franchising Operating Expenses |       | 24,040                               |       | 21,746 |   | 10.5 |   |
| Total Franchising  Contribution       |       | $                                    | 29,013     |   | $ | 31,782 |   | (8.7 | ) |

 

The following table details the year-over-year (“YOY”)percentage increase (decrease) in same store sales for fiscal 2006 and 2005:

|                        | ** ** | **Fiscal Year Ended** | ** ** |
|------------------------|------------|---------------------------------|------------|
| ** **             | ** ** | **December 30,**           | ** ** | **December 31,** | ** ** |
| ** **             | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| Mrs. Fields            |       | (1.7                            | )%         | (0.6 | )% |
| Great American Cookies |       | 3.0                             | %          | 4.8 | % |
| Pretzel Time           |       | 8.0                             | %          | 2.7 | % |
| Pretzelmaker           |       | 10.5                            | %          | 10.7 | % |
| Total Bakery           |       | 3.1                             | %          | 3.0 | % |
| TCBY                   |       | (1.3                            | )%         | (0.8 | )% |
| Total Company          |       | 2.1                             | %          | 1.9 | % |

 

*YOY Same Store Sales. *We had positive YOY samestore sales in fiscal 2006 from all of our concepts except Mrs. Fields andTCBY.  YOY same store sales for allconcepts were 2.1 percent for fiscal 2006 compared to 1.9 percent for fiscal2005.  This positive YOY same store salesin fiscal 2006 was due to our bakery concepts while our TCBY concept continuedwith negative YOY sales.

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Our Mrs. Fields concept YOY same store sales were anegative 1.7 percent for fiscal 2006 compared to a negative 0.6 percent forfiscal 2005.  Decreased YOY same storesales for our Mrs. Fields concept were a result of lower customer counts whichled to a decrease in sales during the key holiday seasons.  However, we are testing some new initiativesthat we believe will have a positive effect on sales during fiscal 2007.  We have seen successful results with a newstore look and new products.

Our Great American Cookiesconcept experienced its third consecutive year of positive YOY same store salesgrowth.  Our Great American Cookiesconcept YOY same store sales were 3.0 percent for fiscal 2006 compared to 4.8percent for fiscal 2005.  The threesignificant contributors to fiscal 2006 growth were; (i) continued growth inhigher priced Cookie Cakes; (ii) new products, such as Disney’s Winnie the Poohcookies and merchandise, Chocolate Peanut Butter Supreme Brownie, White ChunkCranberry Cookie; and (iii) a cookie price increase.

Our pretzel concepts,Pretzel Time and Pretzelmaker, had positive YOY same store sales growth of 8.0percent and 10.5 percent, respectively, for fiscal 2006 compared to 2.7 percentand 10.7 percent, respectively, for fiscal 2005.  This continued positive growth over the prioryear was driven by new and fresher tasting dough and a continued focus on highmargin pretzel bites and Breezer frozen beverages.

Our TCBY concept YOY same store sales were a negative1.3 percent for fiscal 2006 compared to a negative 0.8 percent for fiscal2005.  We continue to focus on andemphasize store level operation and standards enforcement to improve operationsand the consumer experience in the store. In addition we continue to focus our efforts around our yogurt productswith the introduction of hand scooped frozen yogurt, replacing our ice creamproducts, as well as improving the quality of our yogurt by increasing thenumber of live, active cultures in our products.  This work is being executed in parallel tovarious reconcepting tests, as more fully discussed elsewhere in thisreport.  This reconcepting work is designedto leverage consumer trends, provide a new platform for sales growth, build animproved franchisee business model and strengthen our new store developmentinitiatives.

*Franchising Revenues.* Franchising revenues were $53.0 millionfor fiscal 2006, a decrease of $500,000 or 0.9 percent from $53.5 millionfor fiscal 2005.  This decrease wasprincipally due to lower revenues from our dairy franchise system of $1.9million or 12.7 percent offset by an increase in revenues from our bakeryfranchise system of $1.4 million or 3.5 percent.

The decrease in revenues in our dairy franchise systemof $1.9 million was principally comprised of decreases in product formulationrevenues generated by purchases of TCBY products by franchisees of $1.0 millionor 10.7 percent, royalties of $500,000 or 9.2 percent and initial franchisefees of $400,000 or 64.2 percent.  Thedecrease in royalties and product formulation is principally attributable toapproximately 3,800 or 11.3 percent fewer unit weeks and a decrease in ourfranchisees’ YOY same store sales of 1.3 percent.  We anticipate that our dairy unit weeks willcontinue to decline in the near future, at least until our reconcepting testsfor Yovana and the rollout in fiscal 2007 of the Beriyo line of smoothieproducts to TCBY traditional stores are completed.  We have concluded our test of Beriyo as aconversion option for existing TCBY stores and do not currently plan onoffering a Beriyo conversion program in the near future.  We plan on paying certain costs and expensesin fiscal 2007 in connection with the conclusion of this phase of the Beriyotest.  We currently estimate these coststo be approximately $200,000.

The increase in revenues in our bakery franchisesystem of $1.4 million was principally attributable to increases in sales ofproducts by our Great American Cookies manufacturing facility to ourfranchisees of $1.6 million or 9.7 percent and royalties of $700,000 or 4.3percent, partially offset by reductions of lower initial franchise fees of$500,000 or 24.7 percent, allowances earned from our beverage vendors of$300,000 or 19.7 percent and product formulation revenues generated bypurchases of certain bakery products by franchisees of $100,000 or 5.5percent.  The increase in sales by ourGreat American Cookies manufacturing facility was primarily due to increases inbatter purchases by our Great American Cookies franchisees as a result ofcontinued positive YOY same store sales by our franchisees and a price increaseto our franchisees of 5.0 percent effective April 2006.  The increase in royalties was principally dueto increases in YOY same store sales by our franchisees.  The reduction in product formulation revenueswas the result of lower product formulation revenues earned through our Mrs.Fields bakery franchise system.  Thedecrease in initial franchise fees was due to initial franchise fees earned inCanada from our Mrs. Fields and Pretzelmaker concepts in fiscal 2005 of$200,000 that were not repeated in fiscal 2006 and lower average initialfranchise fees earned for new store openings in fiscal 2006 compared to fiscal2005.

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*Franchising Expenses.*  Franchising expenses are comprised primarilyof 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; and cost of product sales associated with our Great American Cookiesmanufacturing facility including raw ingredients, labor and other manufacturingcosts.  Franchising expenses were $24.0million for fiscal 2006, an increase of $2.3 million or 10.5 percent from$21.7 million for fiscal 2005.  This increasewas due to increases in compensation and related benefits of $800,000, operatingexpenses at our Great American Cookies manufacturing facility of $700,000 asresult of its increased sales, severance compensation of $500,000 as a resultof the management reorganization, advertising costs of $500,000, distributioncosts associated with the dairy franchise system of $500,000, bad debt expenseof $400,000 associated with Americana, franchise development costs of $300,000,costs associated with Beriyo and Yovana new store designs and concept testingof $200,000 and bad debt expense of $200,000 associated with ourfranchisees.  These increases werepartially offset by reductions in brand investment initiatives of $1.5 millionand costs associated with royalty assurance of $300,000.

**Gifts**

*Gifts Revenues.*  Gifts revenues were $30.7 million for fiscal2006, an increase of $600,000 or 1.9 percent from $30.1 million forfiscal 2005.  Gifts revenues consist ofsales through our catalog and website as well as affiliations with otherwebsites and sales to large corporate accounts for gifting purposes andcommercial airlines.  The increase inrevenues in fiscal 2006 was due to increases in sales through Internet searchengines of $1.1 million, our partners and affiliates of $600,000 and nationalaccounts of $400,000.  These increaseswere partially offset by reductions in sales through our catalog and website of$1.0 million and airline and other customers of $500,000.

*Gifts Expenses.*  Gifts expenses are comprised of cost of salesfor products sold, selling and promotional expenses and direct operating costsof this segment.  Gifts expenses were$32.4 million for fiscal 2006, an increase of $4.0 million or 13.9 percent from$28.4 million for fiscal 2005.  Thisincrease in expenses was due to increases in cost of goods sold of $3.0 milliondue to increases in raw materials, production costs and freight expenses,facility expenses of $1.0 million primarily due to accrued rents on the formergifting facility, severance compensation related to this business segment of$400,000, compensation and related costs of $300,000, utilities and occupancycosts of $200,000, insurance costs of $100,000, moving costs to our newfacility of $100,000 and other costs of $100,000.  These increases were partially offset by adecrease in professional fees of $800,000 for consultants in fiscal 2005 forthe assistance and development of our gifting business strategy, recruiting andrelocation costs of $300,000 and bad debt expense of $100,000.

**Branded Retail**

*Branded Retail Revenues. *Brandedretail net sales were $11.0 million for fiscal 2006, an increase of $10.7million from $300,000 for fiscal 2005. As discussed in “Recent Developments” contained elsewhere in thisreport, following the termination of certain license agreements with Shadewell,in July 2006 we commenced selling Mrs. Fields branded shelf stable cookiesdirectly through retail channels.  Priorto this time, our branded retail revenues consisted only of sales of Mrs.Fields branded cookie dough directly through retail channels.

*Branded Retail Expenses.*  Branded retail expenses are comprised of costof sales for product sold, selling and promotional expenses and other directoperating expenses of this segment. Branded retail expenses were $11.4 million for fiscal 2006, an increaseof $11.2 million from $200,000 for fiscal 2005. This increase was primarily due to the operating costs associated withthe new branded retail activities which commenced in July 2006 and increases inseverance costs of $400,000 associated with the management reorganization andprofessional fees paid to Shadewell of $400,000.

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**Licensing**

*Licensing Revenues. * Licensing revenues were $1.8 million forfiscal 2006, a decrease of $2.2 million or 54.2 percent, from $4.0 millionfor fiscal 2005.  This decrease was due primarily to decreases in licensing royaltiesearned under our licensing agreement with Shadewell for the sale of Mrs. Fieldsbranded shelf stable cookies of $1.9 million and licensing royalties earnedunder an agreement for the sale of Mrs. Fields branded premium hot cocoa thatwas terminated in early fiscal 2005 of $100,000, licensing royalties earnedunder a license agreement with Americana of $100,000 and royaltiesearned under other licensed products of $100,000.  Asdiscussed in “Recent Developments” contained elsewhere in this report, wedo not anticipate earning any further royalties under the terminated licenseagreements for the sale of Mrs. Fields branded shelf stable cookies or for TCBYbranded frozen products under a license agreement with Americana.

*Licensing Expenses.*  Licensing expenses are comprised of sellingand promotional expenses, bad debt and other direct operating expenses of thissegment.  Licensing expenses were $1.4million for fiscal 2006, an increase of $300,000 or 24.6 percent, from$1.1 million for fiscal 2005.  Thisincrease was due principally to bad debt expense as a result of the terminationof our license agreements for the sale of Mrs. Fields branded shelf stablecookies of $300,000, bad debt expense related to Americana of $300,000partially offset by a decrease in legal costs of $300,000 for the terminationof license agreements for the sale of Mrs. Fields branded shelf stable cookies.

**Other**

*General and Administrative Expense.*  General and administrative expenses were$11.6 million for fiscal 2006, an increase of $3.1 million or 36.8 percent,from $8.5 million for fiscal 2005.  Thisincrease was primarily due to a reduction in the amount we received formanagement services provided to our parent company, MFOC, of $1.7 million, rentreimbursement amount of $200,000 as a result of the decrease in the number ofstores owned and operated by MFOC and increases in severance costs of $900,000associated with our management reorganization, professional fees of $700,000primarily associated with potential debt refinancing alternatives, salaries andrelated benefits of $200,000 and health insurance expense of $200,000 partiallyoffset by reductions in recruiting and relocation of $600,000 and professionalfees of $200,000 associated with IT services and internal controls.

*Depreciation and AmortizationExpense. *Totaldepreciation and amortization expense was $4.5 million for fiscal 2006, anincrease of $500,000 or 14.5 percent, from $4.0 million for fiscal 2005.  Depreciation expense was $2.4 million forfiscal 2006, an increase of $1.3 million or 113.3 percent from $1.1 million forfiscal 2005.  This increase was primarilydue to a $400,000 write-down of leasehold improvements and equipment associatedwith a Yovana test store and additional depreciation expense of approximately$500,000 associated with leasehold improvements of our former gifting facilityas a result of relocating from that facility into a new facility in August2006, which shortened the useful lives of these leasehold improvements.  Amortization expense for fiscal 2006 was $2.2million, a decrease of $600,000 or 25.4 percent from $2.8 million for fiscal2005.  This decrease was principally dueto the impairment of certain intangible assets of TCBY in fiscal 2005, whichresulted in a lower carrying value of the intangible assets and loweramortization expense in future periods.

*Impairment of Goodwill andIntangible Assets. *For fiscal 2006, we recorded an impairmentcharge of $14.6 million compared to $43.7 million for fiscal 2005 to reduce thecarrying value of goodwill associated with our Dairy Franchising reportingunit.  This impairment was principallythe result of the eroding dairy franchise operations evidenced by fewerlocations, consistent negative YOY same store sales by our dairy franchiseesand our inability to locate and open a significant number of new or additionalfranchise locations.  These factors haveresulted in continued decreases in franchise royalties and yogurt formulation revenuesfrom our dairy franchise system.  See “Business— Impairment of Goodwill and Intangible Assets” contained elsewhere in thisreport.

*Interest Expense, Net.*  Interest expense, net was $20.9 millionfor each of fiscal 2006 and fiscal 2005.

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**Consolidated FinancialCondition**

Total assets at December 30, 2006 were $121.7 million,a decrease of $18.2 million or 13.0 percent, from $139.9 millionat December 31, 2005.  This decrease wasprimarily attributable to decreases in goodwill of $14.6 million, cash of $7.7million, net trademarks and other intangible assets of $2.0 million, netdeferred loan costs of $800,000, prepaid expenses and other assets of $400,000and deferred tax assets of $200,000. These decreases were partially offset by increases in net property andequipment of $3.8 million, receivables, net of $2.6 million and inventories of$1.1 million.

Total liabilities at December 30, 2006 were $227.5million, an increase of $6.2 million or 2.8 percent, from $221.3 millionat December 31, 2005.  This increase wasprimarily due to increases in accounts payable of $3.1 million, accruedliabilities of $2.5 million and other liabilities of $1.3 million.  These increases were partially offset bydecreases in deferred revenues of $400,000, amounts due to affiliates of$200,000 and capital lease obligations of $100,000.

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**Fiscal Year Ended December 31, 2005(Fiscal 2005)**

**Comparedto the Fiscal Year Ended January 1, 2005 (Fiscal 2004)**

*Income From Operations—Overview*.  Loss from operations was $19.8 millionfor fiscal 2005, a decrease of $48.5 from income from operations of $28.7 millionfor fiscal 2004. This decrease was attributable to impairment of goodwill andintangible assets of $43.7 million and a decrease in contribution from ourbusiness segments of $6.2 million partially offset by reductions in general andadministrative expenses of $1.2 million and costs associated with our debtrefinancing in fiscal 2004 of $200,000. Decreases in contribution from our business segments of $6.2 million wascomprised of decreases in our franchising segment contribution of $2.2 millionor 6.6 percent, our gifting segment contribution of $3.4 million or 66.4percent and our licensing segment contribution of $600,000 or 15.9 percent.

The decrease in contribution from our franchising segment of $2.2million was primarily due to lower product formulation revenues of $2.3 millionand royalties of $1.5 million due to approximately 7,400 fewer unit weeksoffset by an increase in product sales to franchisees from our Great AmericanCookies manufacturing facility of $1.6 million.

The decrease in contribution from our gifting segment of $3.4 millionwas due to increased sales of $4.3 million offset by increases in costs ofgoods sold of $2.0 million related to the increase in sales, selling andmarketing costs of $2.8 million principally due to increased circulation of ourcatalogs and general and administrative costs of $2.9 million principally dueto increased professional fees of $1.3 million, costs associated with our newgifting management team of $1.3 million including compensation, recruiting andrelocation costs and other general and administrative costs of $300,000.

The decrease in contribution from our licensing segment of $500,000 wasprincipally due to increased legal costs associated with the litigation andtermination of our license agreements for the sale of Mrs. Fields branded shelfstable cookies and ready-to-eat pre-baked cookie products.

*Segment Contribution.*  The following table sets forth thecontribution from each of our reporting segments. Franchising contribution iscomprised of sales of new franchises and royalties from existing franchisesless direct operating expenses.  Giftscontribution is comprised of sales of products through our catalog and Internetbusiness less direct operating expenses. Licensing contribution is comprised of licensing fees received fromthird parties for the sale of products bearing our brand names less directoperating expenses.

|                             | ** ** | **Fiscal Year Ended**      | ** ** | ** **          | ** ** |
|-----------------------------|------------|--------------------------------------|------------|---------------------|------------|
| ** **                  | ** ** | **December 31,**                | ** ** | **January 1,** | ** ** | **%** | ** ** |
| **Reporting Segment**  | ** ** | **2005**                             | ** ** | **2005**            | ** ** | **Change** | ** ** |
| ** **                  | ** ** | **(Dollars in thousands)** | ** ** | ** **          | ** ** |
| Franchising                 |       | $                                    | 31,782     |                | $          | 34,020 |   | (6.6 | ) |
| Gifts                       |       | 1,718                                |       | 5,116               |       | (66.4 | ) |
| Licensing                   |       | 2,884                                |       | 3,429               |       | (15.9 | ) |
| Total segment  contribution |       | $                                    | 36,384     |                | $          | 42,565 |   | (14.5 | ) |

 

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**Franchising**

The following table details the revenues and operating expenses of thefranchising segment for the years ended December 31, 2005 and January 1, 2005:

|                                       | ** ** | **For the Fiscal Year Ended** | ** ** |
|---------------------------------------|------------|---------------------------------------------------|------------|
| ** **                            | ** ** | **December 31,**                             | ** ** | **January 1,** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **2005**                                          | ** ** | **2005** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(Dollars in thousands)**              | ** ** | ** ** | ** ** |
| Bakery revenues                       |       | $                                                 | 38,945     |   | $ | 37,809 |   | 3.0 |   |
| Dairy revenues                        |       | 14,583                                            |       | 18,104 |   | (19.4 | ) |
| Total  Franchising Revenues           |       | 53,528                                            |       | 55,913 |   | (4.3 | ) |
|                                  |       |                                              |       |   |   |   |   |
| Bakery operating  expenses            |       | 17,129                                            |       | 16,203 |   | 5.7 |   |
| Dairy operating  expenses             |       | 4,617                                             |       | 5,690 |   | (18.9 | ) |
| Total  Franchising Operating Expenses |       | 21,746                                            |       | 21,893 |   | (0.7 | ) |
| Total Franchising  Contribution       |       | $                                                 | 31,782     |   | $ | 34,020 |   | (6.6 | ) |

 

The following table details the YOY percentage increase (decrease) insame store sales for the years ended December 31, 2005 and January 1, 2005:

|                                                 | ** ** | **For the Fiscal Year Ended** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                      | ** ** | **December 31,**                             | ** ** | **January 1,** | ** ** |
| **YOY % Change by Concept** | ** ** | **2005**                                          | ** ** | **2005** | ** ** |
| Mrs. Fields                                     |       | (0.6                                              | )%         | (1.2 | )% |
| Great American Cookies                          |       | 4.8                                               | %          | 7.2 | % |
| Pretzel Time                                    |       | 2.7                                               | %          | (2.6 | )% |
| Pretzelmaker                                    |       | 10.7                                              | %          | (1.0 | )% |
| Total Bakery                                    |       | 3.0                                               | %          | 1.3 | % |
| TCBY                                            |       | (0.8                                              | )%         | (2.6 | )% |
| Total company                                   |       | 1.9                                               | %          | (0.1 | )% |

 

*YOY Same Store Sales. *We had significantimprovement in our YOY same store sales in fiscal 2005 from all of our conceptsexcept Great American Cookies.  YOY samestore sales for all concepts were 1.9 percent for fiscal 2005 compared to anegative 0.1 percent for fiscal 2004. This positive YOY same store sales in fiscal 2005 was due to our bakeryconcepts while our TCBY concept continued with negative YOY sales.

Our Mrs. Fields concept YOY same store sales were a negative 0.6percent for fiscal 2005 compared to a negative 1.2 percent for fiscal2004.  This improvement in the trend wasdue to new product introductions such as our ice blended drinks (Breezer Smoothies and Chillers) and renewed emphasis ondecorated Big Cookie Cakes.  Our GreatAmerican Cookies concept YOY same store sales were 4.8 percent for fiscal 2005compared to 7.2 percent for fiscal 2004. The continued positive in YOY sales was due to continued focus on CookieCakes from fiscal 2004 and our stronger focus on our “Cookie Express”decorating table for key holidays.

Our pretzel concepts, Pretzel Time andPretzelmaker had positive YOY sales of 2.7 percent and 10.7 percent for fiscal2005 compared to a negative 2.6 percent and a negative 1.0 percent for fiscal2004, respectively.  These improvementswere due to the introduction of bite-sized pretzels by our Pretzelmakerfranchisees in late fiscal 2004, and continued participation by our Pretzel Timefranchisees and the launch of Breezer Smoothies.  We believe sales at our pretzel concepts alsobenefited from a decrease in popularity of “low carb” diets that appearto have peaked in fiscal 2003.

Our TCBY concept YOY same store sales were a negative 0.8 percent forfiscal 2005 compared to a negative 2.6 percent for fiscal 2004.  This improvement was due to the introductionof cakes and pies which tend to increase the average customer ticket and arenewed emphasis on local store marketing, including product sampling andcoupons.

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*Franchising Revenues.* Franchising revenues were $53.5 millionfor fiscal 2005, a decrease of $2.4 million or 4.3 percent, from$55.9 million for fiscal 2004. This decrease was principally due to lowerrevenues from our dairy franchise system of $3.5 million or 19.4 percent offsetby an increase in revenues from our bakery franchise system of $1.1 million or3.0 percent.

The decrease in our dairy franchise system revenues of $3.5 million wasprincipally comprised of decreases in product formulation revenues generated bypurchases of TCBY products by franchisees of $1.8 million or 16.5 percent,royalties of $1.4 million or 22.3 percent and initial franchise fees of$300,000 or 32.5 percent.  The decreasein royalties and product formulation is principally attributable toapproximately 4,700 or 12.2 percent fewer unit weeks and a decrease in ourfranchisees’ YOY same store sales of 0.8 percent. We anticipate that our dairyunit weeks will continue to decline in the near future, at least until ourreconcepting tests are completed and we have developed a plan to implement thereconcepting in qualified TCBY traditional stores.  While we are encouraged by the consumer datawe have collected, there can be no assurances that our reconcepting tests orimplementation will be successful, or that a reconcepting will slow or reversethe declining TCBY store count or contribution, which may adversely affect ourresults of operations.

The increase in our bakery franchise system revenues was principallyattributable to increases in sales of products by our Great American Cookiesmanufacturing facility to our franchisees of $1.6 million or 10.3 percent andinitial franchise fees of $300,000 or 18.1 percent, partially offset byreductions of product formulation revenues generated by purchases of certainbakery products by franchisees of $500,000 or 11.4 percent, lower royalties of$100,000 or 0.6 percent and other bakery franchising revenues of $100,000.   The increase in sales by our Great AmericanCookies manufacturing facility was primarily due to a price increase to ourfranchisees of 8.3 percent effective April 2005.  Lower royalties and product formulationrevenues earned through our bakery franchise system was primarily due toapproximately 2,700 fewer unit weeks or 4.8 percent.

*Franchising Expenses.*  Franchising expenses are comprised ofoperation and supervision expense 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; and cost of product sales associated with our Great American Cookiesmanufacturing facility including raw ingredients, labor and other manufacturingcosts.  Franchising expenses were$21.7 million for fiscal 2005, a decrease of $200,000 or 0.7 percent,from $21.9 million for fiscal 2004.  Thisdecrease was attributable to decreases in franchise operations and supervisionof $800,000 or 20.1 percent partially offset by increases in franchisedevelopment and support costs of $100,000 or 1.9 percent and an increase inproduct cost of sales associated with our Great American Cookies manufacturingfacility of $500,000 or 4.4 percent.

The decrease in operations and supervision expense of $800,000 wasprincipally due to decreases in salaries and related employee costs of $600,000, travel costs of $100,000 andother supervisory costs of $100,000.  Thedecrease in franchise development and support costs of $100,000 was due toreductions in expenses for brand initiatives of $700,000, advertising of$600,000, recruiting and relocations costs of $300,000, bad debt expense of$200,000 and product development costs of $100,000 offset by increases indevelopment salaries and related costs of $1.4 million, staffing andadministrative costs of $300,000 relating to documentation of audits offranchisees and other direct franchising costs of $100,000. The increase inproduct cost of sales associated with our Great American Cookies manufacturingfacility of $500,000 is principally due to increased raw ingredients costs of$400,000 or 5.6 percent and manufacturing labor of $100,000 or 10.0 percent.

# **Gifts**

*Gifts Revenues.*  Gifts revenues were $30.1 million for fiscal2005, an increase of $4.3 million or 16.6 percent, from$25.8 million for fiscal 2004. Gifts revenues consist of sales through ourcatalog and website as well as affiliations with other websites and sales tolarge corporate accounts for gifting purposes and commercial airlines.  The increase in revenues in fiscal 2005 wasdue to increases in sales through our catalog and website of $3.1 million,Internet search engines of $1.4 million, and national accounts of $200,000offset by a reduction in sales through our partners of $200,000 and airlinecustomers of $200,000.

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*Gifts Expenses.*  Gifts expenses were $28.4 million forfiscal 2005, an increase of $7.7 million or 37.1 percent, from$20.7 million for fiscal 2004. This increase in expenses was due toincreases in cost of goods sold of $2.0 million, selling expenses of $2.8million comprised of $2.6 million for increased circulation of our catalogs and$200,000 for bank and credit card fees associated with the increased sales andgeneral and administrative expenses of $2.9 million.  The increase in general and administrativeexpenses was due to increases in compensation and related costs of $700,000,recruiting and relocation costs of $600,000 associated with the hiring of thePresident, Vice President of Operations and the Director of Merchandising,professional fees of $800,000 due to consulting fees to assist us in preparinga five-year strategic plan, the write-off of certain software of $400,000, baddebt expense of $200,000 and other operating expenses of $200,000.

**Licensing**

*Licensing Revenues.*  Licensing revenues were $4.0 million forfiscal 2005, a decrease of $900,000 or 18.8 percent, from $4.9 million forfiscal 2004. This decrease was due to decreases in licensing royalties earnedunder our licensing agreement for the sale of Mrs. Fields branded shelf stablecookies of $800,000 and TCBY frozen food specialty products through retailchannels of $200,000 partially offset by an increase in royalties earned underour licensing agreement for the sale of TCBY yogurt covered pretzels of$100,000.

*Licensing Expenses.*  Licensing expenses were $1.1 million forfiscal 2005, a decrease of $400,000 or 25.3 percent, from $1.5 million forfiscal 2004. This decrease was due to an expense in fiscal 2004 for atermination fee of $1.1 million paid to Shadewell to terminate the frozen doughlicense partially offset by increases in fiscal 2005 of legal fees associated withlitigation surrounding the termination of our license agreements for the saleof Mrs. Fields branded shelf stable cookies and ready-to-eat, pre-baked cookieproducts of $400,000 and costs associated with writing-off obsolete packagingfor our TCBY frozen specialty products that did not comply with the newlabeling requirements mandated by the U.S. Food and Drug Administrationeffective January 1, 2006 of $200,000.

**Other**

*General and Administrative Expense.*  General and administrative expenses were $8.5million for fiscal 2005, a decrease of $1.2 million or 12.3 percent, from $9.7million for fiscal 2004.  This decreasewas primarily due to reductions in incentive compensation of $1.4 million,severance costs associated with termination of certain members of our executivemanagement team in fiscal 2004 of $500,000, property, casualty and workerscompensation` insurance of $100,000 and other operating costs of $100,000partially offset by increases in professional fees of $300,000, healthinsurance costs of $200,000, compensation and related payroll costs of $200,000and recruiting and relocation expense of $200,000.

*Depreciation and AmortizationExpense.*  Totaldepreciation and amortization expense was $4.0 million for fiscal 2005, adecrease of $100,000 or 1.9 percent, from $4.1 million for fiscal 2004.Depreciation expense was $1.1 million for fiscal 2005, a decrease of $100,000or 6.2 percent, from $1.2 million for fiscal 2004.  Amortization expense for fiscal 2005 was $2.8million consistent with fiscal 2004.

*Impairment of Goodwill andIntangible Assets. *For fiscal 2005, we recorded a charge of$43.7 million to reduce the carrying value of the goodwill and other intangibleassets associated with our Dairy Franchising reporting unit.  This impairment was principally the result ofan eroding Dairy franchise system due to fewer locations, consistent negativeYOY same store sales by our Dairy franchisees and our inability tolocate and open a significant number of new or additional franchiselocations.  These factors have resultedin continued decreases in franchise royalties and yogurt formulation revenuesfrom our Dairy franchise system.  See “Business— Impairment of Goodwill and Intangible Assets.”

*Interest Expense, Net*.  Interest expense, net was $20.9 millionfor fiscal 2005, a decrease of $4.0 million or 15.9 percent, from$24.9 million for fiscal 2004. This decrease was primarily due to thewrite-off of deferred loan costs of $2.8 million in the first quarter of fiscal2004 associated with our previous debt. These deferred loan costs were written off due to the completion of ourdebt refinancing on March 16, 2004. Additionally, the decrease in interest expense, net was the result of areduction in amortization of deferred loan costs of **$**1.0 million as a result of the lowerdeferred loan costs associated with new borrowings and a lower effectiveinterest rate on the new borrowings and an increase of $300,000 in interestincome earned on our cash balances offset by an increase in interest expense of$100,000 associated with our capital lease obligations.

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**Consolidated FinancialCondition**

*Consolidated FinancialCondition. *Totalassets at December 31, 2005 were $139.9 million, a decrease of$41.9 million or 23.0 percent, from $181.8 million atJanuary 1, 2005. This decrease was primarily attributable to decreases ingoodwill of $34.8 million, net trademarks and other intangible assets of $10.7million, net deferred loan costs of $900,000, prepaid expenses of $300,000 anddeferred tax assets of $200,000 partially offset by an increase in cash andcash equivalents of $3.8 million, inventories of $300,000 and net property andequipment of $900,000.

Total liabilities at December 31, 2005 were $221.3 million, a decreaseof $4.0 million from $225.3 million at January 1, 2005. This decreasewas primarily due to decreases in deferred tax liability of $3.9 million,accrued liabilities of $2.4 million and deferred revenues of $1.2 millionpartially offset by increases in accounts payable of $2.2 million, amounts dueto affiliates of $1.2 million and capital lease obligations of $100,000.

###### **ConsolidatedCash Flows**

Net cash flows used in operating activities were $2.2 million forfiscal 2006, a decrease of $8.8 million from net cash flows provided byoperating activities of $6.6 million for fiscal 2005.  This decrease was principally due todecreases in contribution by our operating segments of $9.1 million and anincrease in general and administrative expenses of $3.1 million funded throughchanges in our working capital of $3.4 million.

Net cash flows provided by operating activities were $6.6 million forfiscal 2005, a decrease of $800,000 from net cash flows provided by operatingactivities of $7.4 million for fiscal 2004. This decrease was principally due to decreases in contribution by ouroperating segments partially offset by increases in cash provided from changesin working capital of $1.3 million and from discontinued operations of $300,000and a decrease in general and administrative expenses of $1.2 million.

Net cash flows used in investing activities were $5.4 million forfiscal 2006, an increase of $2.7 million from net cash used in investingactivities of $2.7 million for fiscal 2005. This increase was attributable to increases in purchases of property andequipment of $2.8 million principally associated with our new gifts facilitypartially offset by proceeds from the sale of equity warrants in Nonni’s FoodCompany of $100,000.

Net cash flows used in investing activities were $2.7 million forfiscal 2005, an increase of $2.9 million, from cash provided by investingactivities of $200,000 for fiscal 2004. This increase was attributable to increases in purchases of property andequipment of $1.3 million and license repurchase option of $500,000 in fiscal2005 and a reduction in proceeds from the sale of equity warrants in Nonni’sFood Company of $1.0 million that occurred in fiscal 2004.

Net cash flows used in financing activities were negligible for fiscal2006 and fiscal 2005.

Net cash flows used in financing activities were $100,000 for fiscal2005, a decrease of $11.0 million from cash provided by financing activities of$10.9 million for fiscal 2004.  Thisdecrease was principally due to principal payments on our capital leaseobligations of $100,000 and the completion of our debt refinancing on March 16,2004 which resulted in $115.0 million in proceeds from the issuance of our 111¤2 percent Senior Secured Notes and a capitalcontribution by MFOC of $17.5 million partially offset by payments to retireour previous debt of $101.5 million, payments of debt issuance costs of $12.0million, other activity with parent of $8.0 million and payments to repurchasestock options of MFC of $100,000.

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

Our principal sources of liquidity are cash on hand and cash flows fromoperating activities.  At December 30,2006, we had $16.0 million of cash on hand. During the next 12 months, we expect that our principal uses of cashwill be for working capital, capital expenditures and semi-annual interestpayments of $20.5 million on our Senior Secured Notes, of which $10.25 millionwill be due on March 15, 2007 and September 15, 2007.  In addition, to the extent we have cashavailable and it is permitted by the indenture governing the Senior SecuredNotes, we may pay dividends to our parent companies for uses such asacquisitions, debt repayments and dividends. 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.

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We are highly leveraged. At December 30, 2006, we had $195.7 million oflong-term debt represented by the Senior Secured Notes. The Senior SecuredNotes mature on March 15, 2011, with interest payable semi-annually onMarch 15 and September 15.  Due toborrowing restrictions under the indenture governing the Senior Secured Notes,our ability 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 principal amount,plus accrued and unpaid interest thereon to the date of purchase, with50 percent of our “excess cash flow,” as defined in the indentureagreement, when the ratio of our net indebtedness to consolidated EBITDA isabove 3.75 to 1.0 and the cumulative unpaid excess cash flow offer amountexceeds $10.0 million.  We do notanticipate that our “excess cash flow” will exceed the levels that wouldrequire us to offer to repurchase a portion of the notes described above.

We have implemented plans to reduce operating costs, as evidenced byour management reorganization plan.  Webelieve, based on historical results and current projections, ourreorganization and control of operating expenses, that the cash currently on handand expected cash flows from future operations will be sufficient to continueoperations for at least the next 12 months. We are also exploring potential equity contributions, permissible loansand other financing as additional sources of cash.  Failure to achieve the anticipated benefit fromour management reorganization may result in our inability to continueoperations in our current state and would have a material adverse impact on ouroperations.  Accordingly, there can be noassurance that actual results will meet or exceed our projections or that ourfuture operating activities will generate sufficient cash to meet our cashrequirements for the next 12 months.

The following table reflects our future contractual obligations as ofDecember 30, 2006 (dollars in thousands):
| ** **                                      | ** ** | **Payments Due by Fiscal Year** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| **Contractual Obligations**                | ** ** | **Total**                                           | ** ** | **2007** | ** ** | **2008 - 2009** | ** ** | **2010 - 2011** | ** ** | **After 2011** | ** ** |
| Senior Secured Notes                            |       | $                                                   | 195,747    |   | $ | — |   | $ | — |   | $ | 195,747 |   | $ | — |   |
| Interest-Senior Secured  Notes                  |       | 92,214                                              |       | 20,492 |   | 40,984 |   | 30,738 |   | — |   |
| Capital lease  obligations (including interest) |       | 666                                                 |       | 166 |   | 216 |   | 170 |   | 114 |   |
| Operating leases                                |       | 16,999                                              |       | 2,529 |   | 5,055 |   | 4,274 |   | 5,141 |   |
| Total Contractual Obligations                   |       | $                                                   | 305,626    |   | $ | 23,187 |   | $ | 46,255 |   | $ | 230,929 |   | $ | 5,255 |   |

 

We have entered into a supply agreement to buy frozen dough products,which stipulates minimum annual purchase commitments of not less than12.5 million pounds of products, approximately $15.8 million based onweighted average prices in effect December 30, 2006, each year through the endof the contract, December 2011. These annual purchase commitments are satisfied primarily through thedirect purchase of frozen dough products by our franchisees.  Should we not meet the annual minimumcommitment, the supplier’s sole remedy, at its option, is to negotiate with usin good faith on the conversion cost based on market prices in theindustry.  Since these purchasecommitments do not represent cash obligations to us, we have not included themin our contractual obligations table.

**CertainInformation Concerning Off-Balance Sheet Arrangements**

As of December 30, 2006, we did not have any relationships withunconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would havebeen established for the purpose of facilitating off-balance sheet arrangementsor other contractually narrow or limited purposes.  We are, therefore, not materially exposed tofinancing, liquidity, market or credit risk that could arise if we had engagedin such relationships.

**Inflation**

The impact of inflation on our business has not been significant inrecent years.  Some of our employees arepaid 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.

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**Seasonality**

Our sales and contribution from franchisees’ store operations arehighly seasonal, but our various brands experience counteracting seasonaleffects.  Our cookie and pretzel stores,primarily located in malls, tend to mirror customer traffic flow trends inmalls, which increase significantly during the fourth quarter, primarilybetween Thanksgiving and the end of the calendar year.  Holiday gift purchases also are a significantfactor in increased sales in the fourth quarter. However, TCBY storesexperience their strongest sales periods during the warmer months from lateSpring through early Fall, which helps to balance the impact of seasonality onour operations.  Franchising segmentrevenues for each quarter as a percentage of total franchising segment revenuesfor the fiscal year ended December 30, 2006 were 23.3 percent for the firstquarter, 25.6 percent of the second quarter, 25.2 percent in the third quarterand 25.9 percent for the fourth quarter.

Our sales and contribution from our gifts segment are highly seasonalprimarily due to holiday gift purchases that increase sales in the fourthquarter.  Sales in the fourth quarter offiscal 2006 were $16.7 million, which represents 54.5 percent of total salesand contribution of the gifts segment for the year ended December 30, 2006.

**Critical Accounting Policies**

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

*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 taxes,from gift sales are recognized at the time of shipment.

We receive cash payments for product formulation fees and allowancesfrom suppliers based on the amount of product purchased directly by ourdistributors and franchisees.  Theseproduct formulation fees and allowances include cash payments to us for theright to use our proprietary formulations and recipes to manufacture the frozendough, 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 was $11.4 million, $12.8 million and $15.1 million forfiscal years 2006, 2005 and 2004, respectively, for such formulation fees andallowances.

*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.

On an annual basis (in the fourth quarter), or more frequently ifcircumstances indicate potential impairment we perform an assessment forimpairment of our carrying value of goodwill associated with each of ourreporting units, by comparing each reporting unit’s fair value with itscarrying value.  The estimated fair valueof goodwill is affected by, among other things, operating results, our businessplan for the future, estimated results of future operations and the comparablecompanies and transactions 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.

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In conducting our impairment analyses, we perform analyses and tests ofour goodwill with respect to our reporting units.  The test methods employed involve assumptionsconcerning useful lives of intangible assets, interest and discount rates,projections and other assumptions of future business conditions.  The assumptions employed are based onmanagement’s judgment using internal 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.

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

*Deferred Income Tax Assets.*  Deferred income tax 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 our effortsto satisfactorily resolve these matters and the ultimate outcome could resultin a material negative impact on our financial position, liquidity or resultsof operations.

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# **New Accounting Pronouncements Not Yet Adopted**

In July 2006, the Financial Accounting Standards Board (“FASB”) issuedFASB Interpretation No. 48 (“FIN 48”) “Accounting for Income Tax Uncertainties.”  FIN 48 defines the threshold for recognizingthe benefits of tax return positions in the financial statements as “more-likely-than-not”to be sustained by the taxing authority. FIN 48 provides guidance on the derecognition, measurement andclassification of income tax uncertainties, along with any related interest andpenalties.  FIN 48 also includes guidanceconcerning accounting for income tax uncertainties in interim periods andincreases the level of disclosures associated with any recorded income taxuncertainties.  FIN 48 is effective forfiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on ourconsolidated financial position or results of operations.

In September 2006, the FASB issued Statement of Financial AccountingStandards No. 157 (“SFAS 157”), “Fair Value Measurements.”  SFAS 157 defines fair value, establishes aframework for measuring fair value in generally accepted accounting principlesand expands disclosures about fair value measurements, but does not changeexisting guidance as to whether or not an instrument is carried at fairvalue.  SFAS 157 is effective for fiscalyears beginning after November 15, 2007 and interim periods within those fiscalyears.  We are currently evaluating theeffect, if any, that the adoption of SFAS 157 will have on our consolidatedfinancial position and results of operations.

In June 2006, the Emerging Issues Task Force (“EITF”) reached aconsensus on EITF Issue No. 06-03 (“EITF 06-03”), “How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement (That Is, Gross versus Net Presentation).”  EITF 06-03 provides that the presentation oftaxes assessed by a governmental authority that is directly imposed on arevenue-producing transaction between a seller and a customer on either a grossbasis (included in revenues and costs) or on a net basis (excluded fromrevenues) is an accounting policy decision that should be disclosed.  The provisions of EITF 06-03 become effectiveas of December 31, 2006.  The adoptionthe ETIF 06-03 is not expected to have a material impact on our consolidatedfinancial position or results of operations.

# **Item 7A. Quantitative and Qualitative Disclosures about Market Risk**

Ourmajor market risk exposure is changing interest rates. We do not hedge againstchanges in interest rates.

Thetable below provides information about our financial instruments that aresensitive to changes in interest rates in the event of refinancing, includingprincipal cash flows and related weighted average interest rates by year ofexpected maturity dates, based on the amount of indebtedness at December 30,2006.
| ** **                                              | ** ** | **Expected Maturity Date** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------|------------|
| **Liabilities**                                         | ** ** | **2007**                             | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(Dollars in thousands)** | ** ** |
| Long-term debt,  including current portion (fixed rate) |       | $                                    | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | 195,747 |   | $ | 195,747 |   |
| Weighted average interest rate                          |       | —                               |       | — |   | — |   | — |   | 10.47 | % | 10.47 | % |
|                                                         |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

# Theweighted average interest rate is calculated by applying the respective statedinterest rate against the outstanding balance of our 9 percent Senior SecuredNotes and our 111⁄2 percent Senior Secured Notes and calculating the average rateon the total outstanding balance of the Senior Secured Notes.

# **Item 8. Financial Statements and Supplementary Data**

# Ourconsolidated financial statements and supplementary data are listed in theindex appearing under Item 15A.

# **Item 9. Changes in and Disagreements With Accountants on Accounting andFinancial Disclosure**

# None.

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# **Item 9A. Controls and Procedures**

# TheCompany’s management, with the participation of the Company’s Chief ExecutiveOfficer and Chief Financial Officer, evaluated the effectiveness of the Company’sdisclosure controls and procedures as of the end of the period covered by thisreport.  Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures, as of the end of the period covered by thisreport, are functioning effectively to provide reasonable assurance that theinformation required to be disclosed by the Company in reports filed under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms.  A controls system, no matter how welldesigned and operated, cannot provide absolute assurance that the objectives ofthe controls system are met and no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within acompany have been detected.

# Therehas been no change in our internal control over financial reporting (as definedin Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934)that occurred during our fiscal quarter ended December 30, 2006, that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

# **Item 9B. Other Information**

# None.

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**PART III**

**Item 10.  Directors and Executive Officers of theRegistrant**

**Managersand Executive Officers**

The followingtable sets forth certain information regarding the managers, executive officersand certain other officers, of the Company as of March 1, 2007.  Each of the managers and executive officersserve for a one-year term and until their successors are elected and qualified.

** **
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                                                    |
|---------------------|------------|---------|------------|-------------------------------------------------------------------------------------------------|
| Stephen Russo       |       | 57      |       | Manager, President and Chief Executive Officer                                                  |
| Gregory K. Barber   |       | 34      |       | Chief Financial Officer, Executive Vice President  and Treasurer                                |
| Michael R. Ward     |       | 48      |       | Executive Vice President, Chief Legal Officer and  Secretary                                    |
| Greg Berglund       |       | 40      |       | President, Mrs. Fields Gifts, Inc.                                                              |
| John Lauck          |       | 51      |       | President of the Mrs. Fields Division of the Company                                            |
| Dale Thompson       |       | 48      |       | President of the Great American Cookies, Pretzel  Time and Pretzelmaker Division of the Company |
| Jon M. Biotti       |       | 38      |       | Manager                                                                                         |
| Alexander Coleman   |       | 40      |       | Manager                                                                                         |
| John D. Collins     |       | 68      |       | Manager                                                                                         |
| George N. Fugelsang |       | 66      |       | Manager                                                                                         |
| Peter W. Mullin     |       | 66      |       | Manager                                                                                         |
| Don Rice            |       | 58      |       | Manager                                                                                         |
| John D. Shafer      |       | 62      |       | Manager                                                                                         |
| Christopher Wright  |       | 49      |       | Manager                                                                                         |

 

***Mr. Russo***has been President, Chief Executive Officer and Manager of the Company sinceMarch 2004, President of the TCBY Division of the Company since January 2007and has been President, Chief Executive Officer and a Director of Mrs. Fields’Original Cookies, Inc. (“MFOC”), Mrs. Fields’ Holding Company, Inc. (“MFH”) andMrs. Fields’ Companies, Inc. (“MFC”) since May 2003. From July 1997 toApril 2003, Mr. Russo was Retail Brands Operations Officer for AlliedDomecq QSR, where he was responsible for 10,700 units and total system widesales of $4.2 billion for brands such as Dunkin’ Donuts, Baskin Robbinsand Togo’s.  From January 1978 to June1997, Mr. Russo served in various capacities for Dunkin’ Donuts.  Mr. Russo also has experience serving asPresident of Mister Donut and a multi unit supervisor of a McDonald’s licensee.

***Mr. Barber***has been Chief Financial Officer, Executive Vice President and Treasurer of theCompany, MFOC, MFH and MFC since January 2007. Between May 2005 and January 2007, Mr. Barber served as the Company’sVice President of Strategy and Business Development.  Mr. Barber was Director of Strategy at NCHCorporation from October of 2002 to May of 2005 and a Consultant at Bain andCompany from August 2000 to September 2002.

***Mr. Ward***has been Chief Legal Officer of the Company since February 2006 and ExecutiveVice President, General Counsel and Secretary of the Company, MFOC, MFH and MFCsince June 2004.  Since December2004, Mr. Ward has been a Director of MFOC. From March 2004 to June 2004, Mr. Ward was Senior VicePresident, General Counsel and Secretary of the Company.  Mr. Ward was Senior Vice President, GeneralCounsel and Secretary of MFOC from June 2000 to June 2004 and of MFCfrom its inception in September 2001 to June 2004. Mr. Ward wasVice President of Administration and the Legal Department of MFOC fromSeptember 1996 to May 2000 and Secretary of MFOC sinceApril 1999.  Between 1991 and 1996,Mr. Ward’s responsibilities were overseeing the Legal Department and HumanResources Department for Mrs. Fields, Inc., a predecessor toMFOC.  Mr. Ward currently serves as amember of the Board of Directors of Prime Alliance Bank.  Mr. Ward is admitted to practice law in theState of Utah.

***Mr. Berglund***has been President of Mrs. Fields Gifts since August 2005.  From April 2001 to August 2005,Mr. Berglund was Senior Vice President and General Manager of DisneyDirect Marketing Services, Inc. in charge of the Walt Disney Company’sproduct-based catalog and e-commerce business.  Mr. Berglund added globalresponsibilities his last two years at Disney, overseeing the company’slicensed direct marketing business in Japan. From July 1997 to April 2001, Mr. Berglund was Vice President, Marketingfor Cinmar, Inc., a Cornerstone Brands company. There Mr. Berglund was a part of the Frontgate catalog and e-commercebusiness.

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***Mr. Lauck***has been President of the Mrs. Fields Division of the Company since January2007.  From February 2006 to January2007, he was Chief Marketing Officer of the Company and served as ExecutiveVice President of Marketing of the Company from April 2004 to January2007.  From September 2001 toApril 2004, Mr. Lauck served as President and Chief Marketing Officerfor Arby’s Franchise Association.  Priorto joining Arby’s, Mr. Lauck was on a one-year sabbatical.  From February 2000 to July 2001Mr. Lauck was Senior Vice President and Chief Marketing Officer forGroceryworks.com, a home grocery delivery start-up.  Between November 1998 andJanuary 2000 Mr. Lauck was the Senior Vice President and ChiefMarketing Officer for Footaction and from November 1997 to November 1998was the Vice President of Corporate Development for Blockbuster Video.  Prior to Blockbuster, Mr. Lauck servedin various marketing positions at Pizza Hut and General Mills.  Mr. Lauck is a director of ShadewellGrove Holdings, LLC, which is a parent of Shadewell Grove IP, LLC, a licenseeof the Company.

***Mr. Thompson***has been President of the Great American Cookies, Pretzel Time and PretzelmakerDivision of the Company since January 2007. From August 2004 to January 2007, he served as Vice President ofMarketing — Bakery Brands for the Company. Mr. Thompson was a private consultant from August 2002 to August2004.  From 1999 to 2002, Mr. Thompsonwas President of Kellogg’s Japan.  From1997 to 1999, Mr. Thompson was Vice President of Marketing at Citibank, wherehe was part of a global team charged with positioning mutual funds toconsumers.

***Mr. Biotti***hasbeen a Manager of the Company and a Director of MFH and MFC since December2006.  Mr. Biotti is a Managing Directorof Charlesbank Capital Partners, LLC (“CCP”), which he joined in 1998.  CCP is the investment advisor to CharlesbankEquity Fund II, Limited Partnership (“Charlesbank”), which holds approximately2.58% and 34% respectively of the common and 16.5% preferred stock of MFC.  Charlesbank is also a holder of notes issuedby MFH.

***Mr. Coleman***has been a Manager of the Company and a Director of MFH and MFC sinceMay 2004.  From May 2004 to December2004, Mr. Coleman was a Director of MFOC. Since 2007, Mr. Coleman has been Managing Partner of Citicorp VentureCapital, Citicorp’s leveraged buyout platform with targeted investments ofbetween $100 million and $500 million.  FromOctober 2004 to 2007, Mr. Coleman served as Managing Partner of Annex CapitalManagement LLC (“Annex Capital”), a private equity firm specializing in thepurchase of direct investments in the secondary market. Annex Capital holdsapproximately 5.56 percent and 34 percent, respectively, of common and 16.5percent preferred stock of MFC. Annex Capital is also a holder of notes andsecurities issued by MFH.  Prior to joiningAnnex Capital, Mr. Coleman served as Managing Investment Partner of DresdnerKleinwort Capital from 1996 to 2004, and held various positions at Citibank, NAand its affiliates, including Citicorp Venture Capital, from 1989 to 1995.  Mr. Coleman serves as a Director of Wholesomeand Hearty Foods, Inc. and Hypercube, Inc.

***Mr. Collins***hasbeen a Manager of the Company and a Director of MFH and MFC since December2004.  Since July 1999, Mr. Collins hasworked as a consultant to non-public companies. From June 1999 to June 2000, Mr. Collins was a consultant to KPMGLLP.  Prior to June 1999, Mr. Collins wasa partner for KPMG LLP.  Mr. Collinscurrently serves as a member of the Board of Directors of Excelsior Funds.  Mr. Collins is also a member of the Board ofTrustees and Chairman of the Finance Committee of LeMoyne College in Syracuse,New York and a supervisor/director of Suburban Propane, L.P.

***Mr. Fugelsang***has been a Manager of the Company and a Director of MFH and MFC sinceMay 2004. From May 2004 to December 2004, Mr. Fugelsang was a Director ofMFOC.  From 1994 through 2001,Mr. Fugelsang was Chief Executive Officer North America for the DresdnerBank Group, based in New York City. Mr. Fugelsang is a director of ART, Advanced ResearchTechnologies.  Mr. Fugelsang is also amember of the international advisory board of the Monterey Institute ofInternational Studies.

***Mr. Mullin***has been a Manager of the Company since March 2004 and has been a Director ofMFH since September 1996 and of MFC since its inception inSeptember 2001. From September 2001 to December 2004, Mr. Mullin was aDirector of MFOC.  Mr. Mullinfounded Mullin Consulting, Inc., an executive compensation, benefitplanning and corporate insurance consulting firm, in 1969 and serves as itsChairman.  Mr. Mullin became Chairman ofMullinTBG, a newly formed affiliate of Mullin Consulting, Inc.  Mr. Mullin is a Director of AveryDennison Corporation.  Mr. Mullin isan investor in both Capricorn Investors II, L.P. (“Capricorn II”) and CapricornInvestors III, L.P. (“Capricorn III,” together with Capricorn II, “Capricorn”).

***Mr. Rice***hasbeen a Manager of the Company and a Director of MFH and MFC since December2006.  From January 1992, he has been theManaging Partner of RSTW, a private Equity and Mezzanine fund.  Since December 2005, he has served asChairman and Chief Executive Officer of Ascend Acquisition Corp.  He is a member of the Board of Directors andAudit Committee of NationsHealth, Inc.

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***Mr. Shafer***has been Manager of the Company and Director of MFH and MFC since April2005.  Mr. Shafer has been retired since2003.  Mr. Shafer served as ChiefExecutive Officer of Allied Domecq, QSR from 1998 through January 2003 andserved as Chief Operating Officer from 1996 to 1998 of Allied Retailing.  Mr. Shafer served in various capacities ofDunkin’ Donuts, Inc from 1972 to 1996 including President from 1992 to1996.  Mr. Shafer also serves on theBoard of Directors for Papa Murphy’s take and bake pizza.

***Mr. Wright***has been a Manager of the Company since March 2004 and has been a Director ofMFH and MFC since February 2002. From February 2002 until December 2004, Mr. Wright was a Director ofMFOC.  Since 2003, Mr. Wright has been anAdvisory Director at Campbell Lutyens and Company, Ltd.  From 1995 to June 2002, Mr. Wrightserved as CEO of Dresdner Kleinwort Capital, LLC, the private equity businessof Dresdner Bank Group and from 2002 to June 2003 as Managing Director ofDresdner Kleinwort Wasserstein LLC.  Mr.Wright is a Director and serves on the corporate governance and auditcommittees of the Board of Directors of Roper Industries, Inc.  Mr. Wright has also been a Director ofMerifin Capital, a private investment group since 1989 and serves as directorand advisory board member of several other privately-held companies in theUnited States and Europe, including Capricorn III.

**Board Committees**

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

*Executive Committee.*  The Executive Committee is composed ofMessrs. Russo (Chairperson) and Fugelsang. The purpose of this committee is to act on behalf of the entire Board ofManagers between Board meetings.

*Compensation Committee.*  The Compensation Committee is composed ofMessrs. Fugelsang (Chairperson), Mullin and Shafer.  The purpose of this committee is to ensurethat the Company has a broad plan of executive compensation that is competitiveand motivating to the degree that it will attract, retain and inspireperformance of managerial and other key personnel of a quality and nature thatwill enhance the growth and profitability of the Company.

*Audit Committee.*  The Audit Committee is composed ofMessrs. Collins (Chairperson), Wright, Rice and Biotti.  The purpose of the Audit Committee is toprovide assistance to the Board of Managers in fulfilling their oversightresponsibilities relating to the Company’s consolidated financial statementsand financial reporting process and internal controls in consultation with theCompany’s independent registered public accountants and internal auditors.  The committee also is responsible for ensuringthat the independent registered public accountants submit a formal writtenstatement to the Company regarding relationships and services which may affectthe auditors’ objectivity and independence.

**Audit Committee Financial Expert**

The Board of Managers of the Company has determinedthat Mr. Collins is the Company’s audit committee financial expert, as definedby SEC rules and that he is “independent” as the term is used in Item7(e)(3)(iv) of Schedule 14A of the proxy rules under the Securities ExchangeAct of 1934.  Mr. Collins’ experience isdescribed in his biographical information elsewhere in this Item 10.

**Code of Ethics**

The Company has adopted a Code of Ethical Conduct (the“Code”) that applies to all directors, officers and employees of the Company,MFOC and its subsidiaries.  The Coderequires that all of our employees act ethically when conducting business.  The Code provides a summary of the conductrequired from all employees of the Company and is a source for guidance,accountability for and enforcement of its provisions.  A complete copy of the Code has been postedon our website at *www.mrsfields.com/privacy/ethics/. *Wewill satisfy any disclosure requirements under Item 5.05 of Form 8-K regardingan amendment to, or waiver from, any provision of the Code with respect to ourprincipal executive officer, principal financial officer, principal accountingofficer and any persons performing similar functions by disclosing the natureof such amendments or waiver on our website.

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# **Item 11.  Executive Compensation**

**Compensation Discussion and Analysis**

The following discussion and tables set forthinformation with regard to compensation for services rendered in all capacitiesto the Company and its subsidiaries during the Company’s fiscal year ended December30, 2006, by the Chief Executive Officer (“CEO”), the Chief Accounting Officer(“CAO”), the three most highly compensated executive officers of the Companyother than the CEO and CAO who were serving as executive officers at the end ofthe last completed fiscal year, and one additional individual who was notserving as an executive officer of the Company at the end of its last completedfiscal year  (collectively, the “NamedExecutive Officers”). The information discussed below reflects compensation earnedby such individuals for services with MFC and its subsidiaries during thecovered periods.

*Company Compensation Objectives*

The Company’s objective is to maintain a program ofexecutive compensation that is competitive and motivating to the degree that itwill attract, retain and inspire performance of executive officers who possessqualities, talents and abilities that will enhance the growth and profitabilityof the Company.  The Company believesthat its compensation program must include both short-term and long-termcompensation elements and that some opportunity for equity participation uponthe occurrence of certain triggering events is appropriate and necessary toattract and retain key members of management who are aligned with the overallinterests of the Company and its investors. Our Board of Managers has organized a Compensation Committee toestablish the Company’s program of executive compensation.  Because we are controlled by MFC, however,certain elements of our compensation program are established or administered bythe Board of Directors of MFC or a committee thereof.

*Elements Of Executive Compensation*

The Company’s executive compensation program consistsof two main elements of short-term compensation and several elements oflong-term and deferred compensation, each of which are discussed below.

**Short-Term Compensation**

*Base Salary*.  The Company attempts to set base salaries forexecutives at approximately the 75th percentile compared to other companies inthe Company’s peer group, but also considers other factors, such as survey datafor other similarly situated companies, competitiveness in the market forpersons with the necessary experience and abilities, and the candidate’soverall responsibilities, professional qualifications and experience and therole that he or she is expected to play in helping the Company achieve itsgoals and objectives.

*Bonus Program*.  Typically, the Company identifies whether anexecutive will participate in its bonus program at the time an offer ofemployment is extended.  Sometimes,however, participation is subsequently extended, or bonus levels are increased,to reward individual performance, recognize a promotion or retain keyemployees.  All of the Named ExecutiveOfficers are participants at various levels, from 50 percent to 100 percent ofbase salary, in the Company’s bonus program. The Company is not required to maintain a bonus program, but if itchooses to do so, it has agreed to extend participation to certain employees,including the Named Executive Officers.

Historically, the bonus program has been funded atlevels based on Company performance targets and any payments are shared prorata calculated to account for performance levels and not allocated or adjustedbased on any individual performance targets. Individual performance or merit is considered when setting a participant’slevel of participation in the program, expressed as a percentage of basesalary.  The Company believes thattargets based on Company performance, as opposed to individual performance,most appropriately rewards management for exceptional teamwork and best alignsindividual executives with the Company’s goals.

For its fiscal year endedDecember 30, 2006, the Compensation Committee approved a bonus program similarto those it funded in the past; however, due to the fact that Companyperformance thresholds were not met, no program participants will receivebonuses or other payments under the fiscal 2006 bonus program.

The Company is currentlyfinalizing the details of its fiscal 2007 bonus program, which will be subjectto the approval of the Compensation Committee. The Company currently anticipates that the program will be similar tothe fiscal 2006 bonus program, but with different performance targets that willbe consistent with the Company’s projected financial results.

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**Long-TermCompensation**

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

Under the Phantom StockPlan, participants receive performance units in amounts recommended by our CEOand determined by the Committee.  Onceissued, performance units may only be forfeited upon certain events, such as aparticipant’s voluntary termination or termination for cause.  Additionally, the Phantom Plan may beterminated by the Board of Directors at any time at its sole discretion.  Upon the completion of a Triggering Event,Participants receive payments reflecting the number and value of theirperformance units at the time of the completion of the Triggering Event.  Payments to Participants may be made in cashor through issuance of equity securities of MFC, as determined by the Committee,at which time compensation expense will be recognized.  The value of a performance unit at thecompletion of a Triggering Event is the value of one share of common stock ofMFC as determined in good faith by the Board of Directors.  If the Board of Directors determines theneed, it may seek the advice of an independent advisor.

The maximum number ofperformance units that may be granted under the Phantom Plan is one millionunits. Subdivisions, splits or combinations involving MFC’s Common Stock will proportionatelyaffect the number of performance units that have been awarded under the PhantomPlan.  In May 2004, the Committeeapproved the grant of up to 392,418 performance units allocated amongParticipants as determined by the Committee. In March 2006, the Committee approved the grant of up to 182,274additional units to Participants identified by the Committee, resulting intotal authorized grants of up to 574,692 performance units.  During fiscal 2006, the Committee granted218,730 performance units to Participants. Future grants, if any, shall also be determined by the Committee.  As of December 30, 2006, a total of 460,130performance units were issued and outstanding.  Each of the Named Executive Officers currently employed by the Companyare Participants and have received certain grants of units as more fullydescribed elsewhere in this Item 11.

Prior to adoption of itsPhantom Stock Plan in 2004, MFC, the Company’s parent, historically awardedstock options to certain of the Company’s employees to motivate and recognizeperformance.  As a result of certainchanges in accounting rules, tax treatment and other considerations, MFCterminated its former employee stock option plan.  As of December 30, 2006, options to purchase10,000 shares of MFC stock were issued and outstanding under this former planand held by an employee of the Company.

*401(k)Plan*.  The Company alsooffers a voluntary 401(k) plan to all eligible employees, including the NamedExecutive Officers.  Under the terms ofthe 401(k) plan, the Company has the obligation to match 100 percent of thefirst three percent of salary and 50 percent of the next two percent of salaryof each participant’s contribution.*** *** The Company funded this match for planparticipants in fiscal 2006 and currently plans to do so in fiscal 2007.

*SeveranceAgreements*.  In orderto attract and retain highly qualified individuals, the Company may agree tomake certain severance payments upon any termination of such individualswithout cause.  The existence and amountof the severance depends on a number of factors, including whether an employeewas required to relocate to accept the position and whether the individual isconsidered critical to achievement of the Company’s goals.  Each of the Named Executive Officers receivedseverance agreements as part of their employment, as more fully describedelsewhere in this Item 11.

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*Factors Considered; EvaluationProcess*

Under the leadership of the Compensation Committee,the Company annually reviews its compensation programs, making appropriatechanges based on individual performance evaluations and responsibilities,operating results of the Company and current economic conditions, including theoverall competitiveness of the labor pool from which the Company draws its executives.   The Company believes the Named ExecutiveOfficers’ overall compensation should be heavily influenced by Companyperformance, including achievement of long-term strategic objectives,profitable growth and increased stockholder value. The Compensation Committeereviews and approves the compensation of the Chief Executive Officer.  The base salaries of other Named ExecutiveOfficers are evaluated by the Chief Executive Officer, historically with theinvolvement of the Company’s Executive Committee and director of HumanResources, and recommendations reflecting the Company’s overall compensationstrategies are considered and must be approved by the CompensationCommittee.  Any changes to the bonusprogram recommended by management must also be approved by the CompensationCommittee.

*Employment Agreements*

The Company does not typically enter into a detailedemployment agreement with its officers and employees and prefers to maintaingreater flexibility in employer/employee relationships.  The Company receives sufficient statutoryprotection against post termination disclosure or misuse of confidential andproprietary information and further generally supports free employmentpractices.  The Company’s approach toemployment agreements evolves to respond to employment market conditions, itsfinancial performance and other considerations. The Company currently has employment agreements with two of the NamedExecutive Officers, Steve Russo and Michael Ward.  These agreements are described more fullyelsewhere in this Item 11.

No other Named Executive Officer has an employmentagreement with the Company, but each of the Named Executive Officers currentlyemployed by the Company except Messrs. Russo and Ward have an arrangement withthe Company granting them the right to participate in the Company’s bonusprogram and benefit plans and providing certain severance payments to them inthe event of termination without cause. More information about these arrangements is included elsewhere in thisItem 11.

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**Summary Compensation Table**

The following table sets forth information with regardto compensation for services rendered in all capacities to the Company and itssubsidiaries by the Named Executive Officers. The information set forth in the table reflects compensation earned bysuch individuals for services with MFC and its subsidiaries during the coveredperiods.  In accordance with the newrules of the Securities and Exchange Commission related to ExecutiveCompensation disclosure, this table includes newly required information onlyfor the Company’s fiscal year ended December 30, 2006.

### **SUMMARYCOMPENSATION TABLE**

| **Name and Principal**                                                                    | ** ** | ** **       | ** ** | **Salary**                | ** ** | **Bonus**               | ** ** | **Stock  Awards**      | ** ** | **Option**

**Awards** | ** ** | **Non-Equity  Incentive  Plan  Compensation** | ** ** | **Change in  Pension  Value and  Nonqualified  Deferred  Compensation**

**Earnings** | ** ** | **(2)  All Other  Compensation** | ** ** | **Total**                 | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------|------------|-------------------------|------------|------------------------|------------|------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------|------------|
| **Position**                                                                                        | ** ** | **Year**         | ** ** | **($)**                   | ** ** | **($)**                 | ** ** | **($)**                | ** ** | **($)**                | ** ** | **(#)**                                       | ** ** | **($)**                                                                                         | ** ** | **($)**                               | ** ** | **($)**                   | ** ** |
| **Stephen Russo**

President and Chief

Executive  Officer                                          |       | 2006

2005

2004 |       | 445,000

440,625

430,000 |       | —

—

139,320 |       | —

—

— |       | —

—

— |       | —

—

—                        |       | —

—

—                                                                          |       | 48,389

31,616

28,601                |       | 493,389

472,241

597,921 |       |
| **Mark C. McBride (3)**

Senior  Vice President, Chief Accounting Officer and Treasurer             |       | 2006             |       | 215,000                   |       | —                  |       | —                 |       | —                 |       | —                                        |       | —                                                                                          |       | 251,361                               |       | 466,361                   |       |
| **Michael R. Ward**

Executive Vice  President,  Chief Legal Officer and Secretary                  |       | 2006

2005

2004 |       | 310,000

276,499

270,667 |       | —

—

106,750 |       | (1

—

—     | )          | —

—

— |       | —

—

—                        |       | —

—

—                                                                          |       | 21,460

18,184

120,546               |       | 331,460

294,683

497,963 |       |
| **John Lauck**

President, Mrs. Fields

Division of the Company                                     |       | 2006

2005

2004 |       | 362,250

358,677

253,312 |       | —

—

175,000 |       | (1

—

—     | )          | —

—

— |       | —

—

—                        |       | —

—

—                                                                          |       | 20,590

5,415

122,449                |       | 382,840

364,092

550,761 |       |
| **Greg Berglund**

President,  Mrs. Fields Gifts, Inc.                                              |       | 2006

2005       |       | 350,000

139,854          |       | 94,000

134,000         |       | (1

—             | )          | —

—         |       | —

—                                |       | —

—                                                                                  |       | 9,457

199,611                        |       | 453,457

473,465          |       |
| **Former Officer**

**Dara Dejbakhsh (4)**Executive Vice  President

and  Chief Operations

Officer | ** ** | 2006

2005

2004 | ** ** | 311,667

307,438

252,848 | ** ** | —

—

158,000 | ** ** | (1

—

—     | )          | —

—

— | ** ** | —

—

—                        | ** ** | —

—

—                                                                          | ** ** | 217,833

8,520

109,060               | ** ** | 529,500

315,958

519,908 | ** ** |

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(1)          Each of Messrs. Ward, Lauckand Dejbakhsh received a Phantom Unit Grant Agreement for 60,758 performanceunits and Mr. Berglund received 36,456 performance units under the Phantom Planduring fiscal 2006.  These grants areconsidered “stock rights” because they may be settled, upon certain triggeringevents, by issuance of MFC’s common stock. However, since the triggering events may never occur and are currentlynot probable under SFAS 123(R) and the plan is subject to termination by theBoard at any time, no expense is recorded until the triggering event isprobable under SFAS 123(R).

(2)          Includes the followingelements of compensation over $10,000: (A) Mr. Russo: $20,000 car allowance and$17,115 cash received in lieu of accrued vacation (“vacation cashout”); (B) Mr.McBride: $242,079 for amount accrued in connection with post-terminationseverance; (C) Mr. Ward: $11,923 vacation cashout; (D) Mr. Lauck: $13,933 forvacation cashout; and (E) Mr. Dejbakhsh: $207,199 for amount paid or accrued inconnection with post-termination severance.

(3)          It was determined inDecember 2006 that Mr. McBride’s employment would terminate effective January10, 2007.

(4)          Mr. Dejbakhsh’semployment was terminated effective December 1, 2006.

Mr. Dejbakhsh’s post termination compensation wascalculated in accordance with a termination and severance agreement enteredinto between him and the Company at the time of termination.  He received payments of $28,333 during fiscal2006 under that agreement and the Company has accrued for the remainingpayments due in 2007 of $178,866.

Mr. McBride’s post termination compensation wascalculated based on an agreed-upon present value of amounts due under his12-month severance arrangement with the Company and was paid in one lump sum inJanuary 2007.

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**GRANTS OF PLAN-BASED AWARDS TABLE**

The following table sets forth information concerningthe grants of plan-based awards to Named Executive Officers during theCompany’s last completed fiscal year.

 
| ** **                                                                                        | ** ** | ** ** | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** | ** **  | ** ** | **(1)**                | ** ** | ** **              | ** ** | ** **             | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|-------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                        | ** ** | ** ** | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** | ** **  | ** ** | **All Other**     | ** ** | **All Other**      | ** ** | **(2)**                | ** ** |
| ** **                                                                                        | ** ** | ** ** | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** | ** **  | ** ** | **Stock Awards:** | ** ** | **Option Awards:** | ** ** | **Exercise or**   | ** ** |
| ** **                                                                                        | ** ** | ** ** | ** ** | **Estimated Future Payouts**   | ** ** | **Estimated Future Payouts**   | ** ** | **Number of** | ** ** | **Number of** | ** ** | **Base Price** | ** ** |
| ** **                                                                                        | ** ** | ** ** | ** ** | **Under Non-Equity Incentive** | ** ** | **Under Non-Equity Incentive** | ** ** | **Shares of** | ** ** | **Securities**     | ** ** | **of Option**  | ** ** |
| ** **                                                                                        | ** ** | ** ** | ** ** | **Plan Awards**                     | ** ** | **Plan Awards**                     | ** ** | **Stock or**  | ** ** | **Underlying**     | ** ** | **or Stock**   | ** ** |
| **Name and Principal**                                                                  | ** ** | **Grant**  | ** ** | **Threshold**                            | ** ** | **Target**                               | ** ** | **Maximum**        | ** ** | **Threshold**      | ** ** | **Target**          | ** ** | **Maximum** | ** ** | **Units**              | ** ** | **Options**             | ** ** | **Awards**             | ** ** |
| **Position**                                                                                      | ** ** | **Date**   | ** ** | **($)**                                  | ** ** | **($)**                                  | ** ** | **($)**            | ** ** | **($)**            | ** ** | **($)**             | ** ** | **($)**     | ** ** | **(#)**                | ** ** | **(#)**                 | ** ** | **($ / Sh)** | ** ** |
| **Stephen Russo**

President and Chief  Executive Officer                                    |       | —     |       | —                                   |       | —                                   |       | —             |       | —             |       | —              |       | —      |       | —                 |       | —                  |       | —                 |       |
| **Mark C. McBride**

Senior Vice President,  Chief Accounting Officer and Treasurer               |       | —     |       | —                                   |       | —                                   |       | —             |       | —             |       | —              |       | —      |       | —                 |       | —                  |       | —                 |       |
| **Michael R. Ward**

Executive Vice  President, Chief Legal Officer and Secretary                 |       | —     |       | —                                   |       | —                                   |       | —             |       | —             |       | —              |       | —      |       | 60,758                 |       | —                  |       | (2                     | )          |
| **John Lauck**

President, Mrs. Fields  Division of the Company                                   |       | —     |       | —                                   |       | —                                   |       | —             |       | —             |       | —              |       | —      |       | 60,758                 |       | —                  |       | (2                     | )          |
| **Greg Berglund**

President, Mrs. Fields  Gifts, Inc.                                            |       | —     |       | —                                   |       | —                                   |       | —             |       | —             |       | —              |       | —      |       | 36,456                 |       | —                  |       | (2                     | )          |
| **Former Officer**

**Dara Dejbakhsh (3)**

Executive Vice President and Chief Operations Officer |       | —     |       | —                                   |       | —                                   |       | —             |       | —             |       | —              |       | —      |       | 60,758                 |       | —                  |       | (2                     | )          |

----

(1)          Each of Messrs. Ward,Lauck and Dejbakhsh received a Phantom Unit Grant Agreement for 60,758performance units and Mr. Berglund received 36,456 performance units under thePhantom Plan during fiscal 2006.  Thesegrants are considered “stock rights” because they may be settled, upon certaintriggering events, by issuance of MFC’s common stock.

(2)          Payments for performanceunits are calculated based on the value of MFC stock at the time of anytriggering event that may occur under the plan. However, since the triggering events may never occur and are currentlynot probable under SFAS 123(R) and the plan is subject to termination by theBoard at any time, no expense is recorded until the triggering event isprobable under SFAS 123(R).

(3)          Mr. Dejbakhsh’semployment was terminated effective December 1, 2006.  Mr. Dejbakhsh’s performance units wereforfeited effective as of the date he left the Company.

The Phantom Plan and performance units issued thereunder, including the grants disclosed in this table, are more fully describedunder “Long-term Compensation” elsewhere in this Item 11.

** **

59

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**OUTSTANDING EQUITY AWARDS AT FISCALYEAR END**

The following table sets forth information concerningequity incentive plan awards for each Named Executive Officer of the Companythat was outstanding at the end of the Company’s last completed fiscal year.
| ** **                                                                          | ** ** | ** **         | ** ** | ** **         | ** ** | ** **            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **          | ** ** | ** **          | ** ** | ** **             | ** ** | **Equity**             | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------|------------|--------------|------------|----------------|------------|---------------------|------------|---------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                          | ** ** | ** **         | ** ** | ** **         | ** ** | ** **            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **          | ** ** | ** **          | ** ** | **Equity**             | ** ** | **Incentive**          | ** ** |
| ** **                                                                          | ** ** | ** **         | ** ** | ** **         | ** ** | **Equity**            | ** ** | ** **   | ** ** | ** **     | ** ** | ** **          | ** ** | ** **          | ** ** | **Incentive**          | ** ** | **Plan Awards:**  | ** ** |
| ** **                                                                          | ** ** | ** **         | ** ** | ** **         | ** ** | **Incentive**         | ** ** | ** **   | ** ** | ** **     | ** ** | ** **          | ** ** | ** **          | ** ** | **Plan Awards:**  | ** ** | **Market or**     | ** ** |
| ** **                                                                          | ** ** | ** **         | ** ** | ** **         | ** ** | **Plan Awards:** | ** ** | ** **   | ** ** | ** **     | ** ** | ** **          | ** ** | **Market**          | ** ** | **Number of**     | ** ** | **Payout Value**  | ** ** |
| ** **                                                                          | ** ** | **Number of** | ** ** | **Number of** | ** ** | **Number of**    | ** ** | ** **   | ** ** | ** **     | ** ** | **Number of**  | ** ** | **Value of**   | ** ** | **Unearned**           | ** ** | **of Unearned**   | ** ** |
| ** **                                                                          | ** ** | **Securities**     | ** ** | **Securities**     | ** ** | **Securities**        | ** ** | ** **   | ** ** | ** **     | ** ** | **Shares or**  | ** ** | **Shares or**  | ** ** | **Shares, Units** | ** ** | **Shares, Units** | ** ** |
| ** **                                                                          | ** ** | **Underlying**     | ** ** | **Underlying**     | ** ** | **Underlying**        | ** ** | ** **   | ** ** | ** **     | ** ** | **Units of**   | ** ** | **Units of**   | ** ** | **or Other**      | ** ** | **or Other**      | ** ** |
| ** **                                                                          | ** ** | **Unexercised**    | ** ** | **Unexercised**    | ** ** | **Unexercised**       | ** ** | **Option**   | ** ** | ** **     | ** ** | **Stock That** | ** ** | **Stock That** | ** ** | **Rights That**   | ** ** | **Rights That**   | ** ** |
| ** **                                                                          | ** ** | **Options**        | ** ** | **Options**        | ** ** | **Unearned**          | ** ** | **Exercise** | ** ** | **Option**     | ** ** | **Have Not**   | ** ** | **Have Not**   | ** ** | **Have Not**      | ** ** | **Have Not**      | ** ** |
| **Name and Principal**                                                    | ** ** | **(#)**            | ** ** | **(#)**            | ** ** | **Options**           | ** ** | **Price**    | ** ** | **Expiration** | ** ** | **Vested**          | ** ** | **Vested**          | ** ** | **Vested**             | ** ** | **Vested**             | ** ** |
| **Position**                                                                        | ** ** | **Exercisable**    | ** ** | **Unexercisable**  | ** ** | **(#)**               | ** ** | **($)**      | ** ** | **Date**       | ** ** | **(#)**             | ** ** | **($)**             | ** ** | **(#)**                | ** ** | **($)**                | ** ** |
| **Stephen Russo (1)**

President and Chief  Executive Officer                       |       | —        |       | —             |       | —                |       | —       |       | —         |       | —              |       | —              |       | 137,346           |       | (1)                    |       |
| ** **                                                                          |       |               |       |               |       |                  |       |         |       |           |       |                |       |                |       |                   |       |                   |       |
| **Mark C. McBride**

Senior Vice President,  Chief Accounting Officer and Treasurer |       | —             |       | —             |       | —                |       | —       |       | —         |       | —              |       | —              |       | 7,848        |       | (1)                    |       |
| ** **                                                                          |       |               |       |               |       |                  |       |         |       |           |       |                |       |                |       |                   |       |                   |       |
| **Michael R. Ward**

Executive Vice  President, Chief Legal Officer and Secretary   |       | —             |       | —             |       | —                |       | —       |       | —         |       | —              |       | —              |       | 100,000                |       | (1)                    |       |
| ** **                                                                          |       |               |       |               |       |                  |       |         |       |           |       |                |       |                |       |                   |       |                   |       |
| **John Lauck (2)**

President, Mrs. Fields  Division of the Company                 |       | —             |       | —             |       | —                |       | —       |       | —         |       | —              |       | —              |       | 100,000                |       | (1)                    |       |
| ** **                                                                          |       |               |       |               |       |                  |       |         |       |           |       |                |       |                |       |                   |       |                   |       |
| **Greg Berglund (3)**

President, Mrs. Fields  Gifts, Inc.                          |       | —             |       | —             |       | —                |       | —       |       | —         |       | —              |       | —              |       | 60,000                 |       | (1)                    |       |
| ** **                                                                          |       |               |       |               |       |                  |       |         |       |           |       |                |       |                |       |                   |       |                   |       |
| **Former Officer**                                                                  |       |               |       |               |       |                  |       |         |       |           |       |                |       |                |       |                   |       |                   |       |
| ** **                                                                          |       |               |       |               |       |                  |       |         |       |           |       |                |       |                |       |                   |       |                   |       |
| **Dara Dejbakhsh**

Executive Vice President and Chief Operations Officer           |       | —             |       | —             |       | —                |       | —       |       | —         |       | —              |       | —              |       | —                 |       | —                 |       |

 

----

(1) The Phantom Plan and performance units issuedthere under, including the outstanding performance units disclosed in the tableabove, are more fully described under “Long-term Compensation” elsewhere inthis Item 11.  Since a triggering eventthat results in any payment to participants in the Phantom Plan may neveroccur, the units are included here as unvested even though the units themselvescan only be forfeited in the event of termination for cause or the participantsvoluntary termination.  Additionally,since the triggering events may never occur and are currently not probableunder SFAS 123(R) and the plan is subject to termination by the Board at anytime, the Phantom Plan performance units cannot be valued until the triggeringevent occurs. 

60

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**POTENTIALPAYMENTS UPON TERMINATION OR CHANGE IN CONTROL**

The following table describes potential payments tothe Named Executive Officers at, following or in connection with anytermination, including without limitation resignation, severance, retirement ora change in control of the Company or material changes in the Named ExecutiveOfficer’s responsibilities or status at the Company.
| ** **                                                                              | ** ** | ** **                                | ** ** | **Before Change in** | ** ** | **After Change in** | ** ** | ** **      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **    |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------------|------------|---------------------|------------|-----------------|------------|------------|------------|----------------|------------|---------------|
| ** **                                                                              | ** ** | ** **                                | ** ** | **Control**          | ** ** | **Control**         | ** ** | ** **      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **    |
| ** **                                                                              | ** ** | ** **                                | ** ** | ** **           | ** ** | ** **          | ** ** | ** **      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **    |
| ** **                                                                              | ** ** | ** **                                | ** ** | **Termination**      | ** ** | **Termination**     | ** ** | ** **      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **    |
| **Name and  Principal**                                                                 | ** ** | ** **                                | ** ** | **w/o Cause or**     | ** ** | **w/o Cause or**    | ** ** | **Voluntary**   | ** ** | ** ** | ** ** | ** **     | ** ** | **Change in** |
| **Position**                                                                            | ** ** | **Benefit**                               | ** ** | **for Good Reason**  | ** ** | **for Good Reason** | ** ** | **Termination** | ** ** | **Death**  | ** ** | **Disability** | ** ** | **Control**   |
| **Stephen Russo**

President and  Chief Executive Officer                               |       | 24 months salary  and discretionary bonus |       | Yes                  |       | Yes                 |       | No              |       | No         |       | No             |       | Yes           |
| ** **                                                                              |       |                                      |       |                 |       |                |       |            |       |       |       |           |       |          |
| **Mark C. McBride (1)**

Senior Vice  President, Chief Accounting Officer and Treasurer |       | 12 months salary                          |       | —               |       | —              |       | —          |       | —     |       | —         |       | —        |
| ** **                                                                              |       |                                      |       |                 |       |                |       |            |       |       |       |           |       |          |
| **Michael R. Ward**

Executive Vice  President, Chief Legal Officer and Secretary       |       | 18 months salary  and discretionary bonus |       | Yes                  |       | Yes                 |       | No              |       | No         |       | No             |       | Yes           |
| ** **                                                                              |       |                                      |       |                 |       |                |       |            |       |       |       |           |       |          |
| **John Lauck**

President, Mrs.  Fields Division of the Company                         |       | 18 months salary                          |       | Yes                  |       | Yes                 |       | No              |       | No         |       | No             |       | Yes           |
| ** **                                                                              |       |                                      |       |                 |       |                |       |            |       |       |       |           |       |          |
| **Greg Berglund**

President, Mrs.  Fields Gifts, Inc.                                  |       | 18 months salary  and projected bonus     |       | Yes                  |       | Yes                 |       | No              |       | No         |       | No             |       | Yes           |
| ** **                                                                              |       |                                      |       |                 |       |                |       |            |       |       |       |           |       |          |
| **Former Officer**                                                                      |       |                                      |       |                 |       |                |       |            |       |       |       |           |       |          |
| ** **                                                                              |       |                                      |       |                 |       |                |       |            |       |       |       |           |       |          |
| **Dara Dejbakhsh (2)**

Executive Vice  President and Chief Operations                  |       | 207,199                                   |       | —               |       | —              |       | —          |       | —     |       | —         |       | —        |

----

(1)          Mr. McBride’s post terminationcompensation was calculated based on an agreed-upon present value of amountsdue under his 12-month severance arrangement with the Company and was paid inone lump sum in January 2007.

(2)          Paid or accrued upon Mr. Dejbakhsh’stermination effective December 1, 2006.

MFC’s Board of Directors named Stephen Russo as thePresident and CEO of MFC and its subsidiaries effective May 15, 2003.  Mr. Russo currently receives a basesalary of $445,000 under his amended and restated employment agreement datedeffective as of March 16, 2004.  Hisemployment agreement provides for a period of employment of three years fromthe date of the agreement, subject to termination provisions and to automaticextension of the agreement.  Theemployment agreement permits Mr. Russo to participate in any incentivecompensation plan adopted by the Company, in its benefit plans and in an equity-basedplan or arrangement.  If the Companyterminates employment for cause or if Mr. Russo terminates employmentwithout good reason, the Company has no further obligation to pay him.  If the Company terminates his employmentwithout cause or he terminates employment with good reason, Mr. Russo canreceive severance pay of 24 months of his then-current salary, plus aportion of any discretionary bonus that would otherwise have been payable.  The severance would be paid in 12 equal monthlyinstallments.  The employment agreementprohibits Mr. Russo, for a year from the date of termination of employmentunder the agreement, from becoming an employee, owner, officer, agent ordirector of a firm or person that directly competes with the Company in a lineor lines of business of the Company that accounts for 10.0 percent or moreof the Company’s gross sales, revenues or earnings before taxes.  An exception is made for investments of notmore than 3.0 percent of the equity of a company listed or traded on anational securities exchange or an over-the-counter market.  The employment agreement has customaryprovisions for vacation, fringe benefits, payment of expenses and automobileallowances.

61

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The Company also has an amended and restatedemployment agreement dated effective as of March 16, 2004 with Michael R. Ward,Executive Vice President, Chief Legal Officer and Secretary.  Mr. Ward’s current base salary is$310,000.  Mr. Ward’s employmentagreement provides for a period of employment of two years from the date of theagreement, subject to termination provisions and to automatic extension of theagreement.  The employment agreementpermits the employee to participate in any incentive compensation plan adoptedby the Company, in its benefit plans and in an equity-based plan orarrangement.  If the Company terminatesemployment for cause or if the employee terminates employment without goodreason, the Company has no further obligation to pay the employee.  If the Company terminates the employee’semployment without cause or the employee terminates employment with goodreason, the employee can receive severance pay of 18 months of histhen-current salary, plus a portion of any discretionary bonus that wouldotherwise have been payable.  The severancewould be paid in 12 equal monthly installments. The employment agreement prohibits the employee, for a year from thedate of termination of employment under the agreement, from becoming anemployee, owner, officer, agent or director of a firm or person that directlycompetes with the Company in a line or lines of business of the Company thataccounts for 10.0 percent or more of the Company’s gross sales, revenuesor earnings before taxes.  An exceptionis made for investments of not more than 3.0 percent of the equity of acompany listed or traded on a national securities exchange or anover-the-counter securities exchange. The employment agreement has customary provisions for vacation, fringebenefits, payment of expenses and automobile allowances.

The Named Executive Officers other than Messrs. Russoand Ward do not have employment agreements with the Company, but the Companyhas agreed to grant them certain severance payments, as described in the table,if their employment is terminated without cause.

**Compensation of Managers**

The Board of Managers of the Company meets regularlyon a quarterly basis and more often as required.  Board members, other than officers of theCompany, are compensated for services rendered annually in the form of apayment of $15,000 in cash and the grant of options to purchase common stock ofMFC under MFC’s Director Stock Option Plan, as more fully described immediatelybelow.  Members of the Audit Committeeand Compensation Committee of the Board of Managers of the Company also receivethe following compensation for their service on such committees: (a) thechairperson of each committee receives an annual cash retainer fee of $5,000;and (b) each member who does not serve as chair receives a cash fee of $750 foreach committee meeting that they attend.

**Director Stock 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 vest25.0 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 1, 2007 there were outstanding options providing for the issuance of upto 60,672 of those shares.  During fiscal2006, the non-executive Managers received 11,930 stock option grants.  Common stock of MFC issued under the DirectorStock Option Plan is subject to customary restrictions on transfer.

Changes to MFC’s Director Stock Option Plan currentlyare under consideration by the Compensation Committee and the Board ofDirectors of MFC. As of the date of this report, such changes have not beendetermined.

62

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**DIRECTOR/MANAGERCOMPENSATION**

The following table describes the compensationreceived by each of the non-executive Managers of the Company for serviceprovided for the Company’s last completed fiscal year.  

|                                  | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** | ** **              | ** ** | **Change in** | ** ** | ** **         | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------------|------------|------------|------------|------------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|------------|------------|
| ** **                       | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** | ** **              | ** ** | **Pension**        | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** | ** **              | ** ** | **Value and** | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Fees**         | ** ** | ** ** | ** ** | ** **       | ** ** | ** **              | ** ** | **Nonqualified**   | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Earned**       | ** ** | ** ** | ** ** | **(4) (5)** | ** ** | **Non-Equity**          | ** ** | **Deferred**       | ** ** | **All Other** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **or Paid** | ** ** | **Stock**  | ** ** | **Option**       | ** ** | **Incentive Plan** | ** ** | **Compensation**   | ** ** | **Compen-**        | ** ** | ** ** | ** ** |
| **Name and Principal** | ** ** | **in Cash** | ** ** | **Awards** | ** ** | **Awards**       | ** ** | **Compensation**        | ** ** | **Earnings**       | ** ** | **sation **   | ** ** | **Total**  | ** ** |
| **Position**                     | ** ** | **($)**          | ** ** | **($)**    | ** ** | **($)**          | ** ** | **($)**                 | ** ** | **($)**            | ** ** | **($)**            | ** ** | **($)**    | ** ** |
|                             |       |             |       |       |       |             |       |                    |       |               |       |               |       |       |       |
| Capricorn II (1)                 |       | 18,330           |       | —     |       | 13,151           |       | —                  |       | —             |       | —             |       | 31,481     |       |
| Capricorn III (1)                |       | 11,670           |       | —     |       | 8,371            |       | —                  |       | —             |       | —             |       | 20,041     |       |
| Jon M. Biotti (2)                |       | —           |       | —     |       | —           |       | —                  |       | —             |       | —             |       | —     |       |
| Alexander Coleman                |       | 15,000           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 25,761     |       |
| John D. Collins                  |       | 18,000           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 28,761     |       |
| George N. Fugelsang              |       | 20,000           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 30,761     |       |
| Peter W. Mullin                  |       | 15,000           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 25,761     |       |
| Don Rice (2)                     |       | —           |       | —     |       | —           |       | —                  |       | —             |       | —             |       | —     |       |
| John D. Shafer                   |       | 15,750           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 26,511     |       |
| Christopher Wright               |       | 18,000           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 28,761     |       |
|                             |       |             |       |       |       |             |       |                    |       |               |       |               |       |       |       |
| **Former Managers (3):**         |       |             |       |       |       |             |       |                    |       |               |       |               |       |       |       |
| Richard M. Ferry                 |       | 16,250           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 27,011     |       |
| Walker Lewis                     |       | 12,000           |       | —     |       | 10,761           |       | —                  |       | —             |       | —             |       | 22,761     |       |

 

----

(1)          The board fees payableand options granted to Herbert S. Winokur, Jr. as Chairman of the Board of MFCare paid and issued to Capricorn II and Capricorn III.

(2)          Messrs. Biotti and Ricejoined the Board in December 2006 and did not receive compensation during theyear ended December 30, 2006.

(3)          Messrs. Ferry and Lewisresigned from the Board effective December 1, 2006.

(4)          On May 15, 2006, each ofthe non-executive Managers of the Company received a grant of options topurchase 1,193 shares of common stock of MFC under MFC’s Director Stock OptionPlan.  Capricorn II and Capricorn IIIreceived grants totaling options to purchase 2,386 shares of common stock ofMFC that were issuable to Herbert S. Winokur, Jr.  Total options granted under the plan to eachactive director or director designee as of December 30, 2006 are: 8,182 for Mr.Mullin; 4,517 for Mr. Wright; 2,841 for each of Messrs. Coleman and Fugelsang;2,234 for Mr. Collins; 2,061 for Mr. Shafer; 12,889 for Capricorn II; and 3,475for Capricorn III.

(5)          The fair value of theoptions granted was $9.02 per share based on a Black Scholes pricing model. Thenumber of options granted was determined based upon an option exercise price of$12.58 per share, which is management’s internal valuation of MFC’s commonstock at the time of grant.

# **CompensationCommittee Interlocks and Insider Participation in Compensation Decisions**

As of December 30, 2006, the Compensation Committee ofthe Board of Managers of the Company and the Board of Directors of MFH and MFC,was comprised of George Fugelsang, Chairperson, Peter Mullin and John D.Shafer.  No disclosures concerning anymember of the Compensation Committee is required to be included in this report.

**Compensation Committee Report**

The undersigned members of the Compensation Committeeof the Board of Managers of the Company has reviewed and discussed theCompensation Discussion and Analysis appearing in this Form 10-K withmanagement, and based upon such review and discussion, the CompensationCommittee recommended to the Board of Managers of the Company that theCompensation Discussion and Analysis be included in this annual report.
| /s/ George N. Fugelsang |   |   |
|-------------------------|--------|--------|
|                    |   |   |
| /s/ Peter W. Mullin     |   |   |
|                    |   |   |
| /s/ John D. Shafer      |   |   |

 

63

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# **Item 12. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters**

As of the date of this report, all of our commoninterests are owned by MFOC, which is wholly owned, through MFH, by MFC.  There is no established public trading marketfor our common interests.  The address ofMFOC, MFH, MFC and the executive officers and managers of the Company is 2855East Cottonwood Parkway, Suite 400, Salt Lake City, UT 84121-1050.  The following table sets forth certaininformation, based on actual ownership as of March 1, 2007, believed by us tobe accurate based on information provided to us concerning the beneficialownership of capital stock of MFC by each stockholder who is known by us to ownbeneficially in excess of five percent of the outstanding voting stock and byeach manager, the Named Executive Officers and all executive officers andmanagers as a group.  The stockholderslisted below are deemed beneficial owners of the common interests of the Companyas a result of their ownership of capital stock of MFC.  Except as otherwise indicated, all personslisted below have (1) sole voting power and investment power with respectto their shares, except to the extent that authority is shared by spouses underapplicable law and (2) record and beneficial ownership with respect totheir shares.  The shares and percentagesdescribed below include shares of common stock which were outstanding orissuable within 60 days upon the exercise of options outstanding as ofMarch 1, 2007 and give effect to the exercise of warrants issued by MFC. See “ExecutiveCompensation” and “Compensation of Managers.”

As of March 1, 2007, there were 39 record holders ofMFC’s common stock. 
| ** **                                          | ** ** | **Common Stock **** | ** ** | **16.5 %Preferred Stock ***** | ** ** | **24 %Preferred Stock ***** | ** ** | ** **        | ** ** |
|-----------------------------------------------------|------------|-------------------------------|------------|-----------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|
| ** **                                          | ** ** | ** **                    | ** ** | ** **                              | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | **Aggregate** | ** ** |
| ** **                                          | ** ** | **Number**                    | ** ** | **Percentage**                          | ** ** | **Number**                                 | ** ** | **Percentage**    | ** ** | **Number** | ** ** | **Percentage** | ** ** | **Voting** | ** ** |
| **Name of Beneficial Owner**         | ** ** | **of Shares**            | ** ** | **of Class**                       | ** ** | **of Shares**                         | ** ** | **of Class** | ** ** | **of Shares** | ** ** | **of Class** | ** ** | **Power** | ** ** |
| Capricorn Investors II,  L.P.(1)(8)                 |       | 3,239,854                     |       | 50.67                                   | %          | —                                     |       | —            |       | — |   | — |   | 49.90 | % |
| Capricon Investors III,  L.P.(1)(8)                 |       | 2,088,347                     |       | 32.66                                   | %          | —                                     |       | —            |       | 5,000 |   | 100 | % | 32.55 | % |
| Annex Holdings I  LP-Delaware(2)                    |       | 355,242                       |       | 5.56                                    | %          | 4,995                                      |       | 33.93             | %          | — |   | — |   | 5.86 | % |
| Charlesbank Equity Fund  II LP(3)                   |       | 164,774                       |       | 2.58                                    | %          | 5,000                                      |       | 33.96             | %          | — |   | — |   | 2.92 | % |
| Affilates of Stewart  Resnick(4)                    |       | 164,912                       |       | 2.58                                    | %          | 1,000                                      |       | 6.79              | %          | — |   | — |   | 2.62 | % |
| Jon M. Biotti (5)                                   |       | —                        |       | —                                  |       | —                                     |       | —            |       | — |   | — |   | — |   |
| Alexander Coleman(5)(6)                             |       | 564                           |       | *                                       |       | —                                     |       | —            |       | — |   | — |   | * |   |
| John D. Collins(5)(6)                               |       | 260                           |       | —                                  |       | 25                                         |       | *                 |       | — |   | — |   | * |   |
| George N. Fugelsang(5)(6)                           |       | 564                           |       | *                                       |       | —                                     |       | —            |       | — |   | — |   | * |   |
| Peter W.  Mullin(5)(6)(7)                           |       | 20,513                        |       | *                                       |       | 163                                        |       | 1.00              | %          | — |   | — |   | * |   |
| Don Rice(5)                                         |       | —                        |       | —                                  |       | —                                     |       | —            |       | — |   | — |   | — |   |
| John D. Shafer(5)(6)                                |       | 217                           |       | —                                  |       | —                                     |       | —            |       | — |   | — |   | * |   |
| Christopher  Wright(5)(6)                           |       | 1,850                         |       | *                                       |       | —                                     |       | —            |       | — |   | — |   | * |   |
| Herbert Winokur,  Jr.(5)(7)(8)                      |       | 6,729                         |       | *                                       |       | 949                                        |       | 6.45              | %          | — |   | — |   | * |   |
| Stephen Russo(5)                                    |       | 152                           |       | *                                       |       | 45                                         |       | *                 |       | — |   | — |   | * |   |
| Mark McBride                                        |       | —                        |       | —                                  |       | —                                     |       | —            |       | — |   | — |   | — |   |
| Michael Ward                                        |       | 451                           |       | *                                       |       | 60                                         |       | *                 |       | — |   | — |   | * |   |
| John Lauck                                          |       | 152                           |       | *                                       |       | 20                                         |       | *                 |       | — |   | — |   | * |   |
| Greg Berglund                                       |       | —                        |       | —                                  |       | —                                     |       | —            |       | — |   | — |   | — |   |
| Dara Dejbakhsh (9)                                  |       | 152                           |       | *                                       |       | 20                                         |       | *                 |       | — |   | — |   | * |   |
| All executive officers  and directors as a group(6) |       | 33,123                        |       | *                                       |       | 1,283                                      |       | 8.71              | %          | — |   | — |   | * |   |

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*                                         Lessthan 1%.

**                                  Commonstock, par value $0.001 per share, of MFC.

***                           16.5%cumulative preferred stock, par value $0.001 per share, of MFC.

****                    24% cumulativejunior preferred stock, par value $0.001 per share, of MFC.

(1)                                  Theaddress of Capricorn is 30 East Elm Street, Greenwich, CT 06830.

(2)                                  Theaddress of Annex Holdings I LP-Delaware is c/o Annex Capital Management LLC, 599 Lexington Avenue, New York, NY 10022.

(3)                                  Theaddress of Charlesbank Equity Fund II LP is c/o Charlesbank Capital Partners,LLC, 600 Atlantic Ave., 26th Floor, Boston, MA 02210 2203.

(4)                                  StewartResnick holds 7,485 common shares and 1,000 preferred shares individually;157,427 common shares are held by the Stewart and Lynda Resnick RevocableTrust. The address of both Mr. Resnick and the Trust is 11444 W. OlympicBlvd., 10th Floor, Los Angeles, CA 90064.

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(5)                                  Mr. Russo,Mr. Biotti, Mr. Coleman, Mr. Collins, Mr. Fugelsang, Mr. Mullin,Mr. Rice, Mr. Shafer and Mr. Wright are directors of MFC and Managers ofthe Company.  Mr. Winokur ismanaging member of Capricorn Holdings, LLC, the General Partner of CapricornII, and Capricorn Holdings III, LLC, the General Partner of Capricorn III, andis a director of MFC. See “Management.”

(6)                                  Thecommon share amounts and percentages include common shares subject to optionsgranted to Managers of the Company that are currently exercisable or will beexercisable on or before May 1, 2007, as follows:  Mr. Coleman, 564 shares; Mr. Collins,260 shares; Mr. Fugelsang, 564 shares; Mr. Mullin,5,515 shares; Mr.Shafer, 217 shares; Mr. Wright, 1,850 shares; and all executive officersand directors as a group, 8,969 shares.

(7)                                  Includescommon and preferred shares held by Mr. Mullin and Mr. Winokur inindividual retirement accounts, family trusts or family charitable foundations.

(8)                                  Optionsgranted to Mr. Winokur under MFC’s Director Stock Option Plan are issued toCapricorn II and Capricorn III. Capricorn II has 9,630 options and Capricorn III has 1,401 options forshares currently exercisable or exercisable on or before May 1, 2007.

(9)                                  Mr.Dejbakhsh is included as a Named Executive Officer by virtue of his formeremployment.  The Company accepted Mr.Dejbakhsh’s resignation effective December 1, 2006.

# **Item 13. Certain Relationships and Related Transactions**

**The Stockholders’ Agreement**

MFC has entered into a stockholders’ agreement, as ofSeptember 29, 2001, with its stockholders. The stockholders’ agreement provides that stockholders may not transfertheir shares of MFC, except to certain permitted transferees.  If at any time after seven years from thedate of the stockholders’ agreement any stockholder other than Capricorn II orCapricorn III receives an offer to purchase shares of common stock, thatstockholder must first offer the shares to MFC and other stockholders at thesame price and on substantially the same terms. MFC has a right of first refusal with respect to such shares, with thestockholders having the right, if MFC does not buy all of the shares, topurchase such shares on a pro rata basis.

If both Capricorn II and Capricorn III approve a saleor exchange of at least a majority of the outstanding common stock to a thirdparty that is not an affiliate of either Capricorn II or Capricorn III, theneither Capricorn entity has the right to require the other stockholders to(i) if the sale is structured as a sale of stock, sell all of suchstockholders’ shares of common stock; or (ii) if the sale is structured asa merger requiring the consent of stockholders, vote such stockholders’ sharesin favor of the sale.  The stockholders’agreement also gives certain rights to certain stockholders upon an initialpublic offering consummated by MFC and includes other provisions as set forthin the stockholders agreement.

**Control by Capricorn**

Capricorn II and Capricorn III, MFC’s majoritystockholders, together hold an aggregate of approximately 83 percent ofMFC’s common stock. In addition to Capricorn’s rights under the stockholders’agreement described above, Capricorn also has corporate law rights stemmingfrom its majority ownership of MFC.  As aresult of its direct control of MFC and indirect control of MFH and MFOC,Capricorn II and Capricorn III together control the power to elect ourmanagers, to appoint members of management and to approve all actions requiringthe approval of the holders of our common interests, including adoptingamendments to our certificate of formation and limited liability companyoperating agreement as well as approving mergers, acquisitions or sales of allor substantially all of our assets. In addition, Capricorn currently has onemanaging director, Herbert S. Winokur, Jr., serving as a director of MFC.Christopher Wright, one of our managers, also serves on an advisory board ofCapricorn III.

**Management Agreement**

On March 16, 2004, we entered into a managementagreement with MFOC, pursuant to which we provide business and organizationalstrategy, financial and investment management and other executive-levelmanagement services to MFOC and its subsidiaries (other than us) upon the termsand subject to the conditions set forth in the management agreement.  As compensation for these services, MFOCreimburses us on a monthly basis the allocated costs of the fixed general andadministrative functions plus the variable general and administrative functionsdedicated to the provision of these services as determined in good faith by usand MFOC.  These reimbursement amountsare intended to reflect the actual costs of providing these services and arenot intended to generate revenues for us. We expect that the reimbursement amounts will decrease over time as MFOCreduces its store operations.

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The management agreement also provides that anyamounts received by a party to the management agreement that, pursuant to itsterms, is the property of the other party, promptly shall be remitted to suchother party.  It is intended that thismanagement agreement will continue in effect until the expiration of all storeleases for which MFOC is the lessee.  Forthe year ended December 30, 2006, MFOC reimbursed us $512,000 for managementservices provided under the management agreement.

**Franchise Agreements with MFOC**

On March 16, 2004, certain of our brand franchisorsubsidiaries entered into franchise agreements with MFOC, which permit MFOC tosell and distribute our products in its owned stores upon payment of franchiseroyalties and other amounts required under the franchise agreements.  These franchise agreements are similar to ourstandard form of franchise agreement, except that we did not charge an up-frontfranchising fee for stores open as of the date of the franchise agreements in recognitionof the fact that the stores owned and operated by MFOC were operated prior togiving effect to the reorganization.

These franchise agreements are terminable by us in theevent of non-payment of the franchise fees for a period of 10 days,followed by a 10-day opportunity to cure, or other material violation of thefranchise agreements.  The aggregateamount of franchise royalties paid to us by MFOC during fiscal 2006 was$120,000.  As of the date of this report,MFOC operates an immaterial number of stores under these franchise agreements.

**MFOC Sublease**

On March 16, 2004, we entered into an assignmentagreement whereby the lease for the corporate headquarters was assigned fromMFOC to us.  MFOC then entered into asublease with us and will pay us, over the term of the sublease, agreed rentalpayments that have been established based on estimated usage of theheadquarters by their personnel.  For theyear ended December 30, 2006, MFOC paid rent of $93,000 to us.  During fiscal 2007, no rental payments willbe received from MFOC under this agreement.

**MFOC Collection Agency Agreement**

On March 16, 2004, we and MFOC entered into acollection agency agreement under which we agreed to act as MFOC’s collectionagent for subtenant rental payments made by our franchisees who operate storespreviously owned by MFOC on which MFOC remains as the tenant.  We do not charge MFOC separately for thisservice, but certain costs associated with our performance of this agreementmay be allocated to MFOC pursuant to our management agreement with MFOC.

**Insurance Allocation Agreement**

On March 16, 2004, we entered into an insuranceallocation agreement under which we agreed to make certain payments to MFC inrespect of our share of certain insurance costs, allocated based on ourestimation of the appropriate risk of loss of each of MFC’s subsidiaries.  The insurance allocation agreement alsoprovides for the allocation of workers’ compensation costs based on therespective employee payroll and employment category risk factor of each of MFC’ssubsidiaries that generate payroll.  Forthe year ended December 30, 2006, we paid MFC $1.1 million for our share ofinsurance costs. Cash payments made by us to MFC under the insurance allocationagreement are permitted under the Indenture and do not decrease the dividendsor payments that may be made to our parent entities under the Indenture’savailable baskets.

**Benefits Agreement**

On March 16, 2004, we entered into a benefitsagreement with MFOC under which we agreed to make certain payments to MFOC inrespect of our share of employee benefits costs based on the number of ouremployees.  Costs associated with ouremployees providing services to MFOC under the management agreement will beallocated consistent with shared expenses under the management agreement.  For the year ended December 30, 2006, we paidMFOC $3.3 million for our share of employee benefit costs. Cash payments madeby us to MFOC under the benefits agreement are permitted under the Indentureand do not decrease the dividends or payments that may be made to our parententities under the Indenture’s available baskets.

66

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**Tax Allocation Agreement**

On March 16, 2004 we entered into a tax allocationagreement with MFC pursuant to which we agreed to make payments to MFC, aftertaking into account payments we make directly to tax authorities, based on ourhypothetical stand-alone consolidated federal income tax liability, determinedas if we and our subsidiaries constituted our own consolidated group forfederal income tax purposes.  We are not permittedto make payments under the tax allocation agreement in respect of our hypotheticalconsolidated federal taxable income, to the extent that such payments exceedthe consolidated federal income taxes (including estimated taxes) payable inrespect of MFC’s consolidated federal income tax group, until and only whileour ratio of Net Indebtedness to Consolidated EBITDA (each as defined in theindenture governing the Senior Secured Notes) is less than 3.75:1.0 and we areotherwise in compliance with the terms of the indenture governing the SeniorSecured Notes.  Instead, we will accruethese amounts otherwise payable to MFC as a liability to MFC until we meetthese conditions.  As of December 30,2006, our ratio of Net Indebtedness to Consolidated EBITDA was 11.07:1.0*.  *During fiscal 2006, we recorded a $2.4 millionnoncash distribution to MFC under this tax allocation agreement.

# **Managers’and Officers’ Indemnification**

The Company’s limited liability agreement includescustomary provisions providing for indemnification of our managers and officersin the performance of their duties to the fullest extent permitted by law.

# **Item 14. Principal Accounting Fees and Services**

KPMG LLP served as our independent registered publicaccounting firm for the fiscal years ended December 30, 2006 and December 31,2005.  During the fiscal years endedDecember 30, 2006 and December 31, 2005, fees for services provided by KPMG LLPwere as follows (in thousands):

 

|                     | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|---------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **          | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Audit fees          |       | $                     | 360        |                  | $          | 210 |   |
| Audit-related  fees |       | 25                    |       | —                |       |
| Tax fees            |       | 136                   |       | 63                    |       |
| All other fees      |       | 178                   |       | —                |       |
| Total               |       | $                     | 699        |                  | $          | 273 |   |

 

The aggregate fees included in the audit fees categoryare fees for the respective fiscal years for the audit of our annualconsolidated financial statements and review of consolidated financialstatements and statutory and regulatory filings or engagements.  The aggregate fees for each of the othercategories are fees billed in the respective fiscal years.

**Audit Fees**

Audit fees consist of fees billed for professionalservices rendered in connection with the audit of our consolidated financialstatements included in our Annual Report on Form 10-K and for the review of ourconsolidated financial statements included in our Quarterly Reports on Form10-Q.

**Audit Related Fees**

Audit related fees consistof fees billed for professional services rendered in connection with ourcorrespondence in January 2006 with the SEC in response to their comments to usas a result of their review of our Form 10-K for fiscal 2004 filed on March 22,2005.

**Tax Fees**

Tax fees consist of fees billed for professionalservices rendered in connection with the review of tax returns,  tax compliance and tax planning.

**All Other Fees**

All other fees consist of fees billed for auditservices rendered in connection with a proposal to refinance a portion of ourexisting debt.

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**Audit Committee Pre-Approval Policiesand Procedures**

The Audit Committee pre-approves the services providedto us by KPMG LLP in connection with the audit of our annual consolidatedfinancial statements, the review of our quarterly condensed consolidatedfinancial statements and tax review and planning services. If managementproposes to engage KPMG LLP for other audit or permitted non-audit services,the Audit Committee pre-approves these services on a case-by-case basis. TheAudit Committee approved all the services provided to us by KPMG LLP describedabove.

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**PART IV**

# **Item 15. Exhibits and Financial Statement Schedules**

(a) Document List

1.  FinancialStatements

The following consolidated financialstatements of Mrs. Fields Famous Brands, LLC are included in Part II, Item 8:

** **
|   |                                                                                | Page   |   |
|--------|--------------------------------------------------------------------------------|--------|--------|
|   | Report of Independent Registered Public Accounting  Firm                       | F-2    |   |
|   | Consolidated Balance Sheets as of December 30, 2006  and December 31, 2005     | F-3    |   |
|   | Consolidated Statements of Operations and  Comprehensive Income (Loss) for the |   |   |
|   | years ended  December 30, 2006, December 31, 2005 and January 1, 2005          | F-4    |   |
|   | Consolidated Statements of Member’s Deficit for the  years ended          |   |   |
|   | December 30,  2006, December 31, 2005 and January 1, 2005                      | F-5    |   |
|   | Consolidated Statements of Cash Flows for the years  ended December 30, 2006,  |   |   |
|   | December 31,  2005 and January 1, 2005                                         | F-6    |   |
|   | Notes to the Consolidated Financial Statements                                 | F-8    |   |
|        |                                                                                |        |        |  |

 

2. Financial Statement Schedules
|  | Schedule II Valuation and  Qualifying Accounts | S-1 |   |
|--|------------------------------------------------|-----|--------|

 

All other schedules for whichprovision is made in the applicable accounting requirements of the Securitiesand Exchange Commission are not required or the required information has beenincluded within the consolidated financial statements or the notes thereto.

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| (b) |   |   | Exhibits |
|-----|--------|--------|----------|

 
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                  |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                             |
| 3.1*        |       | Certificate of  Formation of Mrs. Fields Famous Brands, LLC                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                             |
| 3.2*        |       | Limited Liability  Agreement of Mrs. Fields Famous Brands, LLC, dated as of February 4, 2004, by  Mrs. Fields’ Original Cookies, Inc.                                                                                       |
|        |       |                                                                                                                                                                                                                             |
| 3.3*        |       | Certificate of  Incorporation of Mrs. Fields Financing Company, Inc.                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                             |
| 3.4*        |       | Bylaws of Mrs. Fields  Financing Company, Inc.                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                             |
| 3.5*        |       | Certificate of  Formation of Great American Cookies Company Franchising, LLC                                                                                                                                                     |
|        |       |                                                                                                                                                                                                                             |
| 3.6*        |       | Limited Liability  Agreement of Great American Cookies Company Franchising, LLC, dated as of  February 4, 2004, by Mrs. Fields Famous Brands, LLC                                                                                |
|        |       |                                                                                                                                                                                                                             |
| 3.7*        |       | Certificate of  Formation of Great American Manufacturing, LLC                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                             |
| 3.8*        |       | Limited Liability  Agreement of Great American Manufacturing, LLC, dated as of February 4,  2004, by Mrs. Fields Famous Brands, LLC                                                                                         |
|        |       |                                                                                                                                                                                                                             |
| 3.9*        |       | Articles of  Incorporation of Mrs. Fields Cookies Australia                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                             |
| 3.10*       |       | Bylaws of Mrs. Fields  Cookies Australia                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                             |
| 3.11*       |       | Certificate of  Formation of Mrs. Fields Franchising, LLC                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                             |
| 3.12*       |       | Limited Liability  Agreement of Mrs. Fields Franchising, LLC, dated as of February 4, 2004, by  Mrs. Fields Famous Brands, LLC                                                                                                   |
|        |       |                                                                                                                                                                                                                             |
| 3.13*       |       | Articles of  Incorporation of Mrs. Fields Gifts, Inc.                                                                                                                                                                            |
|        |       |                                                                                                                                                                                                                             |
| 3.14*       |       | Bylaws of Mrs. Fields  Gifts, Inc.                                                                                                                                                                                               |
|        |       |                                                                                                                                                                                                                             |
| 3.15*       |       | Certificate of  Formation of Pretzelmaker Franchising, LLC                                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                             |
| 3.16*       |       | Limited Liability  Agreement of Pretzelmaker Franchising, LLC, dated as of February 4, 2004, by  Mrs. Fields Famous Brands, LLC                                                                                                  |
|        |       |                                                                                                                                                                                                                             |
| 3.17*       |       | Certificate of  Formation of Pretzel Time Franchising, LLC                                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                             |
| 3.18*       |       | Limited Liability  Agreement of Pretzel Time Franchising, LLC, dated as of February 4, 2004, by  Mrs. Fields Famous Brands, LLC                                                                                                  |
|        |       |                                                                                                                                                                                                                             |
| 3.19*       |       | Certificate of  Incorporation of The Mrs. Fields’ Brand, Inc.                                                                                                                                                               |
|        |       |                                                                                                                                                                                                                             |
| 3.20*       |       | Bylaws of The Mrs.  Fields’ Brand, Inc.                                                                                                                                                                                     |
|        |       |                                                                                                                                                                                                                             |
| 3.21*       |       | Articles of  Incorporation of TCBY International, Inc. (f/k/a TCBY Preparation, Inc.)                                                                                                                                            |
|        |       |                                                                                                                                                                                                                             |
| 3.22*       |       | Articles of Amendment  to Articles of Incorporation of TCBY International, Inc. (f/k/a TCBY  Preparation, Inc.) changing name to TCBY International, Inc.                                                                        |
|        |       |                                                                                                                                                                                                                             |
| 3.23*       |       | Bylaws of TCBY  International, Inc. (f/k/a TCBY Preparation, Inc.)                                                                                                                                                               |
|        |       |                                                                                                                                                                                                                             |
| 3.24*       |       | Articles of  Incorporation of TCBY of Texas, Inc.                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                             |
| 3.25*       |       | Amended and Restated  Bylaws of TCBY of Texas, Inc.                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                             |
| 3.26*       |       | Certificate of  Formation of TCBY Systems, LLC                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                             |
| 3.27*       |       | Amended and Restated  Limited Liability Agreement of TCBY Systems, LLC, dated as of March 16, 2004,  by Mrs. Fields Famous Brands, LLC                                                                                           |
|        |       |                                                                                                                                                                                                                             |
| 4.1*        |       | Purchase Agreement,  dated March 9, 2004, by and among Mrs. Fields Famous Brands, LLC, Mrs. Fields  Financing Company, Inc., Jefferies & Company, Inc. as the Initial  Purchaser and the subsidiary guarantors named therein |
|             |            |                                                                                                                                                                                                                                  |  |

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| 4.2*   |   | Indenture, dated as of March 16, 2004, by and among Mrs. Fields Famous  Brands, LLC, Mrs. Fields Financing Company, Inc., the Guarantors identified  therein and The Bank of New York, as Trustee                                                                                                                                                                                                                          |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.3*   |   | Form of 111¤2% Senior Secured Notes due 2011 (included in  Exhibit 4.2)                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.4*   |   | Form of 9% Senior Secured Notes due 2011 (included in Exhibit 4.2)                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.5*   |   | Form of Subsidiary Guarantees related to the 111¤2% Senior Secured Notes due 2011 (included in  Exhibit 4.2)                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.6*   |   | Form of Subsidiary Guarantees related to the 9% Senior Secured Notes  due 2011 (included in Exhibit 4.2)                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.7*   |   | Registration Rights Agreement, dated March 16, 2004, by and among Mrs.  Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc, the Subsidiary  Guarantors named therein and Jefferies & Company, Inc., as Initial  Purchaser related to the 111¤2% Senior Secured Notes due 2011                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.8*   |   | 9% Notes Registration Rights Agreement, dated March 16, 2004, by and  among Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc.,  the Subsidiary Guarantors named therein and the holders of the 9% Senior  Secured Notes due 2011 related to the 9% Senior Secured Notes due 2011                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.9*   |   | Pledge Agreement, dated March 16, 2004, by and among Mrs. Fields  Famous Brands, LLC, TCBY Systems, LLC and The Bank of New York, as Trustee                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.10*  |   | Security Agreement, dated March 16, 2004, by and among Mrs. Fields  Famous Brands, LLC, Mrs. Fields Financing Company, Inc., the Subsidiary  Guarantors named therein and The Bank of New York, as Trustee                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.11*  |   | Trademark Security Agreement, dated March 16, 2004, by and among Great  American Cookies Company Franchising, LLC, Pretzelmaker Franchising, LLC,  Pretzel Time Franchising, LLC, TCBY Systems, LLC, The Mrs. Fields’ Brand,  Inc. and The Bank of New York, as Trustee                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.12*  |   | Account Control Agreement, dated as of March 16, 2004, by and among  LaSalle Bank, National Association, Mrs. Fields Famous Brands, LLC and The  Bank of New York, as Trustee                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.13*  |   | Restricted Account Agreement, dated as of March 16, 2004, by and among  Wells Fargo Bank, N.A., Mrs. Fields Famous Brands, LLC and The Bank of New  York, as Trustee                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.14*  |   | Restricted Account Agreement, dated as of March 16, 2004, by and among  Wells Fargo Bank, N.A., TCBY Systems, LLC and The Bank of New York, as  Trustee                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.15*  |   | Deed to Secure Debt, Security Agreement and Assignment of Leases and  Rents, dated as of March , 2004, by and between Great American Manufacturing,  LLC and The Bank of New York, as Trustee                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.16   |   | First Supplemental Indenture, dated as of February 9, 2005, by and  among Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc.,  the Guarantors (as defined in the Indenture) and The Bank of New York, as  Trustee, included as Exhibit 4.1 to the Company’s Current Report on Form 8-K  filed with the Securities and Exchange Commission on February 11, 2005 and  incorporated herein by reference |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.1*  |   | Contribution Agreement between TCBY Enterprises, Inc. and TCBY  Systems, LLC dated as of March 16, 2004                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.2*  |   | Contribution Agreement, dated as of March 16, 2004, by and among  Mrs. Fields’ Original Cookies, Inc., the subsidiaries of  Mrs. Fields’ Original Cookies, Inc. named therein, Mrs. Fields  Famous Brands, LLC and the subsidiaries of Mrs. Fields Famous Brands,  LLC named therein                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.3** |   | United States Trademark Assignment, dated March 16, 2004, between Mrs.  Fields’ Original Cookies, Inc. and The Mrs. Fields’ Brand, Inc.                                                                                                                                                                                                                                                                          |

 

 

71

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| 10.4**  |   | International Trademark Assignment, dated March 16, 2004, between Mrs.  Fields’ Original Cookies, Inc. and The Mrs. Fields’ Brand, Inc.                                                                                                                                          |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.5*   |   | United States Trademark Assignment, dated March 16, 2004, between  Great American Cookies Company, LLC and Great American Cookies Company  Franchising, LLC                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.6*   |   | International Trademark Assignment, dated March 16, 2004, between  Great American Cookies Company, LLC and Great American Cookies Company  Franchising, LLC                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.7*   |   | United States Trademark Assignment, dated March 16, 2004, between  Pretzel Time, LLC, and Pretzel Time Franchising, LLC                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.8*   |   | International Trademark Assignment, dated March 16, 2004, between  Pretzel Time, LLC and Pretzel Time Franchising, LLC                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.9*   |   | United States Trademark Assignment, dated March 16, 2004, between  Pretzelmaker, LLC and Pretzelmaker Franchising, LLC                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.10*  |   | International Trademark Assignment, dated March 16, 2004, between  Pretzelmaker, LLC and Pretzelmaker Franchising, LLC                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.11** |   | United States Trademark Assignment, dated March 16, 2004, between TCBY  Enterprises, Inc. and TCBY Systems, LLC                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.12** |   | International Trademark Assignment, dated March 16, 2004, between TCBY  Enterprises, Inc. and TCBY Systems, LLC                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.13*  |   | Severance Assumption Agreement, dated as of March 16, 2004, by and  among Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC,  Larry A. Hodges and Mrs. Fields’ Companies, Inc.                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.14*  |   | Management Agreement, dated as of March 16, 2004, by and between Mrs.  Fields Famous Brands, LLC and Mrs. Fields’ Original Cookies, Inc.                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.15*  |   | Tax Allocation Agreement, dated as of March 16, 2004, by and among  Mrs. Fields’ Companies, Inc., Mrs. Fields Famous Brands, LLC and the  subsidiaries of Mrs. Fields Famous Brands, LLC named therein                                                                                |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.16*  |   | Insurance Allocation Agreement, dated as of March 16, 2004, by and  among Mrs. Fields’ Companies, Inc. and all of its subsidiaries                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.17*  |   | Benefits Allocation Agreement, dated as of March 16, 2004, by and  among Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC and  the subsidiaries of Mrs. Fields Famous Brands, LLC named therein                                                                    |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.18*  |   | Collection Agency Agreement, dated as of March 16, 2004, by and  between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields Famous Brands,  LLC                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.19*  |   | Expense Reimbursement Agreement, dated as of March 16, 2004, among  Mrs. Fields Famous Brands, LLC, Mrs. Fields’ Companies, Inc., Mrs. Fields’  Holding Company, Inc., Mrs. Fields’ Original Cookies, Inc., Capricorn  Investors II, L.P. and Capricorn Investors III, L.P. |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.20*  |   | Lease Agreement, dated January 19, 1998, as amended by Lease Addendum  No. 1 dated June 4, 1998 and Lease Addendum No. 2, dated October 19, 2000,  between 2855 E. Cottonwood Parkway L.C. and Mrs. Fields’ Original Cookies,  Inc.                                                   |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.21*  |   | Assignment and Assumption of Lease, dated as of March 16, 2004,  between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields Famous Brands,  LLC, pertaining to the Cottonwood Parkway Headquarters Lease                                                                             |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.22*  |   | Sublease, dated as of March 16, 2004, by and between Mrs. Fields  Famous Brands, LLC and Mrs. Fields’ Original Cookies, Inc.                                                                                                                                                          |

 

72

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| 10.23*  |   | Lease Agreement, dated May 31, 2003, between Mrs. Fields’ Original  Cookies, Inc. and Transwestern Commercial Services LP, pertaining to the  Training Facility                                      |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                      |
| 10.24*  |   | Assignment and Assumption of Lease, dated as of March 16, 2004,  between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields Famous Brands,  LLC, pertaining to the Training Facility Lease          |
|    |   |                                                                                                                                                                                                      |
| 10.25*  |   | Lease Agreement, dated March 31, 2001, between Mrs. Fields’ Original  Cookies, Inc. and Mrs. Fields Famous Brands, LLC, pertaining to the Mrs.  Fields Gifts Facility                                |
|    |   |                                                                                                                                                                                                      |
| 10.26*  |   | Assignment and Assumption of Lease, dated as of March 16, 2004,  between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields Famous Brands,  LLC, pertaining to the Mrs. Fields Gifts Facility Lease |
|    |   |                                                                                                                                                                                                      |
| 10.27*  |   | Mrs. Fields Franchise Agreement, dated as of March 16, 2004, by and  among Mrs. Fields Franchising, LLC and Mrs. Fields’ Original Cookies, Inc.                                                      |
|    |   |                                                                                                                                                                                                      |
| 10.28*  |   | Great American Cookies Company Franchise Agreement, dated as of March  16, 2004, by and between Great American Cookies Company Franchising, LLC and  Mrs. Fields’ Original Cookies, Inc.             |
|    |   |                                                                                                                                                                                                      |
| 10.29*  |   | Pretzel Time Franchise Agreement, dated as of March 16, 2004, by and  between Pretzel Time Franchising, LLC and Mrs. Fields’ Original Cookies, Inc.                                                  |
|    |   |                                                                                                                                                                                                      |
| 10.30*  |   | Pretzelmaker Franchise Agreement, dated as of March 16, 2004, by and  between Pretzelmaker Franchising, LLC and Mrs. Fields’ Original Cookies, Inc.                                                  |
|    |   |                                                                                                                                                                                                      |
| 10.31** |   | TCBY Franchise Agreement, dated as of March 16, 2004, by and between  TCBY Systems, LLC and Mrs. Fields’ Original Cookies, Inc.                                                                      |
|    |   |                                                                                                                                                                                                      |
| 10.32** |   | License Agreement, dated as of March 16, 2004, by and between Mrs.  Fields Franchising, LLC and Mrs. Fields’ Original Cookies, Inc., related to  the Hot Sam brand                                   |
|    |   |                                                                                                                                                                                                      |
| 10.33*  |   | License Agreement, dated as of March 16, 2004, between Mrs. Fields  Franchising, LLC and Mrs. Fields’ Original Cookies, Inc., related to the  Original Cookie Company brand                          |
|    |   |                                                                                                                                                                                                      |
| 10.34*  |   | Purchase Agreement, dated December 1, 1999, between The Mrs. Fields’  Brand, Inc. and Nonni’s Food Company, Inc.                                                                                |
|    |   |                                                                                                                                                                                                      |
| 10.35*  |   | Amendment Number One to Purchase Agreement, dated as of December 28,  2000, between The Mrs. Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                 |
|    |   |                                                                                                                                                                                                      |
| 10.36*  |   | Amendment Number Two to Purchase Agreement, dated as of January 17,  2002, between The Mrs. Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                  |
|    |   |                                                                                                                                                                                                      |
| 10.37*  |   | Trademark License Agreement, dated January 3, 2000, between The Mrs.  Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                                        |
|    |   |                                                                                                                                                                                                      |
| 10.38*  |   | Amendment No. 1, dated December 29, 2000, to Trademark License  Agreement dated January 3, 2000, between The Mrs. Fields’ Brand, Inc. and  Nonni’s Food Company, Inc.                           |
|    |   |                                                                                                                                                                                                      |
| 10.39*  |   | Trademark License Agreement, dated February 21, 2001, between The Mrs.  Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                                      |
|    |   |                                                                                                                                                                                                      |
| 10.40*  |   | Amendment No. 1, dated January 17, 2002, to Trademark License  Agreement dated February 21, 2001, between The Mrs. Fields’ Brand, Inc. and  Nonni’s Food Company, Inc.                          |
|    |   |                                                                                                                                                                                                      |
| 10.41*  |   | Amendment No. 2, dated March 31, 2003, to Trademark License Agreement  dated February 21, 2001, between Mrs. Fields’ Original Cookies, Inc. and  Nonni’s Food Company, Inc.                     |
|    |   |                                                                                                                                                                                                      |
| 10.42*  |   | Trademark License Agreement, dated as of January 2, 2002, between The  Mrs. Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                                  |
|    |   |                                                                                                                                                                                                      |
| 10.43*  |   | Trademark License Agreement, dated March 31, 2003, between Mrs.  Fields’ Original Cookies, Inc. and Nonni’s Food Company, Inc.                                                                  |

 

73

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| 10.44*   |   | Marriott-TCBY Joint Venture Agreement, dated May 25, 1989, among  TCBY Enterprises, Inc., TCBY Systems, Inc. and Host International, Inc., Host  Marriott Services USA, Inc. and Host Marriott Tollroads, Inc.                                                                                                                  |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.45*   |   | First Amendment to Marriott-TCBY Joint Venture Agreement, dated  as of January 1, 1990, among TCBY Enterprises, Inc., TCBY Systems, Inc. and  Host International, Inc., Host Marriott Services USA, Inc. and Host Marriott  Tollroads, Inc.                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.46*   |   | Second Amendment to Marriott-TCBY Joint Venture Agreement, dated  as of March 1, 1991, among TCBY Enterprises, Inc., TCBY Systems, Inc. and  Host International, Inc., Host Marriott Services USA, Inc. and Host Marriott  Tollroads, Inc.                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.47*   |   | Third Amendment to Marriott-TCBY Joint Venture Agreement, dated  as of October 1, 1991, among TCBY Enterprises, Inc., TCBY Systems, Inc. and  Host International, Inc., Host Marriott Services USA, Inc. and Host Marriott  Tollroads, Inc.                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.48*   |   | Fourth Amendment to Host Marriott-TCBY Joint Venture Agreement,  dated as of November 30, 1998, among TCBY Enterprises, Inc., TCBY Systems,  Inc. and Host International, Inc., Host Marriott Services USA, Inc. and Host  Marriott Tollroads, Inc.                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.49*** |   | Supply Agreement, dated December 31, 2002, between Mrs. Fields’  Original Cookies, Inc. and Countryside Baking Company, Inc.                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.50*** |   | Exclusive Supply Agreement, dated as of November 19, 2002, by and  between TCBY Systems, LLC and Americana Foods Limited Partnership                                                                                                                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.51**  |   | Beverage Marketing Agreement, dated March 7, 2003, between Mrs.  Fields’ Original Cookies, Inc. and Coca-Cola Fountain, part of The Coca-Cola  Company                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.52*   |   | Assignment Agreement, dated as of March 16, 2004, by and among Mrs. Fields’  Original Cookies, Inc., Mrs. Fields Famous Brands, LLC and Coca-Cola  Fountain                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.53*   |   | Supply and Distribution Agreement, dated August 9, 1998, between Mrs.  Fields’ Original Cookies, Inc. and Dawn Food Products                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.54*   |   | Assignment Agreement, dated as of March 16, 2004, by and among Mrs.  Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC and Dawn Food  Products                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.55*   |   | Food and Packaging Distribution Agreement, dated November 14, 2002,  between TCBY Systems, LLC and Blue Line Distributing                                                                                                                                                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.56*   |   | Amended and Restated Employment Agreement, dated March 16, 2004, by  and among Stephen Russo, Mrs. Fields Famous Brands, LLC and Mrs. Fields’  Companies, Inc.                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.57    |   | [Reserved]                                                                                                                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.58*   |   | Amended and Restated Employment Agreement, dated March 16, 2004, by  and between Michael R. Ward and Mrs. Fields Famous Brands, LLC                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.59**  |   | Mrs. Fields’ Companies, Inc. Director Stock Option Plan (f/k/a Mrs.  Fields Famous Brands, Inc. Director Stock Option Plan)                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.60**  |   | Mrs. Fields’ Companies, Inc. Employee Stock Option Plan (f/k/a Mrs.  Fields Famous Brands, Inc. Employee Stock Option Plan)                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.61    |   | Mrs. Fields’ Companies, Inc. Phantom Stock Plan, effective as of May  25, 2004, and form of performance unit Grant Agreement, included as Exhibit  10.61 to the Company’s quarterly report on Form 10-Q filed with the  Securities and Exchange Commission on November 16, 2004 and incorporated  herein by reference |

 

74

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| 10.62****   |   | Termination Agreement and Release, dated as of December 24, 2004,  between Mrs. Fields Franchising, LLC and Shadewell Grove IP, LLC, pertaining  to termination of a Trademark License Agreement between their  predecessors-in-interest dated January 2, 2002                                                                           |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.63****   |   | Amendment to Trademark License Agreements, dated as of December 24,  2004, between Mrs. Fields Franchising, LLC and Shadewell Grove IP, LLC,  amending certain Trademark License Agreements between their  predecessors-in-interest                                                                                                      |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.64****   |   | Marketing Allowance Agreement, dated as of December 24, 2004, between  Mrs. Fields Franchising, LLC and Shadewell Grove IP, LLC                                                                                                                                                                                                          |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.65****   |   | Trademark License Agreement, dated December 24, 2004, between Mrs.  Fields Franchising, LLC and Shadewell Grove IP, LLC                                                                                                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.66       |   | Option Agreement and Amendment to License Agreement, dated December  12, 2005 between Maxfield Candy Company and Mrs. Fields Franchising, LLC  filed as exhibit 10.66 to the Company’s annual report on Form 10-K filed with  the SEC on March 20, 2006 and incorporated herein by reference.                                       |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.67       |   | Industrial Net Lease Agreement, effective as of March 1, 2006 by and  between Natomas Meadows Two, LLC and Mrs. Fields Famous Brands, LLC filed as  exhibit 10.1 to the Company’s current report on Form 8-K filed with the  Securities and Exchange Commission on March 6, 2006                                                    |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.68       |   | Extension to Distribution Agreement, dated effective as of November  15, 2005, between Blue Line Distributing, a division of Little Caesar  Enterprises, Inc. and TCBY Systems, LLC filed as exhibit 10.68 to the  Company’s annual report on Form 10-K filed with the SEC on March 20, 2006 and  incorporated herein by reference. |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.69       |   | Distribution Services Agreement, dated April 25, 2006, between TCBY  and Southwest Traders, Inc. filed as exhibit 10.69 to the Company’s current report  on Form 10-Q filed with the Securities and Exchange Commission on August 11,  2006                                                                                         |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.70       |   | Distribution Services Agreement, dated May 8, 2006, between TCBY and  Yancey’s Food Service Company, Inc. filed as exhibit 10.70 to the Company’s  current report on Form 10-Q with the Securities and Exchange Commission on  August 11, 2006                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.71       |   | Distribution Services Agreement, dated March 1, 2006, between TCBY  Systems, LLC and Kaleel Brothers Inc. filed as exhibit 10.71 to the Company’s  current report on form 10-Q filed with the Securities and Exchange Commission  on November 13, 2006                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.72       |   | Distribution Services Agreement, dated July 17, 2006, between TCBY  Systems, LLC and Cheney Brothers, Inc. filed as exhibit 10.72 to the  Company’s current report on form 10-Q filed with the Securities and Exchange  Commission on November 13, 2006                                                                        |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.73       |   | Distribution Services Agreement, dated August 1, 2006, between TCBY  Systems, LLC and Pate Dawson Company filed as exhibit 10.73 to the Company’s  current report on form 10-Q filed with the Securities and Exchange Commission  on November 13, 2006                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.74       |   | Distribution Services Agreement, dated September 7, 2006, between TCBY  Systems, LLC and The Merchants Company filed as exhibit 10.74 to the  Company’s current report on form 10-Q filed with the Securities and Exchange  Commission on November 13, 2006                                                                    |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.75† |   | Distribution Service Agreement dated effective as of November 22, 2006  between TCBY Systems, LLC and Banta Foods, Inc.                                                                                                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.76† |   | Product Supply Agreement dated effective as of December 5, 2006  between TCBY Systems, LLC and Scott Brothers Dairy, Inc.                                                                                                                                                                                                                |

 

75

----

 

 
| 10.77†      |   | Product Supply Agreement dated effective as of December 5, 2006  between TCBY Systems, LLC and Yarnell Ice Cream Company, Inc.                                                  |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                            |
| 10.78†      |   | Product Supply Agreement dated as of December 22, 2006 between Mrs.  Fields Franchising, LLC and Countryside Baking, Inc.                                                       |
|             |   |                                                                                                                                                                            |
| 10.79†      |   | Distribution  Service Agreement dated as of January 15, 2007 between TCBY Systems, LLC and  Lincoln Poultry & Egg Company.                                                  |
|             |   |                                                                                                                                                                            |
| 10.80†      |   | First Amendment dated January 31, 2007 to Distribution Agreement dated  April 12, 2006 between TCBY Systems, LLC and Southwest Traders, Inc.                                    |
|             |   |                                                                                                                                                                            |
| 12.1†† |   | Computation of ratio of earnings to fixed charges of Mrs. Fields  Famous Brands, LLC                                                                                            |
|             |   |                                                                                                                                                                            |
| 21.1†† |   | Subsidiaries of Mrs. Fields Famous Brands, LLC                                                                                                                                  |
|             |   |                                                                                                                                                                            |
| 31.1†† |   | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)  and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended                                      |
|             |   |                                                                                                                                                                            |
| 31.2†† |   | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)  and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended                                      |
|             |   |                                                                                                                                                                            |
| 32††   |   | Certification of Chief Executive Officer and Chief Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

----

*                                         Included as an exhibit with corresponding exhibitnumber to the Company’s Registration Statement on Form S-4 (No. 333-115046)filed with the Securities and Exchange Commission on April 30, 2004 andincorporated herein by reference.

**                                  Included as an exhibit, with corresponding exhibitnumber to Amendment No. 1 to the Company’s Registration Statement on Form S-4(No. 333-115046) filed with the Securities and Exchange Commission on July 2,2004 and incorporated herein by reference.

***                           Included as an exhibit, with corresponding exhibitnumber to Amendment No. 2 to the Company’s Registration Statement on Form S-4(No. 333-115046) filed with the Securities and Exchange Commission on July 12,2004 and incorporated herein by reference.

****                    Included as an exhibit with corresponding exhibitnumber to the Company’s annual report on Form 10-K filed with the Securitiesand Exchange Commission on March 22, 2005 and incorporated herein by reference.

†                                         Filedherewith.   Confidential treatment hasbeen requested as to certain portions. The term “[CONFIDENTIAL]” as used throughout the indicated exhibit meansthat material has been omitted and filed separately with the Commission.

††                                  Filedherewith.

76

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# **SIGNATURES**

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

 

**MRS.FIELDS FAMOUS BRANDS, LLC**

 
|  /s/ Stephen  Russo              |   | March 20, 2007 |   |
|---------------------------------------|--------|----------------|--------|
| Stephen Russo, President and          |   | Date           |   |
| Chief Executive Officer               |   |           |   |
| * *                              |   |           |   |
|  /s/ Gregory  K. Barber          |   | March 20, 2007 |   |
| Gregory K. Barber                     |   | Date           |   |
| Chief Financial Officer and Treasurer |   |           |   |

** **

77

----

**SIGNATURES**

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

 

| **Signature**           |   | **Title**                             |   | **Date**       |
|-------------------------|--------|---------------------------------------|--------|----------------|
|                    |   |                                  |   |           |
| /s/ Stephen Russo       |   | President, Chief Executive Officer    |   | March 20, 2007 |
| Stephen Russo           |   | and Manager                           |   |           |
|                    |   |                                  |   |           |
| /s/ Gregory K. Barber   |   | Chief Financial Officer and Treasurer |   | March 20, 2007 |
| Gregory K. Barber       |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ Jon M. Biotti       |   | Manager                               |   | March 20, 2007 |
| Jon M. Biotti           |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ Alexander Coleman   |   | Manager                               |   | March 20, 2007 |
| Alexander Coleman       |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ John D. Collins     |   | Manager                               |   | March 20, 2007 |
| John D. Collins         |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ George N. Fugelsang |   | Manager                               |   | March 20, 2007 |
| George N. Fugelsang     |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ Peter W. Mullin     |   | Manager                               |   | March 20, 2007 |
| Peter W. Mullin         |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ Don Rice            |   | Manager                               |   | March 20, 2007 |
| Don Rice                |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ John D. Shafer      |   | Manager                               |   | March 20, 2007 |
| John D. Shafer          |   |                                  |   |           |
|                    |   |                                  |   |           |
| /s/ Christopher Wright  |   | Manager                               |   | March 20, 2007 |
| Christopher Wright      |   |                                  |   |           |

 

** **

78

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### **EXHIBIT INDEX**

| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                  |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1*        |       | Certificate of Formation of Mrs. Fields Famous  Brands, LLC                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                             |
| 3.2*        |       | Limited Liability Agreement of Mrs. Fields Famous  Brands, LLC, dated as of February 4, 2004, by Mrs. Fields’ Original Cookies,  Inc.                                                                                       |
|        |       |                                                                                                                                                                                                                             |
| 3.3*        |       | Certificate of Incorporation of Mrs. Fields  Financing Company, Inc.                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                             |
| 3.4*        |       | Bylaws of Mrs. Fields Financing Company, Inc.                                                                                                                                                                                    |
|        |       |                                                                                                                                                                                                                             |
| 3.5*        |       | Certificate of Formation of Great American Cookies  Company Franchising, LLC                                                                                                                                                     |
|        |       |                                                                                                                                                                                                                             |
| 3.6*        |       | Limited Liability Agreement of Great American  Cookies Company Franchising, LLC, dated as of February 4, 2004, by Mrs.  Fields Famous Brands, LLC                                                                                |
|        |       |                                                                                                                                                                                                                             |
| 3.7*        |       | Certificate of Formation of Great American  Manufacturing, LLC                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                             |
| 3.8*        |       | Limited Liability Agreement of Great American  Manufacturing, LLC, dated as of February 4, 2004, by Mrs. Fields Famous  Brands, LLC                                                                                         |
|        |       |                                                                                                                                                                                                                             |
| 3.9*        |       | Articles of Incorporation of Mrs. Fields Cookies  Australia                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                             |
| 3.10*       |       | Bylaws of Mrs. Fields Cookies Australia                                                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                             |
| 3.11*       |       | Certificate of Formation of Mrs. Fields Franchising,  LLC                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                             |
| 3.12*       |       | Limited Liability Agreement of Mrs. Fields  Franchising, LLC, dated as of February 4, 2004, by Mrs. Fields Famous Brands,  LLC                                                                                                   |
|        |       |                                                                                                                                                                                                                             |
| 3.13*       |       | Articles of Incorporation of Mrs. Fields Gifts, Inc.                                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                             |
| 3.14*       |       | Bylaws of Mrs. Fields Gifts, Inc.                                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                             |
| 3.15*       |       | Certificate of Formation of Pretzelmaker  Franchising, LLC                                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                             |
| 3.16*       |       | Limited Liability Agreement of Pretzelmaker  Franchising, LLC, dated as of February 4, 2004, by Mrs. Fields Famous Brands,  LLC                                                                                                  |
|        |       |                                                                                                                                                                                                                             |
| 3.17*       |       | Certificate of Formation of Pretzel Time  Franchising, LLC                                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                             |
| 3.18*       |       | Limited Liability Agreement of Pretzel Time  Franchising, LLC, dated as of February 4, 2004, by Mrs. Fields Famous Brands,  LLC                                                                                                  |
|        |       |                                                                                                                                                                                                                             |
| 3.19*       |       | Certificate of Incorporation of The Mrs. Fields’  Brand, Inc.                                                                                                                                                               |
|        |       |                                                                                                                                                                                                                             |
| 3.20*       |       | Bylaws of The Mrs. Fields’ Brand, Inc.                                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                             |
| 3.21*       |       | Articles of Incorporation of TCBY International,  Inc. (f/k/a TCBY Preparation, Inc.)                                                                                                                                            |
|        |       |                                                                                                                                                                                                                             |
| 3.22*       |       | Articles of Amendment to Articles of Incorporation  of TCBY International, Inc. (f/k/a TCBY Preparation, Inc.) changing name to  TCBY International, Inc.                                                                        |
|        |       |                                                                                                                                                                                                                             |
| 3.23*       |       | Bylaws of TCBY International, Inc. (f/k/a TCBY  Preparation, Inc.)                                                                                                                                                               |
|        |       |                                                                                                                                                                                                                             |
| 3.24*       |       | Articles of Incorporation of TCBY of Texas, Inc.                                                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                             |
| 3.25*       |       | Amended and Restated Bylaws of TCBY of Texas, Inc.                                                                                                                                                                               |
|        |       |                                                                                                                                                                                                                             |
| 3.26*       |       | Certificate of Formation of TCBY Systems, LLC                                                                                                                                                                                    |
|        |       |                                                                                                                                                                                                                             |
| 3.27*       |       | Amended and Restated Limited Liability Agreement of  TCBY Systems, LLC, dated as of March 16, 2004, by Mrs. Fields Famous Brands,  LLC                                                                                           |
|        |       |                                                                                                                                                                                                                             |
| 4.1*        |       | Purchase Agreement, dated March 9, 2004, by and  among Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc.,  Jefferies & Company, Inc. as the Initial Purchaser and the subsidiary  guarantors named therein |

 

----

 
| 4.2*   |   | Indenture, dated as of March 16, 2004, by and among  Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc., the  Guarantors identified therein and The Bank of New York, as Trustee                                                                                                                                                                                                                          |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.3*   |   | Form of 11 1¤2% Senior Secured Notes due  2011 (included in Exhibit 4.2)                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.4*   |   | Form of 9% Senior Secured Notes due 2011 (included  in Exhibit 4.2)                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.5*   |   | Form of Subsidiary Guarantees related to the 11 1¤2% Senior Secured Notes due  2011 (included in Exhibit 4.2)                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.6*   |   | Form of Subsidiary Guarantees related to the 9%  Senior Secured Notes due 2011 (included in Exhibit 4.2)                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.7*   |   | Registration Rights Agreement, dated March 16, 2004,  by and among Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company,  Inc, the Subsidiary Guarantors named therein and Jefferies & Company,  Inc., as Initial Purchaser related to the 11 1¤2% Senior Secured Notes due  2011                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.8*   |   | 9% Notes Registration Rights Agreement, dated March  16, 2004, by and among Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing  Company, Inc., the Subsidiary Guarantors named therein and the holders of the  9% Senior Secured Notes due 2011 related to the 9% Senior Secured Notes due  2011                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.9*   |   | Pledge Agreement, dated March 16, 2004, by and among  Mrs. Fields Famous Brands, LLC, TCBY Systems, LLC and The Bank of New York,  as Trustee                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.10*  |   | Security Agreement, dated March 16, 2004, by and  among Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc.,  the Subsidiary Guarantors named therein and The Bank of New York, as Trustee                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.11*  |   | Trademark Security Agreement, dated March 16, 2004,  by and among Great American Cookies Company Franchising, LLC, Pretzelmaker  Franchising, LLC, Pretzel Time Franchising, LLC, TCBY Systems, LLC, The Mrs.  Fields’ Brand, Inc. and The Bank of New York, as Trustee                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.12*  |   | Account Control Agreement, dated as of March 16,  2004, by and among LaSalle Bank, National Association, Mrs. Fields Famous  Brands, LLC and The Bank of New York, as Trustee                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.13*  |   | Restricted Account Agreement, dated as of March 16,  2004, by and among Wells Fargo Bank, N.A., Mrs. Fields Famous Brands, LLC and  The Bank of New York, as Trustee                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.14*  |   | Restricted Account Agreement, dated as of March 16,  2004, by and among Wells Fargo Bank, N.A., TCBY Systems, LLC and The Bank of  New York, as Trustee                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.15*  |   | Deed to Secure Debt, Security Agreement and  Assignment of Leases and Rents, dated as of March , 2004, by and between  Great American Manufacturing, LLC and The Bank of New York, as Trustee                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.16   |   | First Supplemental Indenture, dated as of February  9, 2005, by and among Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing  Company, Inc., the Guarantors (as defined in the Indenture) and The Bank of  New York, as Trustee, included as Exhibit 4.1 to the Company’s Current Report  on Form 8-K filed with the Securities and Exchange Commission on February 11,  2005 and incorporated herein by reference |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.1*  |   | Contribution Agreement between TCBY Enterprises,  Inc. and TCBY Systems, LLC dated as of March 16, 2004                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.2*  |   | Contribution Agreement, dated as of March 16,  2004, by and among Mrs. Fields’ Original Cookies, Inc., the subsidiaries  of Mrs. Fields’ Original Cookies, Inc. named therein, Mrs. Fields  Famous Brands, LLC and the subsidiaries of Mrs. Fields Famous Brands,  LLC named therein                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.3** |   | United States Trademark Assignment, dated March 16,  2004, between Mrs. Fields’ Original Cookies, Inc. and The Mrs. Fields’ Brand,  Inc.                                                                                                                                                                                                                                                                         |

 

----

 
| 10.4**  |   | International Trademark Assignment, dated March 16,  2004, between Mrs. Fields’ Original Cookies, Inc. and The Mrs. Fields’ Brand,  Inc.                                                                                                                                         |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.5*   |   | United States Trademark Assignment, dated March 16,  2004, between Great American Cookies Company, LLC and Great American Cookies  Company Franchising, LLC                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.6*   |   | International Trademark Assignment, dated March 16,  2004, between Great American Cookies Company, LLC and Great American Cookies  Company Franchising, LLC                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.7*   |   | United States Trademark Assignment, dated March 16,  2004, between Pretzel Time, LLC and Pretzel Time Franchising, LLC                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.8*   |   | International Trademark Assignment, dated March 16,  2004, between Pretzel Time, LLC and Pretzel Time Franchising, LLC                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.9*   |   | United States Trademark Assignment, dated March 16,  2004, between Pretzelmaker, LLC and Pretzelmaker Franchising, LLC                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.10*  |   | International Trademark Assignment, dated March 16,  2004, between Pretzelmaker, LLC and Pretzelmaker Franchising, LLC                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.11** |   | United States Trademark Assignment, dated March 16,  2004, between TCBY Enterprises, Inc. and TCBY Systems, LLC                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.12** |   | International Trademark Assignment, dated March 16,  2004, between TCBY Enterprises, Inc. and TCBY Systems, LLC                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.13*  |   | Severance Assumption Agreement, dated as of March  16, 2004, by and among Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous  Brands, LLC, Larry A. Hodges and Mrs. Fields’ Companies, Inc.                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.14*  |   | Management Agreement, dated as of March 16, 2004, by  and between Mrs. Fields Famous Brands, LLC and Mrs. Fields’ Original Cookies,  Inc.                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.15*  |   | Tax Allocation Agreement, dated as of March 16,  2004, by and among Mrs. Fields’ Companies, Inc., Mrs. Fields Famous Brands,  LLC and the subsidiaries of Mrs. Fields Famous Brands, LLC named therein                                                                                |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.16*  |   | Insurance Allocation Agreement, dated as of March  16, 2004, by and among Mrs. Fields’ Companies, Inc. and all of its  subsidiaries                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.17*  |   | Benefits Allocation Agreement, dated as of March 16,  2004, by and among Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous  Brands, LLC and the subsidiaries of Mrs. Fields Famous Brands, LLC named  therein                                                                   |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.18*  |   | Collection Agency Agreement, dated as of March 16,  2004, by and between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields  Famous Brands, LLC                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.19*  |   | Expense Reimbursement Agreement, dated as of March  16, 2004, among Mrs. Fields Famous Brands, LLC, Mrs. Fields’ Companies, Inc.,  Mrs. Fields’ Holding Company, Inc., Mrs. Fields’ Original Cookies, Inc.,  Capricorn Investors II, L.P. and Capricorn Investors III, L.P. |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.20*  |   | Lease Agreement, dated January 19, 1998, as amended  by Lease Addendum No. 1 dated June 4, 1998 and Lease Addendum No. 2, dated  October 19, 2000, between 2855 E. Cottonwood Parkway L.C. and Mrs. Fields’  Original Cookies, Inc.                                                   |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.21*  |   | Assignment and Assumption of Lease, dated as of  March 16, 2004, between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields  Famous Brands, LLC, pertaining to the Cottonwood Parkway Headquarters Lease                                                                             |
|    |   |                                                                                                                                                                                                                                                                                       |
| 10.22*  |   | Sublease, dated as of March 16, 2004, by and between  Mrs. Fields Famous Brands, LLC and Mrs. Fields’ Original Cookies, Inc.                                                                                                                                                          |

 

----

 
| 10.23*  |   | Lease Agreement, dated May 31, 2003, between Mrs.  Fields’ Original Cookies, Inc. and Transwestern Commercial Services LP,  pertaining to the Training Facility                                      |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                      |
| 10.24*  |   | Assignment and Assumption of Lease, dated as of  March 16, 2004, between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields  Famous Brands, LLC, pertaining to the Training Facility Lease          |
|    |   |                                                                                                                                                                                                      |
| 10.25*  |   | Lease Agreement, dated March 31, 2001, between Mrs.  Fields’ Original Cookies, Inc. and Mrs. Fields Famous Brands, LLC, pertaining  to the Mrs. Fields Gifts Facility                                |
|    |   |                                                                                                                                                                                                      |
| 10.26*  |   | Assignment and Assumption of Lease, dated as of  March 16, 2004, between Mrs. Fields’ Original Cookies, Inc. and Mrs. Fields  Famous Brands, LLC, pertaining to the Mrs. Fields Gifts Facility Lease |
|    |   |                                                                                                                                                                                                      |
| 10.27*  |   | Mrs. Fields Franchise Agreement, dated as of March  16, 2004, by and among Mrs. Fields Franchising, LLC and Mrs. Fields’ Original  Cookies, Inc.                                                     |
|    |   |                                                                                                                                                                                                      |
| 10.28*  |   | Great American Cookies Company Franchise Agreement,  dated as of March 16, 2004, by and between Great American Cookies Company  Franchising, LLC and Mrs. Fields’ Original Cookies, Inc.             |
|    |   |                                                                                                                                                                                                      |
| 10.29*  |   | Pretzel Time Franchise Agreement, dated as of March  16, 2004, by and between Pretzel Time Franchising, LLC and Mrs. Fields’  Original Cookies, Inc.                                                 |
|    |   |                                                                                                                                                                                                      |
| 10.30*  |   | Pretzelmaker Franchise Agreement, dated as of March  16, 2004, by and between Pretzelmaker Franchising, LLC and Mrs. Fields’  Original Cookies, Inc.                                                 |
|    |   |                                                                                                                                                                                                      |
| 10.31** |   | TCBY Franchise Agreement, dated as of March 16, 2004,  by and between TCBY Systems, LLC and Mrs. Fields’ Original Cookies, Inc.                                                                      |
|    |   |                                                                                                                                                                                                      |
| 10.32** |   | License Agreement, dated as of March 16, 2004, by  and between Mrs. Fields Franchising, LLC and Mrs. Fields’ Original Cookies,  Inc., related to the Hot Sam brand                                   |
|    |   |                                                                                                                                                                                                      |
| 10.33*  |   | License Agreement, dated as of March 16, 2004,  between Mrs. Fields Franchising, LLC and Mrs. Fields’ Original Cookies, Inc.,  related to the Original Cookie Company brand                          |
|    |   |                                                                                                                                                                                                      |
| 10.34*  |   | Purchase Agreement, dated December 1, 1999, between  The Mrs. Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                                                |
|    |   |                                                                                                                                                                                                      |
| 10.35*  |   | Amendment Number One to Purchase Agreement, dated as  of December 28, 2000, between The Mrs. Fields’ Brand, Inc. and Nonni’s Food  Company, Inc.                                                |
|    |   |                                                                                                                                                                                                      |
| 10.36*  |   | Amendment Number Two to Purchase Agreement, dated as  of January 17, 2002, between The Mrs. Fields’ Brand, Inc. and Nonni’s Food  Company, Inc.                                                 |
|    |   |                                                                                                                                                                                                      |
| 10.37*  |   | Trademark License Agreement, dated January 3, 2000,  between The Mrs. Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                                        |
|    |   |                                                                                                                                                                                                      |
| 10.38*  |   | Amendment No. 1, dated December 29, 2000, to  Trademark License Agreement dated January 3, 2000, between The Mrs. Fields’  Brand, Inc. and Nonni’s Food Company, Inc.                           |
|    |   |                                                                                                                                                                                                      |
| 10.39*  |   | Trademark License Agreement, dated February 21,  2001, between The Mrs. Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                                      |
|    |   |                                                                                                                                                                                                      |
| 10.40*  |   | Amendment No. 1, dated January 17, 2002, to  Trademark License Agreement dated February 21, 2001, between The Mrs. Fields’  Brand, Inc. and Nonni’s Food Company, Inc.                          |
|    |   |                                                                                                                                                                                                      |
| 10.41*  |   | Amendment No. 2, dated March 31, 2003, to Trademark  License Agreement dated February 21, 2001, between Mrs. Fields’ Original  Cookies, Inc. and Nonni’s Food Company, Inc.                     |
|    |   |                                                                                                                                                                                                      |
| 10.42*  |   | Trademark License Agreement, dated as of January 2,  2002, between The Mrs. Fields’ Brand, Inc. and Nonni’s Food Company, Inc.                                                                  |
|    |   |                                                                                                                                                                                                      |
| 10.43*  |   | Trademark License Agreement, dated March 31, 2003,  between Mrs. Fields’ Original Cookies, Inc. and Nonni’s Food Company, Inc.                                                                  |

 

----

 
| 10.44*   |   | Marriott-TCBY Joint Venture Agreement, dated  May 25, 1989, among TCBY Enterprises, Inc., TCBY Systems, Inc. and Host  International, Inc., Host Marriott Services USA, Inc. and Host Marriott  Tollroads, Inc.                                                                                                                 |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.45*   |   | First Amendment to Marriott-TCBY Joint Venture  Agreement, dated as of January 1, 1990, among TCBY Enterprises, Inc., TCBY  Systems, Inc. and Host International, Inc., Host Marriott Services USA, Inc.  and Host Marriott Tollroads, Inc.                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.46*   |   | Second Amendment to Marriott-TCBY Joint  Venture Agreement, dated as of March 1, 1991, among TCBY Enterprises, Inc.,  TCBY Systems, Inc. and Host International, Inc., Host Marriott Services USA,  Inc. and Host Marriott Tollroads, Inc.                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.47*   |   | Third Amendment to Marriott-TCBY Joint Venture  Agreement, dated as of October 1, 1991, among TCBY Enterprises, Inc., TCBY  Systems, Inc. and Host International, Inc., Host Marriott Services USA, Inc.  and Host Marriott Tollroads, Inc.                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.48*   |   | Fourth Amendment to Host Marriott-TCBY Joint  Venture Agreement, dated as of November 30, 1998, among TCBY Enterprises,  Inc., TCBY Systems, Inc. and Host International, Inc., Host Marriott Services  USA, Inc. and Host Marriott Tollroads, Inc.                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.49*** |   | Supply Agreement, dated December 31, 2002, between  Mrs. Fields’ Original Cookies, Inc. and Countryside Baking Company, Inc.                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.50*** |   | Exclusive Supply Agreement, dated as of November 19,  2002, by and between TCBY Systems, LLC and Americana Foods Limited  Partnership                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.51**  |   | Beverage Marketing Agreement, dated March 7, 2003,  between Mrs. Fields’ Original Cookies, Inc. and Coca-Cola Fountain,  part of The Coca-Cola Company                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.52*   |   | Assignment Agreement, dated as of March 16, 2004, by  and among Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC  and Coca-Cola Fountain                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.53*   |   | Supply and Distribution Agreement, dated August 9,  1998, between Mrs. Fields’ Original Cookies, Inc. and Dawn Food Products                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.54*   |   | Assignment Agreement, dated as of March 16, 2004, by  and among Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC  and Dawn Food Products                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.55*   |   | Food and Packaging Distribution Agreement, dated  November 14, 2002, between TCBY Systems, LLC and Blue Line Distributing                                                                                                                                                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.56*   |   | Amended and Restated Employment Agreement, dated  March 16, 2004, by and among Stephen Russo, Mrs. Fields Famous Brands, LLC  and Mrs. Fields’ Companies, Inc.                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.57    |   | [Reserved]                                                                                                                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.58*   |   | Amended and Restated Employment Agreement, dated  March 16, 2004, by and between Michael R. Ward and Mrs. Fields Famous Brands,  LLC                                                                                                                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.59**  |   | Mrs. Fields’ Companies, Inc. Director Stock Option  Plan (f/k/a Mrs. Fields Famous Brands, Inc. Director Stock Option Plan)                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.60**  |   | Mrs. Fields’ Companies, Inc. Employee Stock Option  Plan (f/k/a Mrs. Fields Famous Brands, Inc. Employee Stock Option Plan)                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                            |
| 10.61    |   | Mrs. Fields’ Companies, Inc. Phantom Stock Plan,  effective as of May 25, 2004, and form of performance unit Grant Agreement,  included as Exhibit 10.61 to the Company’s quarterly report on Form 10-Q  filed with the Securities and Exchange Commission on November 16, 2004 and  incorporated herein by reference |

 

----

 
| 10.62****   |   | Termination Agreement and Release, dated as of  December 24, 2004, between Mrs. Fields Franchising, LLC and Shadewell Grove  IP, LLC, pertaining to termination of a Trademark License Agreement between  their predecessors-in-interest dated January 2, 2002                                                                           |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.63****   |   | Amendment to Trademark License Agreements, dated as  of December 24, 2004, between Mrs. Fields Franchising, LLC and Shadewell  Grove IP, LLC, amending certain Trademark License Agreements between their  predecessors-in-interest                                                                                                      |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.64****   |   | Marketing Allowance Agreement, dated as of December  24, 2004, between Mrs. Fields Franchising, LLC and Shadewell Grove IP, LLC                                                                                                                                                                                                          |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.65****   |   | Trademark License Agreement, dated December 24,  2004, between Mrs. Fields Franchising, LLC and Shadewell Grove IP, LLC                                                                                                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.66       |   | Option Agreement and Amendment to License Agreement,  dated December 12, 2005 between Maxfield Candy Company and Mrs. Fields  Franchising, LLC filed as exhibit 10.66 to the Company’s annual report on  Form 10-K filed with the SEC on March 20, 2006 and incorporated herein by  reference.                                      |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.67       |   | Industrial Net Lease Agreement effective as of March  1, 2006 by and between Natomas Meadows Two, LLC and Mrs. Fields Famous  Brands, LLC filed as exhibit 10.1 to the Company’s current report on Form 8-K  filed with the Securities and Exchange Commission on March 6, 2006                                                     |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.68       |   | Extension to Distribution Agreement, dated effective  as of November 15, 2005, between Blue Line Distributing, a division of Little  Caesar Enterprises, Inc. and TCBY Systems, LLC filed as exhibit 10.68 to the  Company’s annual report on Form 10-K filed with the SEC on March 20, 2006 and  incorporated herein by reference. |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.69       |   | Distribution Services Agreement, dated April 25,  2006, between TCBY and Southwest Traders, Inc. filed as exhibit 10.69 to the  Company’s current report on Form 10-Q filed with the Securities and Exchange  Commission on August 11, 2006                                                                                         |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.70       |   | Distribution Services Agreement, dated May 8, 2006,  between TCBY and Yancey’s Food Service Company, Inc. filed as exhibit 10.70  to the Company’s current report on Form 10-Q with the Securities and Exchange  Commission on August 11, 2006                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.71       |   | Distribution Services Agreement, dated March 1,  2006, between TCBY Systems, LLC and Kaleel Brothers Inc. filed as exhibit  10.71 to the Company’s current report on form 10-Q filed with the Securities  and Exchange Commission on November 13, 2006                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.72       |   | Distribution Services Agreement, dated July 17,  2006, between TCBY Systems, LLC and Cheney Brothers, Inc. filed as exhibit  10.72 to the Company’s current report on form 10-Q filed with the Securities  and Exchange Commission on November 13, 2006                                                                             |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.73       |   | Distribution Services Agreement, dated August 1,  2006, between TCBY Systems, LLC and Pate Dawson Company filed as exhibit  10.73 to the Company’s current report on form 10-Q filed with the Securities  and Exchange Commission on November 13, 2006                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.74       |   | Distribution Services Agreement, dated September 7,  2006, between TCBY Systems, LLC and The Merchants Company filed as exhibit  10.74 to the Company’s current report on form 10-Q filed with the Securities  and Exchange Commission on November 13, 2006                                                                         |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.75† |   | Distribution Service Agreement dated effective as of  November 22, 2006 between TCBY Systems, LLC and Banta Foods, Inc.                                                                                                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.76† |   | Product Supply Agreement dated effective as of  December 5, 2006 between TCBY Systems, LLC and Scott Brothers Dairy, Inc.                                                                                                                                                                                                                |

 

----

 
| 10.77†      |   | Product Supply Agreement dated effective as of  December 5, 2006 between TCBY Systems, LLC and Yarnell Ice Cream Company,  Inc.                                                 |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                            |
| 10.78†      |   | Product Supply Agreement dated as of December 22,  2006 between Mrs. Fields Franchising, LLC and Countryside Baking, Inc.                                                       |
|             |   |                                                                                                                                                                            |
| 10.79†      |   | Distribution Service Agreement dated as of January  15, 2007 between TCBY Systems, LLC and Lincoln Poultry & Egg Company.                                                   |
|             |   |                                                                                                                                                                            |
| 10.80†      |   | First Amendment dated January 31, 2007 to  Distribution Agreement dated April 12, 2006 between TCBY Systems, LLC and  Southwest Traders, Inc.                                   |
|             |   |                                                                                                                                                                            |
| 12.1†† |   | Computation of ratio of earnings to fixed charges of  Mrs. Fields Famous Brands, LLC                                                                                            |
|             |   |                                                                                                                                                                            |
| 21.1†† |   | Subsidiaries of Mrs. Fields Famous Brands, LLC                                                                                                                                  |
|             |   |                                                                                                                                                                            |
| 31.1†† |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as  amended                                     |
|             |   |                                                                                                                                                                            |
| 31.2†† |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as  amended                                     |
|             |   |                                                                                                                                                                            |
| 32††   |   | Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

----

*                                         Included as an exhibit with corresponding exhibitnumber to the Company’s Registration Statement on Form S-4 (No. 333-115046)filed with the Securities and Exchange Commission on April 30, 2004 andincorporated herein by reference.

**                                  Included as an exhibit, with corresponding exhibitnumber to Amendment No. 1 to the Company’s Registration Statement on Form S-4(No. 333-115046) filed with the Securities and Exchange Commission on July 2,2004 and incorporated herein by reference.

***                           Included as an exhibit, with corresponding exhibitnumber to Amendment No. 2 to the Company’s Registration Statement on Form S-4(No. 333-115046) filed with the Securities and Exchange Commission on July 12,2004 and incorporated herein by reference.

****                    Included as an exhibit with corresponding exhibitnumber to the Company’s annual report on Form 10-K filed with the Securitiesand Exchange Commission on March 22, 2005 and incorporated herein by reference.

†                                         Filedherewith.   Confidential treatment hasbeen requested as to certain portions. The term “[CONFIDENTIAL]” as used throughout the indicated exhibit meansthat material has been omitted and filed separately with the Commission.

††                                  Filedherewith.

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS**

 
| ** **                        | ** ** | **Balance at** | ** ** | ** **    | ** ** | ** **     | ** ** | **Balance at** | ** ** |
|-----------------------------------|------------|---------------------|------------|---------------|------------|----------------|------------|---------------------|------------|
| ** **                        | ** ** | **beginning**       | ** ** | ** **    | ** ** | ** **     | ** ** | **end of**     | ** ** |
| **Description**                   | ** ** | **of period**  | ** ** | **Additions** | ** ** | **Deductions** | ** ** | **period**          | ** ** |
| Allowance for Doubtful  Accounts: |       |                |       |          |       |           |       |                |       |
| Year ended  December 30, 2006     |       | $                   | 612,000    |          | $          | 1,077,000      |       | $                   | 997,000    |   | $ | 692,000 |   |
| Year ended  December 31, 2005     |       | $                   | 1,295,000  |          | $          | (74,000        | )          | $                   | 609,000    |   | $ | 612,000 |   |
| Year ended January 1,  2005       |       | $                   | 1,948,000  |          | $          | 161,000        |       | $                   | 814,000    |   | $ | 1,295,000 |   |

 

** **

S-1

----

**MRS.FIELDS FAMOUS BRANDS, LLC**

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

 

 
|                                                                                                                                                      | ** ** | **Page** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| Report of Independent Registered Public Accounting  Firm                                                                                             |       | F-2      |
| Consolidated Balance Sheets as of December 30, 2006  and December 31, 2005                                                                           |       | F-3      |
| Consolidated  Statements of Operations and Comprehensive Income (Loss) for the years ended  December 30, 2006, December 31, 2005 and January 1, 2005 |       | F-4      |
| Consolidated  Statements of Member’s Deficit for the years ended December 30, 2006,  December 31, 2005 and January 1, 2005                      |       | F-5      |
| Consolidated  Statements of Cash Flows for the years ended December 30, 2006, December 31,  2005 and January 1, 2005                                 |       | F-6      |
| Notes to the Consolidated Financial Statements                                                                                                       |       | F-8      |

 

F-1

----

## **Reportof Independent Registered Public Accounting Firm**

The Board of Managers andMembers of

Mrs. FieldsFamous Brands, LLC:

We have auditedthe accompanying consolidated balance sheets of Mrs. Fields Famous Brands,LLC as of December 30, 2006 and December 31, 2005, and the related consolidatedstatements of operations and comprehensive income (loss), member’s deficit andcash flows for each of the fiscal years in the three-year period ended December30, 2006.  In connection with our auditsof the consolidated financial statements, we also have audited financial statementschedule II.  These consolidatedfinancial statements and financial statement schedule are the responsibility ofthe Company’s management.  Ourresponsibility is to express an opinion on these consolidated financialstatements and financial statement schedule based on our audits.

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion,the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Mrs. Fields FamousBrands, LLC as of December 30, 2006 and December 31, 2005, and the results oftheir operations and their cash flows for each of the fiscal years in the three-yearperiod ended December 30, 2006 in conformity with U.S. generally acceptedaccounting principles.  Also in ouropinion, the related financial statement schedule, when considered in relationto the basic consolidated financial statements taken as a whole, presentsfairly, in all material respects, the information set forth therein.

/s/KPMG LLP

Salt Lake City, Utah

March20, 2007

F-2

----

**MRS.FIELDS FAMOUS BRANDS, LLC**

# **Consolidated Balance Sheets**

# **(Dollarsin thousands)**

| ** **                                                                                | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| ASSETS:                                                                                   |       |                  |       |                  |       |
| Cash and cash  equivalents                                                                |       | $                     | 15,963     |                  | $          | 23,664 |   |
| Receivables, net  of allowance for doubtful accounts of $692 and $612, respectively       |       | 10,639                |       | 8,061                 |       |
| Inventories                                                                               |       | 3,977                 |       | 2,869                 |       |
| Prepaid expenses  and other                                                               |       | 720                   |       | 932                   |       |
| Deferred tax  asset                                                                       |       | 734                   |       | 780                   |       |
| Total current  assets                                                                     |       | 32,033                |       | 36,306                |       |
|                                                                                      |       |                  |       |                  |       |
| Property and  equipment, net                                                              |       | 8,169                 |       | 4,360                 |       |
| Goodwill                                                                                  |       | 64,115                |       | 78,683                |       |
| Trademarks and  other intangible assets, net                                              |       | 10,745                |       | 12,755                |       |
| Deferred loan  costs, net of accumulated amortization of $10,810 and $9,964, respectively |       | 6,118                 |       | 6,964                 |       |
| Deferred tax  asset                                                                       |       | 9                     |       | 151                   |       |
| Other assets                                                                              |       | 531                   |       | 678                   |       |
|                                                                                      |       | $                     | 121,720    |                  | $          | 139,897 |   |
|                                                                                      |       |                  |       |                  |       |
| LIABILITIES AND  MEMBER’S DEFICIT:                                                   |       |                  |       |                  |       |
| Accounts payable                                                                          |       | $                     | 9,621      |                  | $          | 6,496 |   |
| Accrued  liabilities                                                                      |       | 14,750                |       | 12,289                |       |
| Amounts due to  affiliates                                                                |       | 3,788                 |       | 3,949                 |       |
| Current portion  of capital lease obligations                                             |       | 119                   |       | 104                   |       |
| Current portion  of deferred revenues                                                     |       | 1,069                 |       | 1,074                 |       |
| Total current  liabilities                                                                |       | 29,347                |       | 23,912                |       |
|                                                                                      |       |                  |       |                  |       |
| Long-term debt                                                                            |       | 195,747               |       | 195,747               |       |
| Capital lease  obligations, net of current portion                                        |       | 385                   |       | 485                   |       |
| Deferred  revenues, net of current portion                                                |       | 751                   |       | 1,175                 |       |
| Other  liabilities                                                                        |       | 1,254                 |       | —                |       |
| Total  liabilities                                                                        |       | 227,484               |       | 221,319               |       |
|                                                                                      |       |                  |       |                  |       |
| Member’s deficit                                                                     |       | (105,614              | )          | (81,273               | )          |
| Accumulated  other comprehensive loss                                                     |       | (150                  | )          | (149                  | )          |
| Total member’s  deficit                                                              |       | (105,764              | )          | (81,422               | )          |
|                                                                                      |       |                  |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES                                                            |       |                  |       |                  |       |
|                                                                                      |       | $                     | 121,720    |                  | $          | 139,897 |   |

 

See accompanying notes tothe consolidated financial statements.

F-3

----

**MRS.FIELDS FAMOUS BRANDS, LLC**

**ConsolidatedStatements of Operations and Comprehensive Income (Loss)**

**(Dollarsin thousands)**
| ** **                                                                                 | ** ** | **For the Fiscal Year Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **December 30,**                             | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                                                                 | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2005** | ** ** |
| REVENUES:                                                                                  |       |                                              |       |   |   |   |   |
| Franchising                                                                                |       | $                                                 | 53,053     |   | $ | 53,528 |   | $ | 55,913 |   |
| Gifts                                                                                      |       | 30,708                                            |       | 30,136 |   | 25,849 |   |
| Branded retail                                                                             |       | 10,989                                            |       | 272 |   | 353 |   |
| Licensing                                                                                  |       | 1,838                                             |       | 4,016 |   | 4,945 |   |
| Total revenues                                                                             |       | 96,588                                            |       | 87,952 |   | 87,060 |   |
|                                                                                       |       |                                              |       |   |   |   |   |
| OPERATING COSTS AND  EXPENSES:                                                             |       |                                              |       |   |   |   |   |
| Franchising                                                                                |       | 24,040                                            |       | 21,746 |   | 21,893 |   |
| Gifts                                                                                      |       | 32,379                                            |       | 28,418 |   | 20,733 |   |
| Branded retail                                                                             |       | 11,397                                            |       | 219 |   | 147 |   |
| Licensing                                                                                  |       | 1,411                                             |       | 1,132 |   | 1,516 |   |
| General and  administrative                                                                |       | 11,661                                            |       | 8,527 |   | 9,727 |   |
| Stock  compensation expense                                                                |       | —                                            |       | — |   | 75 |   |
| Costs associated  with debt refinancing, net                                               |       | —                                            |       | — |   | 249 |   |
| Depreciation                                                                               |       | 2,442                                             |       | 1,145 |   | 1,221 |   |
| Amortization                                                                               |       | 2,111                                             |       | 2,831 |   | 2,832 |   |
| Impairment of  goodwill and intangible assets                                              |       | 14,568                                            |       | 43,707 |   | — |   |
| Total operating  costs and expenses                                                        |       | 100,009                                           |       | 107,725 |   | 58,393 |   |
| Income (loss)  from operations                                                             |       | (3,421                                            | )          | (19,773 | ) | 28,667 |   |
|                                                                                       |       |                                              |       |   |   |   |   |
| Interest expense, net                                                                      |       | (20,892                                           | )          | (20,943 | ) | (24,905 | ) |
| Other (expense) income                                                                     |       | (28                                               | )          | — |   | 1,054 |   |
| Income (loss)  from continuing operations before provision (benefit) for income taxes      |       | (24,341                                           | )          | (40,716 | ) | 4,816 |   |
| Provision (benefit) for  income taxes                                                      |       | (2,413                                            | )          | (2,808 | ) | 2,254 |   |
| Income (loss)  from continuing operations                                                  |       | (21,928                                           | )          | (37,908 | ) | 2,562 |   |
|                                                                                       |       |                                              |       |   |   |   |   |
| Income from  discontinued operations (net of income taxes of $0, $0 and $65, respectively) |       | —                                            |       | — |   | 104 |   |
| Net income  (loss)                                                                         |       | $                                                 | (21,928    | ) | $ | (37,908 | ) | $ | 2,666 |   |
|                                                                                       |       |                                              |       |   |   |   |   |
| COMPREHENSIVE INCOME  (LOSS):                                                              |       |                                              |       |   |   |   |   |
| Net income (loss)                                                                          |       | $                                                 | (21,928    | ) | $ | (37,908 | ) | $ | 2,666 |   |
| Foreign currency  translation adjustment                                                   |       | (1                                                | )          | (13 | ) | 9 |   |
| Comprehensive income  (loss)                                                               |       | $                                                 | (21,929    | ) | $ | (37,921 | ) | $ | 2,675 |   |

 

# See accompanying notes tothe consolidated financial statements.

F-4

----

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Consolidated Statements ofMember’s Deficit**

**(Dollars in thousands)**

 
| ** **                                             | ** ** | ** **        | ** ** | ** **       | ** ** | **Accumulated**      | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|-------------------|------------|------------------|------------|----------------------|------------|------------|------------|
| ** **                                             | ** ** | ** **        | ** ** | **Deferred**     | ** ** | **Other**            | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Member’s** | ** ** | **Stock**        | ** ** | **Comprehensive**    | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Deficit**       | ** ** | **Compensation** | ** ** | **Gain (Loss)** | ** ** | **Total**  | ** ** |
| Balance at  January 3, 2004                            |       | $                 | (55,601    | )                | $          | (75                  | )          | $          | (145       | ) | $ | (55,821 | ) |
|                                                   |       |              |       |             |       |                 |       |       |       |
| Stock compensation  expense                            |       | —            |       | 75               |       | —               |       | 75         |       |
| Contribution by parent                                 |       | 17,500            |       | —           |       | —               |       | 17,500     |       |
| Repurchase of stock  options in parent                 |       | (108              | )          | —           |       | —               |       | (108       | )          |
| Foreign currency translation  adjustment               |       | —            |       | —           |       | 9                    |       | 9          |       |
| Net income                                             |       | 2,666             |       | —           |       | —               |       | 2,666      |       |
| Other activity with  parent                            |       | (7,822            | )          | —           |       | —               |       | (7,822     | )          |
| Balance at  January 1, 2005                            |       | (43,365           | )          | —           |       | (136                 | )          | (43,501    | )          |
|                                                   |       |              |       |             |       |                 |       |       |       |
| Foreign currency translation  adjustment               |       | —            |       | —           |       | (13                  | )          | (13        | )          |
| Net loss                                               |       | (37,908           | )          | —           |       | —               |       | (37,908    | )          |
| Balance at  December 31, 2005                          |       | (81,273           | )          | —           |       | (149                 | )          | (81,422    | )          |
|                                                   |       |              |       |             |       |                 |       |       |       |
| Foreign currency translation  adjustment               |       | —            |       | —           |       | (1                   | )          | (1         | )          |
| Distribution to parent  under tax allocation agreement |       | (2,413            | )          |             |       | —               |       | (2,413     | )          |
| Net loss                                               |       | (21,928           | )          | —           |       | —               |       | (21,928    | )          |
| Balance at December 30,  2006                          |       | $                 | (105,614   | )                | $          | —               |       | $          | (150       | ) | $ | (105,764 | ) |

 

See accompanying notes tothe financial statements.

F-5

----

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

# **Consolidated Statements of Cash Flows**

# **(Dollarsin thousands)**

| ** **                                                                                           | ** ** | **For the Fiscal Year Ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                           | ** ** | **December 30,**                             | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                                                                           | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2005** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                               |       |                                              |       |   |   |   |   |
| Net income  (loss)                                                                                   |       | $                                                 | (21,928    | ) | $ | (37,908 | ) | $ | 2,666 |   |
| Net income from  discontinued operations, net of income taxes                                        |       | —                                            |       | — |   | (104 | ) |
| Adjustments to  reconcile net income (loss) to net cash (used in) provided by operating  activities: |       |                                              |       |   |   |   |   |
| Loss on disposal  of assets                                                                          |       | —                                            |       | 353 |   | — |   |
| Impairment of  goodwill and intangible assets                                                        |       | 14,568                                            |       | 43,707 |   | — |   |
| Depreciation and  amortization                                                                       |       | 4,553                                             |       | 3,976 |   | 4,053 |   |
| Amortization of  deferred loan costs                                                                 |       | 846                                               |       | 921 |   | 3,518 |   |
| Stock  compensation expense                                                                          |       | —                                            |       | — |   | 75 |   |
| Amortization of  discount on notes                                                                   |       | —                                            |       | — |   | 1,245 |   |
| Loss (gain) on  non-marketable securities                                                            |       | 28                                                |       | — |   | (1,054 | ) |
| Deferred income  taxes                                                                               |       | 188                                               |       | (3,687 | ) | (523 | ) |
| Changes in  assets and liabilities:                                                                  |       |                                              |       |   |   |   |   |
| Receivables, net                                                                                     |       | (2,578                                            | )          | (22 | ) | 1,031 |   |
| Inventories, net                                                                                     |       | (1,108                                            | )          | (243 | ) | (664 | ) |
| Prepaid expenses  and other                                                                          |       | 212                                               |       | 268 |   | (78 | ) |
| Other assets                                                                                         |       | (104                                              | )          | (111 | ) | (158 | ) |
| Accounts payable                                                                                     |       | 3,125                                             |       | 2,162 |   | (2,455 | ) |
| Accrued  liabilities                                                                                 |       | 2,836                                             |       | (2,857 | ) | 1,436 |   |
| Amounts due to  affiliates                                                                           |       | (2,574                                            | )          | 1,192 |   | (378 | ) |
| Other  liabilities                                                                                   |       | 129                                               |       | — |   | — |   |
| Deferred revenue                                                                                     |       | (429                                              | )          | (1,187 | ) | (872 | ) |
| Net cash (used  in) provided by continuing operating activities                                      |       | (2,236                                            | )          | 6,564 |   | 7,738 |   |
| Net cash used in discontinued operating activities                                                   |       | —                                            |       | — |   | (301 | ) |
| Net cash (used  in) provided by operating activities                                                 |       | (2,236                                            | )          | 6,564 |   | 7,437 |   |
|                                                                                                 |       |                                              |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                               |       |                                              |       |   |   |   |   |
| Proceeds from  sale of non-marketable securities                                                     |       | 122                                               |       | — |   | 1,054 |   |
| Purchases of  property and equipment                                                                 |       | (4,981                                            | )          | (2,174 | ) | (859 | ) |
| Purchase of  license repurchase option                                                               |       | (500                                              | )          | (500 | ) | — |   |
| Net cash (used  in) provided by investing activities                                                 |       | (5,359                                            | )          | (2,674 | ) | 195 |   |
|                                                                                                 |       |                                              |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                               |       |                                              |       |   |   |   |   |
| Net payments  under line of credit                                                                   |       | —                                            |       | — |   | (3,452 | ) |
| Principal  payments on long-term debt                                                                |       | —                                            |       | — |   | (98,014 | ) |
| Payment of debt  financing costs                                                                     |       | —                                            |       | — |   | (11,975 | ) |
| Proceeds from  issuance of Senior Secured Notes                                                      |       | —                                            |       | — |   | 115,000 |   |
| Principal  payments on capital lease                                                                 |       | (105                                              | )          | (72 | ) | (37 | ) |
| Contribution by  parent                                                                              |       | —                                            |       | — |   | 17,500 |   |
| Repurchase of  stock options in parent                                                               |       | —                                            |       | — |   | (108 | ) |
| Other activity  with parent                                                                          |       | —                                            |       | — |   | (7,996 | ) |
| Net cash (used  in) provided by financing activities                                                 |       | (105                                              | )          | (72 | ) | 10,918 |   |
|                                                                                                 |       |                                              |       |   |   |   |   |
| Effect of foreign  exchange rate changes on cash                                                     |       | (1                                                | )          | (13 | ) | 9 |   |
| Net (decrease) increase  in cash and cash equivalents                                                |       | (7,701                                            | )          | 3,805 |   | 18,559 |   |
| Cash and cash  equivalents at beginning of period                                                    |       | 23,664                                            |       | 19,859 |   | 1,300 |   |
| Cash and cash equivalents at end of period                                                           |       | $                                                 | 15,963     |   | $ | 23,664 |   | $ | 19,859 |   |

 

# See accompanying notes tothe financial statements.

F-6

----

#  

| ** **                                                                   | ** ** | **For the Fiscal Year Ended** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                   | ** ** | **December 30,**                             | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                                                   | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2005** | ** ** |
| **Supplemental Disclosures of  Cash Flow Information:**                      |       |                                              |       |   |   |   |   |
| Cash paid for  interest                                                      |       | $                                                 | 20,574     |   | $ | 20,562 |   | $ | 16,541 |   |
| Cash paid to  parent for income taxes                                        |       | —                                            |       | — |   | 1,450 |   |
|                                                                         |       |                                              |       |   |   |   |   |
| **Supplemental Disclosures of  Noncash Investing and Financing Activities:** |       |                                              |       |   |   |   |   |
| Assets acquired  under capital lease                                         |       | $                                                 | 20         |   | $ | 198 |   | $ | 500 |   |
| Distribution to  parent under tax allocation agreement                       |       | 2,413                                             |       | — |   | — |   |
| Leasehold  improvements acquired under lease incentives                      |       | 1,250                                             |       | — |   | — |   |
| Accrual for  license repurchase option                                       |       | —                                            |       | 500 |   | — |   |
| Property and equipment  contributed by parent                                |       | —                                            |       | — |   | 174 |   |

 

See accompanying notes tothe financial statements.

F-7

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notesto the Consolidated Financial Statements**

**1.   Basis of Presentation and Description ofBusiness**

***Basis of Presentation***

Mrs. Fields Famous Brands, LLC (the “Company” or “Mrs. Fields”)is an entity that was formed in March 2004 in connection with thereorganization of certain entities and segments that are under the commoncontrol of Mrs. Fields’ Companies, Inc. (“MFC”), formerly known asMrs. Fields’ Famous Brands, Inc. The Company is a wholly-owned subsidiary of Mrs. Fields’Original Cookies, Inc., (“MFOC”). MFOC is a wholly-owned subsidiary of Mrs. Fields’ HoldingCompany, Inc. (“MFH”), and MFH is a wholly-owned subsidiary ofMFC.  Prior to the reorganization, TCBYSystems, LLC (“TCBY”) was a wholly-owned subsidiary of TCBY Enterprises,LLC (“TCBY Enterprises”), whose parent was also MFC.  In March 2004, MFC completed areorganization whereby TCBY and the franchising, gifts and licensing segmentsof MFOC were contributed to the Company.

The consolidated financial statements for the year endedJanuary 1, 2005 assume that Mrs. Fields had existed as a separate legalentity with the following four business segments: franchising, gifts, brandedretail and licensing.  The consolidatedfinancial statements for the year ended January 1, 2005, which have been carvedout from the consolidated financial statements of MFOC and TCBY prior to thereorganization using the historical results of operations and assets andliabilities of these businesses and activities and which exclude the company-ownedstores segment of MFOC, reflect the accounting policies adopted by MFOC andTCBY in the preparation of their consolidated financial statements and thus donot necessarily reflect the accounting policies which Mrs. Fields mighthave adopted had it been an independent company.  The historical consolidated financialstatements for the year ended January 1, 2005 of Mrs. Fields include thoseaccounts specifically attributable to Mrs. Fields and allocations ofexpenses relating to shared services and administrative functions incurred atMFOC.

The other activity withparent line items on the consolidated statements of member’s deficit and theconsolidated statements of cash flows represent the net cash activity betweenthe Company and MFOC prior to the reorganization in March 2004.

The accompanying consolidated financial statements have beenprepared in accordance with U.S. generally accepted accounting principles.  All transactions and balances between theconsolidated entities and segments have been eliminated.

***Description of Business***

The Companydevelops and franchises retail stores which sell core products includingcookies, brownies, frozen yogurt, ice cream and pretzels through five specialtybranded concepts: Mrs. Fields, Great American Cookie Company, TCBY,Pretzel Time and Pretzelmaker.

In connection withits franchising activities, the Company authorizes third-party licenseesand franchisees to use certain business formats, systems, methods, procedures,designs, layouts, specifications, trade names and trademarks in the UnitedStates of America (the “United States”) and other countries.  Additionally, the Company licenses the use ofits trademarks, logos and recipes to third parties for distribution ofMrs. Fields and TCBY branded products through non-bakery stores and cafes.The Company also markets and distributes products through catalogs and theInternet as well as various retail channels.

F-8

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**2.   Summary of Significant Accounting Policies**

***Accounting Periods***

The Companyoperates using a 52/53-week fiscal year ending on the Saturday closest toDecember 31. Fiscal 2006, 2005 and 2004 are all 52-week periods endingDecember 30, 2006, December 31, 2005 and January 1, 2005, respectively.

***Foreign Currency Translation***

The balance sheetaccounts of foreign subsidiaries are recorded in their local currency, thefunctional currency, and translated into U.S. dollars using the applicablebalance sheet date exchange rates, while revenues and expenses are translatedusing the average exchange rates for the period presented.

***Related-Party Transactions***

Mrs. Fieldshas contractual relationships with various affiliates, primarily MFOC, MFH,TCBY Enterprises and MFC, which are intended to be fair to the parties involvedin the transactions and on terms similar to what could be negotiated withindependent third parties.  Sometimes theCompany is required to negotiate the agreements for both sides of thetransaction.  Also, inherent in any contractualrelationship is the interpretation of the intent of the agreement at a latertime when unanticipated events occur. When situations like these occur, the Company attempts objectively todetermine the terms of the transaction or interpret the intent of the agreementon a fair and independent basis. However, there is no guarantee that the Company will be successful indoing so.  Individual affiliatetransactions or a series of related transactions in excess of $1.0 millionrequire a resolution by the Board of Managers and individual affiliatetransactions or a series of related transactions in excess of $5.0 millionrequire an “opinion of fairness” by an accounting, appraisal or investmentbanking firm.

***Use of Estimates***

The preparation of financial statements in conformitywith U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from those estimates.

The Company’ssignificant accounting estimates include estimates for employee benefits andrelated insurances, reserves for doubtful accounts and obsolete and excessiveinventories, long-lived asset allowances, deferred tax asset valuationallowances and depreciation and amortization.

F-9

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***Cash Equivalents***

Cash equivalentsinclude all cash balances and highly liquid investments with an initialmaturity of three months or less.  TheCompany places its temporary cash investments with high credit qualityfinancial institutions.  At times suchinvestments may be in excess of the Federal Deposit Insurance Corporation (“FDIC”)insurance limit. As of December 30, 2006 and December 31, 2005, the Company hadcash equivalents of $8,000 and $7,000, respectively.

***Receivables***

Most of theCompany’s receivables are due from domestic and international franchisees,distributors, licensees and corporate customers of our gifts and branded retailsegments.  These receivables consist of normaltrade 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 inprior periods.

Prior to fiscal 2001, TCBY extended credit from time to timein the form of notes receivable to franchisees and certain of these notesreceivable remain outstanding.  Notesreceivable from franchisees are primarily collateralized by equipment locatedat the franchisees’ stores.  These notesbear interest at market rates 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 thecollectability of principal or interest becomes uncertain.  During the years ended December 30, 2006,December 31, 2005 and January 1, 2005, TCBY recognized no interest incomepertaining to these notes receivable. These notes receivable are included in receivables in the accompanyingconsolidated balance sheets.

Prior to fiscal 2001, TCBY factored various notes receivableaggregating $2.1 million.  Under theterms of the factoring agreement, TCBY is ultimately responsible to thefactoring agent for the realizability of the notes receivable.  In the event of non-performance, thefactoring agent has recourse against TCBY to a maximum level of $269,000 and$478,000 as of December 30, 2006 and December 31, 2005, respectively.  The Company has reserves of $269,000 and$478,000 as of December 30, 2006 and December 31, 2005, respectively, for thispotential recourse liability.  Thisreserve is included in accrued liabilities in the accompanying consolidatedbalance sheets.

Notes receivableat December 30, 2006 and December 31, 2005 are comprised of the following (inthousands):

|                                  | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Performing notes                 |       | 59                    |       | 195                   |       |
| Allowance for  doubtful accounts |       | (19                   | )          | (69                   | )          |
|                             |       | $                     | 40         |                  | $          | 126 |   |
|                                  |            |                       |            |                       |            |  |  |

 

F-10

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The activity inthe allowance for notes receivable for the years ended December 30, 2006 andDecember 31, 2005 is as follows (in thousands):

|                    | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Beginning  balance |       | $                     | (69        | )                     | $          | (597 | ) |
| Write-offs         |       | 50                    |       | 528                   |       |
|               |       | $                     | (19        | )                     | $          | (69 | ) |

 

***Inventories***

Inventories,consisting of raw materials, finished goods, packaging and novelties, arestated at the lower of cost (first-in, first-out method) or market value.  In assessing the realizability of inventories,the Company makes 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.  Inventories at December 30, 2006 and December31, 2005 are comprised of the following (in thousands): 

|                | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|----------------|------------|-----------------------|------------|-----------------------|------------|
| ** **     | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Finished goods |       | $                     | 1,663      |                  | $          | 770 |   |
| Raw materials  |       | 1,071                 |       | 1,283                 |       |
| Novelties      |       | 803                   |       | 268                   |       |
| Packaging      |       | 440                   |       | 548                   |       |
|           |       | $                     | 3,977      |                  | $          | 2,869 |   |

 

***Property and Equipment***

Equipment andfixtures are stated at cost less accumulated depreciation and are depreciatedover three to seven years using the straight-line method.  Leasehold improvements are stated at costless accumulated depreciation and are depreciated over the shorter of the termof the lease or the estimated useful life using the straight-line method.  Property and equipment at December 30, 2006and December 31, 2005 are comprised of the following (in thousands): 

|                                | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Equipment and  fixtures        |       | $                     | 11,271     |                  | $          | 7,927 |   |
| Leasehold  improvements        |       | 7,408                 |       | 4,241                 |       |
| Land                           |       | 240                   |       | 240                   |       |
|                           |       | 18,919                |       | 12,408                |       |
| Less accumulated  depreciation |       | (10,750               | )          | (8,048                | )          |
|                           |       | $                     | 8,169      |                  | $          | 4,360 |   |

 

Property andequipment at December 30, 2006 and December 31, 2005 includes gross assetsacquired under capital leases of $718,000 and $698,000, respectively, andrelated accumulated depreciation of $259,000 and $139,000, 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 incurrent operations.

F-11

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Included inleasehold improvements at December 30, 2006 is $1,250,000 less $83,000 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 December 30, 2006 of $125,000 is included in accrued liabilities and$1.0 million in other liabilities relating to these lease incentives.  The total amount of these leaseholdimprovements and deferred rent are amortized over the life of the lease.

***Goodwill,Trademarks and Other Intangible Assets***

The Companyaccounts for goodwill and other intangible assets in accordance with Statementof Financial Accounting Standards (“SFAS”) No. 142 (“SFAS 142”), “Goodwilland Other Intangible Assets.”  Goodwilland intangible assets acquired in a purchase business combination anddetermined to have an indefinite useful life are not amortized, but are testedfor impairment at least annually in accordance with the provisions ofSFAS 142.  SFAS 142 alsorequires that intangible assets with estimable useful lives be amortized overtheir respective estimated useful lives to their estimated residual values andbe reviewed for impairment in accordance with SFAS No. 144 (“SFAS 144”), “Accountingfor Impairment or Disposal of Long-Lived Assets.”

On an annual basis(in the fourth quarter), or more frequently if circumstances indicate potentialimpairment, the Company performs an assessment for impairment of its carryingvalue of goodwill associated with each of its reporting units defined as BakeryFranchising, Gifts, and Licensing, by comparing each reporting unit’s fairvalue with its carrying value.  Theestimated fair value of goodwill is affected by, among other things, operatingresults, the Company’s business plan for the future, estimated results offuture operations and the comparable companies and transactions that are usedto estimate the fair value of the goodwill. If the estimated fair value of the reporting unit exceeds its carryingamount, the reporting unit’s goodwill is not considered to be impaired and thesecond step of the impairment test is unnecessary.  If the reporting unit’s carrying amountexceeds its estimated fair value, the second step test must be performed tomeasure the amount of the goodwill impairment loss, if any.  The second step test compares the impliedfair value of the reporting unit’s goodwill, determined in the same manner asthe amount of goodwill recognized in a business combination, with the carryingamount of such goodwill.  If the carryingamount of the reporting unit’s goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recognized in an amount equal to thatexcess.  The Company performed its annualimpairment analysis for fiscal 2006 by comparing the fair value of each of theCompany’s reporting units to the carrying amount of each reporting unit as ofDecember 30, 2006.  Management concludedthat the estimated fair value of each reporting unit exceeded its carryingvalue and thus no impairment existed as of December 30, 2006.

In the secondquarter of fiscal 2006, the Company determined that a triggering event hadoccurred under SFAS 142 for the Dairy Franchising reporting unit as a result ofthe continued eroding dairy franchise operations evidenced by fewer locations,consistent negative year-over-year same store sales by our dairy franchiseesand our inability to locate and open a significant number of new or additionalfranchise locations.  As such, theCompany tested the goodwill related to the Dairy Franchising reporting unit bycomparing the reporting unit’s fair value with its carrying value. As a resultof the impairment test, the Company recorded an impairment charge of $14.6million relating to the Dairy Franchising reporting unit; the impairment chargewas recorded in the second quarter of fiscal 2006.

The Companyperformed its annual goodwill impairment analysis as of December 31, 2005 andconcluded that the carrying amount of the Dairy Franchising reporting unitexceeded its fair value.  The Companycompared the implied fair value of the Dairy Franchising reporting unit’sgoodwill with the carrying amount of the goodwill and recorded an impairmentcharge of $34.8 million in fiscal 2005.

F-12

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The following outlines the Company’s goodwillby reporting unit as of December 30, 2006 and December 31, 2005 (in thousands):

|                     | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|---------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **          | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Bakery  Franchising |       | $                     | 60,404     |                  | $          | 60,404 |   |
| Dairy Franchising   |       | —                |       | 14,568                |       |
| Gifts               |       | 1,859                 |       | 1,859                 |       |
| Licensing           |       | 1,852                 |       | 1,852                 |       |
|                |       | $                     | 64,115     |                  | $          | 78,683 |   |

 

In fiscal 2006,the Company determined that a triggering event had occurred under SFAS 144 forthe Dairy Franchising reporting unit as a result of the continued eroding dairyfranchise operations evidenced by fewer locations, consistent negativeyear-over-year same store sales by our dairy franchisees and our inability tolocate and open a significant number of new or additional franchiselocations.  These factors have resultedin continued decreases in franchise royalties and yogurt formulation revenuesfrom the dairy franchise system.  TheCompany performed the impairment tests as required by SFAS 144 for the long-livedassets of the Dairy Franchising reporting unit and determined that leaseholdimprovements and equipment associated with a Yovana test store were impaired asof December 30, 2006.  Therefore, animpairment charge of $400,000 for these long-lived assets was required.

The Companydetermined that a triggering event had occurred in fiscal 2005 under SFAS No.144 as a result of the eroding dairy franchise operations evidenced by fewerlocations, consistent negative year-over-year same store sales by our dairyfranchisees and the Company’s inability to locate and open a significant numberof new or additional franchise locations. Therefore, the Company recorded charges to write-down the TCBY tradenames and franchise relationships of $1.7 million and $7.2 million,respectively, for the year ended December 31, 2005.  In addition, the fair value becomes the newbasis of the assets and they are amortized over the remaining useful life ofthe assets pursuant to SFAS No. 144.

Trademarks andother intangible assets are comprised of definite-lived assets and areamortized over 5 to 15 years.  Thefollowing outlines the Company’s trademarks and other intangibles as ofDecember 30, 2006 and December 31, 2005 (in thousands):

|                                          | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Trademarks and  trade names              |       | $                     | 15,305     |                  | $          | 15,404 |   |
| Recipes                                  |       | 4,150                 |       | 4,150                 |       |
| Franchise  relationships                 |       | 2,600                 |       | 2,600                 |       |
| Reacquired  franchise and license rights |       | 1,000                 |       | 1,528                 |       |
|                                     |       | 23,055                |       | 23,682                |       |
| Less accumulated  amortization           |       | (12,310               | )          | (10,927               | )          |
|                                     |       | $                     | 10,745     |                  | $          | 12,755 |   |

 

F-13

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During fiscal2005, the Company, through Mrs. Fields Franchising, LLC (“MFF”), a wholly-ownedsubsidiary of the Company, entered into an Option Agreement and Amendment toLicense Agreement (the “Option”) with Maxfield Candy Company (“Maxfield”), oneof our licensees, who produces and sells Mrs. Fields branded premium candyproducts in certain distribution channels under a trademark license agreement(the “License”).  The Option granted MFF an option to repurchase theLicense, exercisable during a period from the second to the fifth anniversaryof the Option date.  The Option purchase price was $1.0 million, one-halfof which was paid by MFF when the Option was signed by the parties and one-halfof which was paid to Maxfield on the first anniversary of that date (December2006).  The repurchase price for the License is due only if MFF exercisesthe Option and ranges from $4.5 million to $7.0 million, depending on when theOption is exercised.  One-half of the Option purchase price will becredited to the License repurchase price in a manner described in the Option ifMFF exercises the Option.  The partiesalso agreed to certain modifications of the License as part of the Option.  At December 30, 2006, the Option purchaseprice is included in reacquired franchise and license rights and is beingamortized over the term of the Option.

Amortization expense of the intangible assets for theyears ended December 30, 2006, December 31, 2005 and January 1, 2005 was$2.0 million, $2.7 million and $2.7 million, respectively.  Future amortization expense of the intangibleassets as of December 31, 2005, is estimated to be as follows (in thousands):

| Fiscal Year | ** ** | ** ** | ** ** |
|------------------|------------|------------|------------|
| 2007             |       | $          | 1,968      |   |
| 2008             |       | 1,968      |       |
| 2009             |       | 1,827      |       |
| 2010             |       | 1,686      |       |
| 2011             |       | 1,317      |       |
| Thereafter       |       | 1,979      |       |
|             |       | $          | 10,745     |   |

 

***Deferred Loan Costs***

Deferred loan costs are amortized over the life of therelated debt using the effective interest method. During the years endedDecember 30, 2006, December 31, 2005 and January 1, 2005, the Company amortizeddeferred loan costs of approximately $846,000, $921,000 and $3.5 million,respectively, to interest expense.

***Long-Lived Assets***

Long-lived assets are reviewed for impairment when events orchanges in circumstances indicate that the book value of an asset may not befully recovered.  The Company uses anestimate of future undiscounted net cash flows of the related asset or group ofassets over the remaining life in measuring whether the assets are recoverable.  Impairment of long-lived assets is assessedat the lowest level for which there are identifiable cash flows that areindependent of other groups of assets. Impairment to be recognized is measured by the amount by which thecarrying amount of the assets exceeds the fair value of the assets. Theimpairment of long-lived assets requires judgments and estimates.  If circumstances change, such estimates couldalso change.

F-14

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***Accrued Liabilities***

Accrued liabilities are comprised of the following atDecember 30, 2006 and December 31, 2005 (in thousands):

|                                    | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Accrued interest  payable          |       | $                     | 6,034      |                  | $          | 5,977 |   |
| Accrued  liabilities               |       | 5,452                 |       | 4,778                 |       |
| Accrued  severance                 |       | 1,856                 |       | 60                    |       |
| Accrued  compensation and benefits |       | 1,408                 |       | 1,474                 |       |
|                               |       | $                     | 14,750     |                  | $          | 12,289 |   |

 

The accrued severance at December 30, 2006 relatesprimarily to severance accrued as a result of a management reorganization inJanuary 2007 resulting in a reduction of personnel.  In accordance with SFAS No. 112 (“SFAS 112”),“Employers’ Accounting for Postemployment Benefits — An Amendment to FASBStatements No. 5 and 43,” the Company accrued approximately $1.7 million ofseverance costs in fiscal 2006 related to this management reorganization as itwas both probable and estimable at December 30, 2006.

The activity in accrued severance for the years endedDecember 30, 2006 and December 31, 2005 is as follows (in thousands):

|                    | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Beginning  balance |       | $                     | 60         |                  | $          | 822 |   |
| Additions          |       | 2,302                 |       | 144                   |       |
| Payments           |       | (506                  | )          | (906                  | )          |
|               |       | $                     | 1,856      |                  | $          | 60 |   |

 

***Revenue Recognition***

The Companyrecognizes revenues from its initial franchising and licensing fees when allmaterial services or conditions relating to the franchising or licensing havebeen substantially performed or satisfied, which is generally upon the openingof a store by a franchisee or licensee. Franchise and license royalties, which are based on a percentage ofgross store sales, are recognized as earned, which is generally upon sale ofproduct by franchisees or licensees. Minimum royalty payments under certain licensing agreements are deferredand recognized on a straight-line basis over the term of the agreement.  Revenues from the sale of cookie dough thatthe Company produces and sells to certain franchisees are recognized at thetime of shipment and are 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 are included in branded retail revenues.  Revenues, net of state and local sales taxes,from gift sales are recognized at the time of shipment.

** **

F-15

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The Companyreceives cash payments for product formulation fees and allowances fromsuppliers based on the amount of product purchased directly by our distributorsand franchisees.  These productformulation fees include cash payments to the Company for the right to use theCompany’s proprietary formulations and recipes to manufacture the frozen dough,dough mixes and TCBY products these suppliers sell to the Company’sfranchisees.  Formulation fees andallowances are recorded as franchising revenues upon shipment of product to theCompany’s distributors or franchisees. For the years ended December 30, 2006, December 31, 2005 and January 1,2005, we included in franchising revenues $11.4 million, $12.8 million and$15.1 million, respectively, for such product formulation fees and allowances.

In March 2003, theCompany received $2.0 million from a supplier as an advance to maintain andexpend beverage concepts at the Company’s franchised store locations.  This advance is being recognized asfranchising revenues on a ratable basis over the six-year term of theagreement.

***Operating Expenses***

Franchisingoperating expenses are comprised of costs incurred to generate franchisingrevenues which include operation and supervision expenses wherein we providesupport, direction and supervision to the franchisees; development and supportexpenses including product development costs, expenses relating to newfranchise development, marketing and advertising, bad debt expense and otherdirect franchising expenses; and cost of product sales associated with theGreat American Cookies manufacturing facility, including raw ingredients, laborand other manufacturing costs.

Gifts operatingexpenses are comprised of costs incurred to generate gift revenues whichinclude cost of sales for products sold, selling and promotional expenses anddirect operating expenses of the gifts segment. Cost of sales includes inbound freight charges, purchasing and receivingcosts, inspection costs, warehousing costs and other costs of our distributionnetwork.

Branded retailoperating expenses are comprised of cost of sales for product sold, selling andpromotional expenses and other direct operating expenses of the branded retailsegment.

Licensingoperating expenses are comprised of costs incurred to generate licensingrevenues, which primarily are selling and promotional expenses, bad debt andother direct operating expenses of the licensing segment.  Selling expenses include payroll andpayroll-related costs, outside commissions and professional fees.

General andadministrative expenses include: payroll and payroll-related costs of corporateemployees such as executive, accounting, legal, human resources and informationsystems personnel; travel and travel-related expenses of corporate employees; professionaland legal fees, bank charges, insurance costs and facility costs not related tothe generation of revenues.  These costsare associated with providing management support for all of our businesssegments.

***Shipping and Handling Costs***

The Company chargesits gifts and manufacturing facility customers for shipping and handling costsand records the revenues in gifts revenues and franchising revenues,respectively.  The costs for shipping andhandling are included in gifts expense and franchising expense, respectively.

F-16

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***Income Taxes***

The Company isorganized as a single-member limited liability company and will not electto be taxed as a corporation for federal income tax purposes.  As such, for federal income tax purposes, theCompany will be “disregarded” and will be treated as a division of MFOC, itssole member.  Although the Company is notexpected to be a tax-paying entity, the assets of the Company could be subjectto income tax claims against any member of its parent’s consolidated group.

The Company willbe included in the consolidated federal income tax return of MFC, the Company’sultimate parent.  For historicalfinancial reporting purposes, the Company recognizes income tax expense(benefit) and deferred tax assets and liabilities as if it were filing aseparate tax return.

The Companyrecognizes deferred income tax assets or liabilities for expected future taxconsequences of events that have been recognized in the consolidated financialstatements or tax returns.  Under thismethod, deferred income tax assets or liabilities are determined based upon thedifference between the financial statement and income tax bases of assets andliabilities using enacted tax rates expected to apply when differences areexpected to be settled or realized.  Deferredincome tax assets are reviewed for recoverability and valuation allowances areprovided when it is more-likely-than-not that a deferred tax asset is notrealizable in the future. The effect on deferred tax assets and liabilities ofa change in tax rates is recognized in income in the period that includes theenactment date.

***Deferred Income Tax Assets***

Deferred incometax assets are assessed for recoverability and valuation allowances areprovided as necessary to reduce deferred income tax assets to amounts expectedto be realized.  Should expectations oftaxable income change in future periods, it may become necessary to change thevaluation allowance, which could affect our results of operations in the periodsuch determination is made.  The Company recordsan income tax provision or benefit at a rate that is based on expected resultsfor the fiscal year.  If future changesin market conditions cause actual results to be more or less favorable,adjustments to the effective income tax rate on a quarterly basis could berequired.

***Fair Value of Financial Instruments***

The Companyestimates that the total fair market value of its 9 percent senior securednotes (the “9 percent Senior Secured Notes”) and its 111⁄2 percent seniorsecured notes (the “111⁄2percentSenior Secured Notes” together with the 9 percent Senior Secured Notes,the “Senior Secured Notes”) was approximately $55.0 million and $86.3 million,respectively, as of December 30, 2006 (see Note 3).  These estimates are based on quoted marketprices.  The book values of the Company’sother financial instruments, including accounts receivable and accountspayable, approximate fair values at the respective balance sheet dates becauseof the relatively short maturity of these instruments or valuation allowanceswhich have been recorded to report the balances at fair value.  The carrying amount of other long-term debtobligations approximates its fair value because the related interest rates areat market rates.

***Advertising***

The Company administers advertising funds collectedfrom its franchisees.  The Companydirects the expenditures of the advertising funds in connection withadvertising and marketing campaigns for the benefit of the respective concepts.  The advertising funds and their relatedactivities are not included in the accompanying consolidated financialstatements.

Advertising costs are expensed as incurred.  During the years ended December 30, 2006,December 31, 2005 and January 1, 2005, the Company incurred advertisingexpenses excluding the expenditures of the advertising funds totalingapproximately $7.5 million, $6.0 million and $4.5 million,respectively.

F-17

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***Legal and Regulatory***

The Company records liabilities for legal andregulatory matters when the contingency is both probable and reasonably estimable.  The Company is involved in several legal andregulatory matters.  After consultationwith legal counsel, the Company believes that the ultimate dispositions ofthese matters will not have a material negative impact on its financialposition, liquidity or results of operations. However, there can be no assurance that the Company will be successfulin its efforts to satisfactorily resolve these matters and the ultimate outcomecould result in a material negative impact on its financial position, liquidityor results of operations.

***New Accounting Pronouncements Not Yet Adopted***

In July 2006, the Financial Accounting Standards Board(“FASB”) issued FASB Interpretation No. 48 (“FIN 48”) “Accounting for IncomeTax Uncertainties.”  FIN 48 defines thethreshold for recognizing the benefits of tax return positions in the financialstatements as “more-likely-than-not” to be sustained by the taxingauthority.  FIN 48 provides guidance onthe derecognition, measurement and classification of income tax uncertainties,along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income taxuncertainties in interim periods and increases the level of disclosuresassociated with any recorded income tax uncertainties.  FIN 48 is effective for fiscal yearsbeginning after December 15, 2006.  Theadoption of FIN 48 is not expected to have a material impact on the Company’sconsolidated financial position or results of operations.

In September 2006, the FASB issued Statement of FinancialAccounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements.”  SFAS 157 defines fair value, establishes aframework for measuring fair value in generally accepted accounting principlesand expands disclosures about fair value measurements, but does not changeexisting guidance as to whether or not an instrument is carried at fairvalue.  SFAS 157 is effective for fiscalyears beginning after November 15, 2007 and interim periods within those fiscalyears.  The Company is currentlyevaluating the effect, if any, that the adoption of SFAS 157 will have on ourconsolidated financial position and results of operations.

In June 2006, the Emerging Issues Task Force (“EITF”)reached a consensus on EITF Issue No. 06-03 (“EITF 06-03”), “How Taxes Collectedfrom Customers and Remitted to Governmental Authorities Should Be Presented inthe Income Statement (That Is, Gross versus Net Presentation).”  EITF 06-03 provides that the presentation oftaxes assessed by a governmental authority that is directly imposed on arevenue-producing transaction between a seller and a customer on either a grossbasis (included in revenues and costs) or on a net basis (excluded fromrevenues) is an accounting policy decision that should be disclosed.  The provisions of EITF 06-03 become effectiveas of December 31, 2006.  The adoptionthe ETIF 06-03 is not expected to have a material impact on the Company’sconsolidated financial position or results of operations.

F-18

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**3.   Long-Term Debt and Capital Lease Obligations**

***Long-Term Debt***

Long-term debt is comprised of the following at December 30, 2006 andDecember 31, 2005 (in thousands):

|                                                                                                                                      | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Senior Secured Notes,  interest at 11 1/2 percent payable semi-annually in arrears on March 15 and  September 15, due March 15, 2011 |       | $                | 115,000    |                  | $     | 115,000 |   |
| Senior Secured Notes,  interest at 9 percent payable semi-annually in arrears on March 15 and  September 15, due March 15, 2011      |       | 80,747                |       | 80,747                |       |
|                                                                                                                                 |       | $                     | 195,747    |                  | $          | 195,747 |   |

 

***Debt Refinancing***

On March 16, 2004, the Company issued$80.7 million of 9 percent Senior Secured Notes in exchange for$80.7 million of existing Senior Notes and issued $115.0 million of111⁄2 percent Senior Secured Notes (the “111⁄2percent Senior Secured Notes” togetherwith the 9 percent Senior Secured Notes, the “Senior Secured Notes”).  The proceeds from the 111⁄2 percent SeniorSecured Notes were used to retire substantially all of the Company’sindebtedness, except capital lease obligations.

The Senior Secured Notes will mature March 15,2011, with interest payable semi-annually. The Senior Secured Notes rank senior in right of payment to allsubordinated indebtedness of the Company and rank equal in right of paymentwith all existing and future senior indebtedness of the Company.  The Senior Secured Notes are secured by allof the tangible and intangible assets of the Company and its subsidiaries.

The Senior Secured Notes are redeemable at the optionof the Company anytime on or after March 15, 2008.  The Senior Secured Notes require the Companyto offer to repurchase a portion of the notes at 100 percent of theprincipal amount, plus accrued and unpaid interest thereon to the date ofpurchase, with 50 percent of the Company’s “excess cash flow,” as definedin the indenture agreement, when the ratio of the Company’s Net Indebtedness toConsolidated EBITDA is above 3.75 to 1.0 and the cumulative unpaid excess cashflow offer amount exceeds $10.0 million. In the event of a change in control, the holders of the Senior SecuredNotes will have the right to put the notes to the Company at 101 percentof their principal amount, plus accrued and unpaid interest, provided at least65 percent of the aggregate principal amount of the Senior Secured Notesoriginally issued remain outstanding.

The Senior Secured Notes contain certain covenantsthat limit among other things, the ability of the Company and its subsidiariesto (i) incur additional indebtedness; (ii) make certain investmentsor enter into sale and leaseback transactions; (iii) pay dividends, redeemsubordinated debt, repurchase the Company’s or its subsidiaries stock or makeany other restricted payments as defined in the indenture; (iv) enter intocertain transactions with affiliates; (v) create or incur liens;(vi) transfer or sell assets; (vii) make dividends, distributions orother payments from the Company’s subsidiaries; (viii) consummate amerger, consolidation or sale of all or substantially all of our assets; and(ix) engage in unrelated business.

F-19

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The Company incurred $13.9 million of costsdirectly related to the debt refinancing. Generally, these costs would be deferred and amortized as interestexpense over the term of the Senior Secured Notes.  However, approximately $5.0 million of thesecosts related to the exchange of $80.7 million of Senior Notes for$80.7 million of Senior Secured Notes and were expensed, net of the gainrecognized on the early retirement of the remaining indebtedness of$4.8 million in accordance with SFAS No. 15, “Accounting by Debtorsand Creditors for Troubled Debt Restructurings” and included in the caption “costsassociated with debt refinancing, net” in the consolidated statements ofoperations.

***Capital Lease Obligations***

As of December 30, 2006, the future minimum leasepayments, including interest, for capital lease obligations are as follows (inthousands):

| Fiscal Year                             | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2007                                         |       | $          | 166        |   |
| 2008                                         |       | 124        |       |
| 2009                                         |       | 92         |       |
| 2010                                         |       | 85         |       |
| 2011                                         |       | 85         |       |
| Thereafter                                   |       | 114        |       |
| Total minimum lease payments                 |       | 666        |       |
| Less amount  representing interest           |       | (162       | )          |
| Present value of  net minimum lease payments |       | $          | 504        |   |

 

**4.   Income Taxes**

***Provision for Income Taxes***

The components of the provision (benefit) for incometaxes for the years ended December 30, 2006, December 31, 2005 and January 1,2005 are as follows (in thousands): 

|                                            | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------------|------------|---------------------------------|------------|
| ** **                                 | ** ** | **December 30,**           | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                 | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2005** | ** ** |
| Current                                    |       |                            |       |   |   |   |   |
| Federal                                    |       | $                               | (2,648     | ) | $ | 693 |   | $ | 2,180 |   |
| State                                      |       | —                          |       | 150 |   | 517 |   |
| Foreign                                    |       | 48                              |       | 36 |   | 80 |   |
|                                       |       | (2,600                          | )          | 879 |   | 2,777 |   |
| Deferred                                   |       |                            |       |   |   |   |   |
| Federal                                    |       | 156                             |       | (3,061 | ) | (434 | ) |
| State                                      |       | 31                              |       | (626 | ) | (89 | ) |
|                                       |       | 187                             |       | (3,687 | ) | (523 | ) |
| Total provision (benefit) for income taxes |       | $                               | (2,413     | ) | $ | (2,808 | ) | $ | 2,254 |   |

 

F-20

----

The differences between income taxes at the U.S.federal statutory income tax rate and income taxes reported in the consolidatedstatements of operations for the years ended December 30, 2006, December 31,2005 and January 1, 2005 are as follows (in thousands): 

|                                         | ** ** | **Fiscal Year Ended** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **December 30,**           | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                              | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2005** | ** ** |
| Federal statutory  income tax rate      |       | $                               | (8,276     | ) | $ | (13,843 | ) | $ | 1,637 |   |
| State income taxes                      |       | (21                             | )          | (315 | ) | 209 |   |
| Impairment of goodwill  and intangibles |       | 4,984                           |       | 11,301 |   | — |   |
| Foreign taxes                           |       | 48                              |       | — |   | 80 |   |
| Deferred compensation  adjustment       |       | —                          |       | — |   | 572 |   |
| Valuation allowance —  Federal     |       | 1,089                           |       | — |   | — |   |
| Other                                   |       | (237                            | )          | 49 |   | (244 | ) |
| Effective income tax  rate              |       | $                               | (2,413     | ) | $ | (2,808 | ) | $ | 2,254 |   |

 

The significant components of the Company’s deferredtax assets and liabilities at December 30, 2006 and December 31, 2005 are asfollows (in thousands):

|                                             | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Deferred tax assets —  current:        |       |                  |       |                  |       |
| Allowance for  doubtful accounts            |       | $                     | 454        |                  | $          | 232 |   |
| Deferred  revenues                          |       | 29                    |       | 52                    |       |
| Accrued expenses                            |       | 330                   |       | 304                   |       |
| Other                                       |       | 347                   |       | 192                   |       |
| Deferred tax  assets — current         |       | 1,160                 |       | 780                   |       |
| Valuation  allowance                        |       | (426                  | )          | —                |       |
| Net deferred tax  assets — current     |       | $                     | 734        |                  | $          | 780 |   |
| Deferred tax  liabilities — long-term: |       |                  |       |                  |       |
| Intangibles                                 |       | $                     | (1,754     | )                     | $          | (2,084 | ) |
| Other                                       |       | (58                   | )          | (95                   | )          |
| Deferred tax  liabilities — long-term  |       | (1,812                | )          | (2,179                | )          |
| Deferred tax assets —  long-term:      |       |                  |       |                  |       |
| Loan costs                                  |       | 1,262                 |       | 1,575                 |       |
| Reserves                                    |       | 372                   |       | 23                    |       |
| Depreciation                                |       | 452                   |       | 455                   |       |
| Net operating  loss and carryforwards       |       | 395                   |       | —                |       |
| Other                                       |       | 397                   |       | 277                   |       |
| Deferred tax  assets — long-term       |       | 2,878                 |       | 2,330                 |       |
| Net deferred tax  asset — long-term    |       | 1,066                 |       | 151                   |       |
| Valuation  allowance                        |       | (1,057                | )          | —                |       |
| Net deferred tax assets  — long-term   |       | $                     | 9          |                  | $          | 151 |   |

 

F-21

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A valuation allowance is provided when it ismore-likely-than-not that all or some of the deferred income tax assets willnot be realized. Management currently believes that it is more-likely-than-notthat the Company will not realize a portion of its deferred income tax assetsand, accordingly, has established a $1.5 million valuation allowance.

In connection with the reorganization described inNote 1, the Company entered into 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 SeniorSecured 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 $2.4 million was recorded as adistribution to parent.

**5.   Long-Term Incentive Plans**

***PhantomStock Plan***

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

Participants receive performance units in amountsrecommended by the CEO and determined by the Committee.  Once issued, performance units may only beforfeited upon certain events, such as a participant’s voluntary termination ortermination for cause.  Additionally, thePhantom Plan may be terminated by the Board of Directors at anytime at its solediscretion.  Upon the completion of aTriggering Event, Participants receive payments reflecting the number and valueof their performance units at the time of the completion of the TriggeringEvent.  Payments to Participants may bemade in cash or through issuance of equity securities of MFC, as determined bythe Committee, at which time compensation expense will be recognized.  The value of a performance unit at thecompletion of a Triggering Event is the value of one share of common stock ofMFC as determined in good faith by the Board of Directors.  If the Board of Directors determines theneed, it may seek the advice of an independent advisor.

F-22

----

The maximum number of performance units that may begranted under the Phantom Plan is one million units.  Subdivisions, splits or combinationsinvolving MFC’s Common Stock will proportionately affect the number of performanceunits that have been awarded under the Phantom Plan. In May 2004, the Committeeapproved the grant of up to 392,418 performance units allocated amongParticipants as determined by the Committee. In March 2006, the Committeeapproved the grant of up to 182,274 additional units to Participants identifiedby the Committee, resulting in total authorized grants of up to 574,692performance units.  During the year endedDecember 30, 2006, the Committee granted 218,730 performance units toParticipants.  Future grants, if any,shall also be determined by the Committee. As of December 30, 2006, a total of 460,130 performance units are issuedand outstanding.  Each of the NamedExecutive Officers currently employed by the Company are Participants and havereceived certain grants of units.

Effective January 1, 2006, the Company adoptedStatement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-BasedPayment,” (“SFAS 123(R)”), using the prospective transition method, whichrequires stock-based compensation to be measured based on the fair value of theaward on the date of grant and recognized over the period during which serviceis required in exchange for the award. In March 2005, the Securities and Exchange Commission (the “SEC”) issuedStaff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R).  The Company has applied the provisions of SAB107 in its adoption of SFAS 123(R).

Prior to January 1, 2006, the Company appliedAccounting Principles Board Opinion No. 25 (“APB 25”), “Accounting forStock Issued to Employees,” and related interpretations, and adopted thedisclosure-only provisions of Statement of Financial Accounting Standards No.123 (“SFAS 123”), “Accounting for Stock-Based Compensation.”  Under APB 25, no compensation expense wasrecognized in net income for grants under the Phantom Plan prior to fiscal2006.

SFAS 123(R) applies to all of the Company’soutstanding grants under the Phantom Plan. There are no other share-based payment awards outstanding.

Compensation costs for the grants under the PhantomPlan will be recognized upon the completion of a Triggering Event.  Accordingly, no compensation costs have beenrecognized in the consolidated statement of operations and comprehensive income(loss) for the year ended December 30, 2006.

Effective as of September 1, 2004, MFC terminated itsEmployee Stock Option Plan pursuant to the provisions of the plan.  No further options will be granted under theplan.  Valid and outstanding optionsgranted to plan participants prior to termination were unaffected by thetermination.  Concurrent with thetermination, the Company paid $108,000 for the repurchase of certain stockoptions from the plan participants. Concurrent with the issuance of the performance units of the PhantomPlan, most of the outstanding stock options were cancelled.  At December 30, 2006 and December 31, 2005,there were 10,000 stock options outstanding.

During the year ended January 1, 2005, the Companyrecognized $75,000 of compensation expense related to the fiscal 2001 issuanceof MFC stock options to certain employees of the Company.  Because the employees of the Company are thebeneficiaries of the grant of options in MFC stock, the related expense hasbeen reflected in the Company’s consolidated financial statements.

***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 vest25.0 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 of December30, 2006 there were outstanding options providing for the issuance of up to60,672 of those shares.  During fiscal2006, the non-executive Managers received 11,930 stock option grants.  Common stock of MFC issued under the DirectorStock Option Plan is subject to customary restrictions on transfer. Theadoption of FASB 123(R) did not have a material impact on the Company’sconsolidated financial statements.

F-23

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**6.    Commitments and Contingencies**

***Legal Matters***

The Company and its products are subject to regulationby numerous governmental authorities, including without limitation, federal,state and local laws and regulations governing franchising, health, sanitation,environmental protection, safety and hiring and employment practices.

In the ordinary course of business, the Company isinvolved in routine litigation, including franchise disputes and trademarkdisputes.  The Company is not a party toany legal proceedings (including the matter described below), which, in theopinion of management, after consultation with legal counsel, is material toits business, financial condition or results of operations.

Effective as of August 13, 2005, the Company’swholly-owned subsidiary, MFF, terminated two license agreements (the “LicenseAgreements”) with Shadewell Grove IP, LLC (“Shadewell”) for Shadewell’s failureto make certain payments to MFF in a timely manner.  These terminated License Agreements grantedShadewell a license to develop, manufacture, distribute and sell ready-to-eatshelf-stable cookie products and high quality, pre-packaged, ready-to-eat,pre-baked cookie products using certain Mrs. Fields trademarks, service marksand trade names in distribution channels designated in the LicenseAgreements.  As reported in our CurrentReport on Form 8-K filed with the SEC on May 12, 2006, on May 8, 2006, theCourt of Chancery of the State of Delaware ruled in the Company’s favor on allissues in the litigation filed by Shadewell in October 2005 against MFF.

***Operating Leases***

The Company leases office space, facilities andequipment under long-term non-cancelable operating lease agreements withremaining terms of one to ten years. Rent expense, net of sublease payments, was $2.1 million,$1.3 million and $1.2 million for the years ended December 30, 2006,December 31, 2005 and January 1, 2005, respectively.

As of December 30, 2006, the future minimum leasepayments due under operating leases are as follows (in thousands): 

| Fiscal Year | ** ** | ** ** | ** ** |
|------------------|------------|------------|------------|
| 2007             |       | $          | 2,529      |   |
| 2008             |       | 2,499      |       |
| 2009             |       | 2,556      |       |
| 2010             |       | 2,619      |       |
| 2011             |       | 1,655      |       |
| Thereafter       |       | 5,141      |       |
|             |       | $          | 16,999     |   |

 

F-24

----

As of December 30,2006, the future minimum sublease payments due to the Company under theseoperating leases are as follows (in thousands):

| Fiscal Year | ** ** | ** ** | ** ** |
|------------------|------------|------------|------------|
| 2007             |       | $          | 163        |   |
| 2008             |       | 122        |       |
| 2009             |       | 39         |       |
|             |       | $          | 324        |   |

 

***Contractual Arrangements***

The Company has entered into a supply agreement topurchase frozen dough products, which stipulates minimum annual purchasecommitments of not less than 12.5 million pounds of products,approximately $15.8 million based on weighted average prices in effect December30, 2006, each year through the end of the contract, December 2011.  These annual purchase commitments aresatisfied primarily through the direct purchase of frozen dough products byfranchisees.  Should the Company not meetthe annual minimum commitment, the supplier’s sole remedy, at its option, is tonegotiate with us in good faith on the conversion cost based on market pricesin the industry.

The supplier of the frozen dough product manufacturesits products in one location. A production disruption or the supplier’sinability to secure the raw materials used in the production of its products couldadversely affect the operating results of the Company and its franchisees.  Although management believes that othersuppliers could provide similar products on comparable terms, a change insuppliers could cause a delay in manufacturing and a possible loss of sales,which could adversely affect the financial position, results of operations orliquidity of the Company and its franchisees.

In December 2006, TCBY entered into two new SupplyAgreements, both dated effective as of December 5, 2006 to replace TCBY’sformer relationship with Americana Foods LP (Americana”).  The first Supply Agreement, between TCBY andScott Brothers Dairy, Inc. (“Scott Brothers”), provides for manufacturing ofTCBY’s soft-serve frozen yogurt products. The second Supply Agreement, between TCBY and Yarnell Ice Cream Company,Inc. (“Yarnell”), provides for manufacturing of TCBY’s hand-scooped frozenyogurt products.  Under the SupplyAgreements, Scott Brothers and Yarnell will make the frozen yogurt productsavailable to TCBY’s designated distributors, who will purchase the products forresale to TCBY franchisees.  Each SupplyAgreement has an initial term of three years and includes provisions related tolicensing of TCBY’s marks for purposes of production; pricing, payment, invoicingand collection; inventory controls; quality standards and assurance;indemnification and confidentiality.

**7.  Related-Party Transactions**

***Amounts Due To Affiliates***

The amounts due to affiliates are comprised of amountsdue to MFOC, MFH and MFC at December 30, 2006 and December 31, 2005 (inthousands): 

|                        | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
|------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **             | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| MFC — tax sharing |       | $                     | 3,166      |                  | $          | 3,138 |   |
| MFOC                   |       | 349                   |       | 538                   |       |
| MFH                    |       | 273                   |       | 273                   |       |
|                   |       | $                     | 3,788      |                  | $          | 3,949 |   |

 

F-25

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***Management Agreement with MFOC***

In connection with the reorganization (seeNote 1), the Company entered into a management agreement with MFOC,pursuant to which the Company provides business and organizational strategy,financial and investment management and other executive-level managementservices to MFOC and its subsidiaries (other than the Company) upon the termsand subject to the conditions set forth in the management agreement.  As compensation for these services, on amonthly basis, MFOC reimburses the Company the allocated costs of the fixedgeneral and administrative functions plus the variable general andadministrative functions dedicated to the providing of these services asdetermined in good faith by the Company and MFOC.  These reimbursement amounts are intended toreflect the actual costs of providing these services and are not intended togenerate revenues for the Company. Management expects that the reimbursement amounts will decrease overtime as MFOC reduces its store operations.

The management agreement also provides that anyamounts received by a party to the management agreement that, pursuant to itsterms, is the property of the other party, promptly shall be remitted to suchother party.  It is intended that themanagement agreement will continue in effect until the expiration of all storeleases for which MFOC is the lessee.  Forthe years ended December 30, 2006, December 31, 2005 and the period from thereorganization through January 1, 2005, MFOC reimbursed the Company $512,000,$2.4 million and $2.8 million, respectively, for management services providedunder the management agreement.

***Franchise Agreements with MFOC***

Concurrent with the completion of the reorganization(see Note 1), certain of the Company’s brand franchisor subsidiariesentered into franchise agreements with MFOC, which permit MFOC to sell anddistribute the Company’s products in MFOC’s owned stores upon payment offranchise royalties and other amounts required under the franchiseagreements.  These franchise agreementsare similar to the Company’s standard form of franchise agreement, except thatthe Company did not charge MFOC an up-front franchising fee for stores open asof the date of the franchise agreements in recognition of the fact that thestores owned and operated by MFOC were operated prior to giving effect to thereorganization.

These franchise agreements are terminable by theCompany in the event of non-payment of the franchise royalties for a period of10 days, followed by a 10-day opportunity to cure, or other materialviolation of the franchise agreements. The aggregate amount of franchise royalties paid to the Company by MFOCfor the years ended December 30, 2006 and December 31, 2005 and for the periodfrom the reorganization through January 1, 2005 was $120,000, $689,000 and $2.8million, respectively.

***MFOC Sublease***

Concurrent with the completion of the reorganization(see Note 1), the Company entered into an assignment agreement whereby thelease for the corporate headquarters was assigned from MFOC to theCompany.  MFOC then entered into asublease with the Company and will pay the Company, over the term of thesublease, agreed rental payments that have been established based on estimatedusage of the headquarters by their personnel. For the years ended December 30, 2006 and December 31, 2005 and theperiod from the reorganization through January 1, 2005, MFOC paid rent of$93,000, $289,000 and $220,000, respectively, to the Company.  During fiscal 2007, no rental payments willbe received from MFOC under this agreement.

F-26

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***MFOC Collection Agency Agreement***

Concurrent with the completion of the reorganization(see Note 1), the Company entered into a collection agency agreement withMFOC under which the Company agreed to act as MFOC’s collection agent forsubtenant rental payments made by the Company’s franchisees who operate storespreviously owned by MFOC on which MFOC remains as the tenant.  The Company does not separately charge MFOCfor this service, rather, the performance of this service is considered part ofthe management agreement with MFOC.

***Insurance Allocation Agreement with MFC***

Concurrentwith the completion of the reorganization (see Note 1), the Companyentered into an insurance allocation agreement with MFC under which the Companyagreed to make certain payments to MFC in respect to the Company’s share ofcertain insurance costs, allocated based on the Company’s estimation of theappropriate risk of loss of each of MFC’s subsidiaries.  The insurance allocation agreement alsoprovides for the allocation of workers’ compensation costs based on therespective employee payroll and employment category risk factor of each of MFC’ssubsidiaries that generates payroll.  Forthe years ended December 30, 2006 and December 31, 2005 and the period from thereorganization through January 1, 2005, the Company paid MFC $1.1 million, $1.3million and $925,000, respectively, for the Company’s share of insurance costs.Cash payments made by the Company to MFC under the insurance allocationagreement are permitted under the Indenture and do not decrease dividends orpayments that may be made to parent entities of the Company under the Indenture’savailable baskets.

***Benefits Agreement with MFOC***

Concurrent with the completion of the reorganization(see Note 1), the Company entered into a benefits agreement with MFOCunder which the Company agreed to make certain payments to MFOC in respect tothe Company’s share of employee benefits costs based on the number of theCompany’s employees.  Costs associatedwith the Company’s employees providing services to MFOC under the managementagreement are allocated consistent with the shared expenses under themanagement agreement.  For the yearsended December 30, 2006 and December 31, 2005 and the period from the reorganizationthrough January 1, 2005, the Company paid MFOC $3.3 million, $2.9 million and$1.9 million, respectively, for the Company’s share of employee benefits costs.Cash payments made by the Company to MFOC under the benefits agreement arepermitted under the Indenture and do not decrease dividends or payments thatmay be made to parent entities of the Company under the Indenture’s availablebaskets.

***Shadewell Grove Holdings, LLC and Shadewell Grove IP, LLC***

Prior to 2004, the Company had entered into varioustrademark license agreements and exclusively licensed certain recipes to Nonni’sFood Company, Inc. (“Nonni’s”), a manufacturer and distributor of softbaked cookies.  In addition, the Companyowned warrants to purchase 111,111 shares of Nonni’s common stock at anexercise price of $10.775.   In March2004, Nonni’s was acquired by a third party investor in a stock purchase (the “Nonni’sPurchase”).  As part of the Nonni’sPurchase, in consideration for the sale of the warrants to purchase 111,111shares of Nonni’s common stock, the Company was to receive an aggregate of $1.3million, of which approximately $200,000 was being held in an escrow accountpending post-closing adjustments related to the Nonni’s Purchase.   As a result, the Company recorded a gain onthe sale of these warrants of $1.1 million in other income in the consolidatedstatement of operations during the year ended January 1, 2005.  The Company received $122,000 in January 2006from Nonni’s as final settlement related to the amount previously held inescrow and recorded a gain on the sale of the warrants in other income in theconsolidated statement of operations and comprehensive income (loss) during thefirst quarter of fiscal 2006.

Immediately prior to the Nonni’s Purchase, theMrs. Fields product division of Nonni’s and its related assets werecontributed to a newly-formed entity, Shadewell Grove Holdings, LLC (“ShadewellHoldings”).  The Company received fromShadewell Holdings its pro-rata share of preferred units in Shadewell Holdings,approximately 4.1 percent, as if the warrants in Nonni’s common stock had beenexercised immediately prior the Nonni’s purchase.

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In March 2005 and December 2004, the Company paidShadewell Holdings approximately $48,000 and $102,000, respectively, foradditional preferred units of Shadewell Holdings to maintain its pro-rataownership of Shadewell Holdings.  Thisinvestment is recorded in other assets in the consolidated balance sheet as ofDecember 31, 2005 and was written off to loss on sale of non-marketablesecurities during the year ended December 30, 2006.  The Company has appointed John Lauck, one ofits executive officers, to represent the Company as a director of ShadewellHoldings.

Shadewell, a wholly-owned subsidiary of ShadewellHoldings, had licenses to develop, manufacture and distribute ready-to-eatshelf stable cookie products utilizing the Mrs. Fields trademarks, servicemarks and trade names through retail distribution channels and designated foodservice distribution channels.  Shadewellalso has a license to market and distribute high quality, pre-packagedchocolate chips utilizing the Mrs. Fields trademarks, service marks and tradenames through designated retail distribution channels.  For the years ended December 30, 2006,December 31, 2005, and January 1, 2005, the Company earned royalty andlicensing revenues associated with the licensing and recipe sales agreements of$420,000, $2.3 million and $3.1 million, respectively.

In December 2004, the Company terminated the licenseagreement with Shadewell to market and distribute high quality, frozen cookiedough products utilizing the Mrs. Fields trademarks, service marks and tradenames to the food away from home industry through designated food servicedistribution channels.  Among otherreasons, the Company pursued the termination of this license to better alignthe Company’s interests with those of the Company’s franchisees.  The Company paid Shadewell a termination feeof $1.1 million and in return received from Shadewell an indemnification andrelease of any and all claims arising from the license agreement.  The termination fee was recorded in licensingexpenses in the consolidated statement of operations for the year ended January1, 2005.

Until June 27, 2006, Shadewell continued to operateunder the terminated License Agreements. On June 27, 2006, MFF and Shadewell entered into a consulting agreement(the “Shadewell Consulting Agreement”) whereby Shadewell employees wouldprovide consulting and training services to MFF employees through August 28,2006 to assist MFF in establishing its own business selling products throughdesignated retail distribution channels. The Shadewell Consulting Agreement was extended through October 28,2006.  Shadewell received for itsservices a fee of $395,000, which was paid during the third quarter 2006.

On July 5, 2006, MFF began operating its new brandedretail business, including selling products to retail customers directly orthrough brokers, purchasing inventory from contract manufacturers and arrangingfor distribution of products to these customers.  As a result, management anticipates the useof significant cash to operate the business while it identifies a new licenseeor develops another strategy for the operation of the type of business formerlyoperated by Shadewell.

***Co-marketing and Supply Agreement***

Americana was owned by an entity in which a limitedpartner of the entity is a subsidiary of a significant shareholder of MFC.  Americana manufactured yogurt-based products,ice cream and novelty items for sale and distribution to TCBY’s franchisees anddistributors under the TCBY Supply Agreement dated November 19, 2002 (the “ExclusiveSupply Agreement”).  In October 2006,TCBY was notified that on October 11, 2006, CB Americana, LLC, the generalpartner of Americana, filed an Involuntary Petition (“Involuntary Petition”)with the United States Bankruptcy Court for the Northern District of Texas,naming Americana as a debtor under Chapter 7 of the Bankruptcy Code. Americanawas the principal supplier of TCBY’s frozen yogurt products under the ExclusiveSupply Agreement.  Production of TCBYproducts at Americana has ceased in connection with the Involuntary Petition.

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In addition, Americana owed TCBY approximately$585,000 for amounts collected by Americana on behalf of TCBY for product soldand for decreases in the price of commodities that TCBY was entitled to receivefrom Americana under the Supply Agreement. During the third quarter of 2006, TCBY recorded bad debt expense ofapproximately $585,000 and has written off this receivable.

Under the TCBY Supply Agreement, the Companyrecognized revenues related to the product manufactured by Americana of$8.6 million, $9.6 million and $11.7 million for the years endedDecember 30, 2006, December 31, 2005 and January 1, 2005, respectively. Inaddition, Americana sold TCBY branded frozen specialty products and private labelproducts through retail channels and paid TCBY a portion of the sales priceunder the TCBY Supply Agreement.  TCBYinvoiced Americana $606,000, $711,000 and $930,000 for the years ended December30, 2006, December 31, 2005 and January 1, 2005, respectively, relating to TCBY’sportion of these sales.  As a result ofthese sales, TCBY must reimburse Americana for certain costs.  Americana invoiced TCBY $45,000, $180,000 and$381,000 for the fiscal years ended December 30, 2006, December 31, 2005 andJanuary 1, 2005, respectively, relating to the reimbursement of these costs.

**8.   Employee Benefit Plans**

MFOC sponsors the Mrs. Fields’ OriginalCookies, Inc. 401(k) Retirement Savings Plan (the “Plan”) for all eligibleemployees of MFOC and its subsidiaries.  Underthe terms of the Plan, employees may make contributions to the Plan.  For the years ended December 30, 2006,December 31, 2005 and January 1, 2005, a portion of the employee contributionsto the Plan were matched by contributions from the Company at the rate of100 percent of the first three percent of employee contributions plus50 percent of the next two percent of employee contributions.  The total matching contributions made by theCompany to the Plan for the years ended December 30, 2006, December 31, 2005and January 1, 2005 were approximately $405,000, $349,000 and $294,000,respectively.

**9.   Reportable Segments**

Operating segments are components of the Company forwhich separate financial information is available that is evaluated regularlyby management in deciding how to allocate resources and assessperformance.  This information isreported on the basis that it is used internally for evaluating segmentperformance.  The Company has fourreportable operating segments; franchising, gifts, branded retail andlicensing.  The accounting policies forthe segments are the same as those discussed in the summary of significantaccounting policies (see Note 2).  Salesand transfers between segments are eliminated in consolidation.

The franchising segment consists of revenues receivedeither directly or indirectly from cookie, yogurt and pretzel stores, which areowned and operated by third parties. These revenues include initial franchise or license fees, monthlyroyalties based on a percentage of a franchisee’s gross sales, sales of cookiedough that the Company produces and certain product formulation fees andsupplier allowances which are based upon sales to franchisees.

The gifts segment includes sales generated from theCompany’s mail order gift catalog and website.

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The branded retail segment consists of sales generateddirectly from the sale of Mrs. Fields products through various retailchannels.  As a result of terminatingcertain licensing agreements, the Company began operating a new branded retailbusiness in July 2006.  The Companydetermined that with these new business activities, the branded retail segmentconstituted a reportable segment under SFAS No. 131 (“SFAS 131”), “DisclosureAbout Segments of an Enterprise and Related Information” and has restated thecorresponding items of segment information for prior periods to conform to thecurrent year’s presentation.  Prior tothis year, our revenues and operating expenses associated with branded retailactivities did not meet the quantitative thresholds of SFAS 131 and wereincluded in other revenues and other operating expenses.

The licensing segment consists of other licensing activitiesfrom third parties for the sale of products bearing the Company’s brand names.

The Company evaluates the performance of each segmentbased on contribution.  Contribution iscomputed as the difference between the revenues generated by a reportablesegment and the selling and occupancy expenses, cost of sales and direct operatingexpenses related to that reportable segment. Contribution is used as a measure of the operating performance of anoperating segment.  The Company does notallocate any indirect general and administrative expense, interest expense,depreciation and amortization or assets to its reportable operating segments.

Segment revenues and contribution for the years endedDecember 30, 2006, December 31, 2005 and January 1, 2005 are presented in thefollowing table (in thousands):

|                        | ** ** | **For the Fiscal Year Ended** | ** ** |
|------------------------|------------|---------------------------------------------------|------------|
| ** **             | ** ** | **December 30,**                             | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| **Total Company** | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2005** | ** ** |
| Revenues:              |       |                                              |       |   |   |   |   |
| Franchising            |       | $                                                 | 53,053     |   | $ | 53,528 |   | $ | 55,913 |   |
| Gifts                  |       | 30,708                                            |       | 30,136 |   | 25,849 |   |
| Branded retail         |       | 10,989                                            |       | 272 |   | 353 |   |
| Licensing              |       | 1,838                                             |       | 4,016 |   | 4,945 |   |
|                   |       | $                                                 | 96,588     |   | $ | 87,952 |   | $ | 87,060 |   |
| Contribution:          |       |                                              |       |   |   |   |   |
| Franchising            |       | $                                                 | 29,013     |   | $ | 31,782 |   | $ | 34,020 |   |
| Gifts                  |       | (1,671                                            | )          | 1,718 |   | 5,116 |   |
| Branded retail         |       | (408                                              | )          | 53 |   | 206 |   |
| Licensing              |       | 427                                               |       | 2,884 |   | 3,429 |   |
|                   |       | $                                                 | 27,361     |   | $ | 36,437 |   | $ | 42,771 |   |

 

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The reconciliation of contribution to net income(loss) for the years ended December 30, 2006, December 31, 2005 and January 1,2005 is as follows (in thousands): 

|                                                                                                  | ** ** | **For the Fiscal Year Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                       | ** ** | **December 30,**                             | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                                                                       | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2005** | ** ** |
| Contribution                                                                                     |       | $                                                 | 27,361     |   | $ | 36,437 |   | $ | 42,771 |   |
| General and  administrative expense                                                              |       | (11,661                                           | )          | (8,527 | ) | (9,727 | ) |
| Stock compensation  expense                                                                      |       | —                                            |       | — |   | (75 | ) |
| Other operating  expense, net                                                                    |       | —                                            |       | — |   | (249 | ) |
| Interest expense, net                                                                            |       | (20,892                                           | )          | (20,943 | ) | (24,905 | ) |
| Other (expense) income                                                                           |       | (28                                               | )          | — |   | 1,054 |   |
| Depreciation and  amortization                                                                   |       | (4,553                                            | )          | (3,976 | ) | (4,053 | ) |
| Impairment of goodwill  and intangible assets                                                    |       | (14,568                                           | )          | (43,707 | ) | — |   |
| Benefit (provision) for  income taxes                                                            |       | 2,413                                             |       | 2,808 |   | (2,254 | ) |
| Income (loss) from  continuing operations                                                        |       | (21,928                                           | )          | (37,908 | ) | 2,562 |   |
| Income from  discontinued operations (net of income taxes of $0, $0 and  $65, respectively) |       | —                                            |       | — |   | 104 |   |
| Net income (loss)                                                                                |       | $                                                 | (21,928    | ) | $ | (37,908 | ) | $ | 2,666 |   |

 

The fixed assets and inventories of the Companyprimarily relate to the Company’s Great American Cookies manufacturingfacility, branded retail segment, gifts business segment and relatedactivities.  Assets relating tofranchising and licensing activity are primarily amounts due from franchiseesand licensees and goodwill relating to franchising concepts.

Revenues from franchisees, customers and licenseeswithin the United States were $93.0 million, $86.5 million and $86.1 million or96.3 percent, 98.3 percent and 98.9 percent of total revenues for the yearsended December 30, 2006, December 31, 2005 and January 1, 2005,respectively.  Revenues frominternational franchisees, customers and licensees were $3.6 million, $1.5million and $1.0 million or 3.7 percent, 1.7 percent and 1.1 percent of totalrevenues for the years ended December 30, 2006, December 31, 2005 and January1, 2005, respectively.  Revenues from anysingle foreign country were not material. Providing geographical information regarding long-lived assets isimpracticable.

For the years ended December 30, 2006, December 31,2005 and January 1, 2005, the Company has one licensee that accounted forapproximately $600,000, $700,000 and $900,000 or 33.1 percent, 17.7 percent and18.8 percent of the revenues of the licensing segment; one licensee that accountedfor approximately $600,000, $700,000 and $700,000 or 30.7 percent, 17.0 percentand 14.3 percent of the revenues of the licensing segment and; one licenseethat accounted for approximately $400,000, $2.3 million and $3.1 million or 22.9percent, 57.6 percent and 62.7 percent of the revenues of the licensingsegment.

The Company has one customer in its gifts operatingsegment that accounted for $4.0 million, $3.6 million and$4.2 million or 13.0 percent, 11.8 percent and 16.2 percentof revenues of the gifts operating segment for the years ended December 30,2006, December 31, 2005 and January 1, 2005, respectively.  There were no other customers or licenseesthat accounted for more than ten percent of Mrs. Fields’ totalrevenues or any individual segment’s revenues.

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**10.   Supplemental Condensed ConsolidatingFinancial Information**

The Senior Secured Notes were issued by the Companyand Mrs. Fields Financing Company, Inc., as co-issuers.  Mrs. Fields Financing Company, Inc. is awholly-owned finance subsidiary of the Company.   The Senior Secured Notes are fully andunconditionally guaranteed on a joint and several basis by all of the Company’sdomestic subsidiaries other than minor 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.

**11.   Liquidity and Capital Resources**

Management has implemented plans to reduce operatingcosts, as evidenced by its management reorganization plan.  TheCompany believes, based on historicalresults and current projections, its reorganization and control of operatingexpenses, that the cash currently on hand and expected cash flows from futureoperations will be sufficient to continue operations for at least the next 12months.  The Company is also exploringpotential equity contributions, permissible loans and other financing asadditional sources of cash.  Failureto achieve the anticipated benefit from its management reorganization may resultin the Company’s inability to continue operations in its current state andwould have a material adverse impact on its operations.  Accordingly,there can be no assurance that actual results will meet or exceed the Company’sprojections or that the Company’s future operating activities will generatesufficient cash to meet its cash requirements for the next 12 months.

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