** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

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

### ** **

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**FORM 10-K**

** **

| **(Mark One)**                                                     | ** **                                                                                               |
|--------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| x                                                                  | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**     |
|                                                               | ** **                                                                                               |
| **For the fiscal year ended December 29, 2007**               |
| ** **                                                         |
| **OR**                                                             |
| ** **                                                         |
| o                                                                  | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|                                                               | ** **                                                                                               |
| **For the transition period from     to** |

 

**Commission file number:  333-115046**

** **

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**MRS. FIELDS FAMOUSBRANDS, LLC**

(Exact Name of Registrant Specified in Its Charter)

 

| **Delaware**                                                    | ** ** | **80-0096938**                    |
|-----------------------------------------------------------------|------------|-----------------------------------|
| (State or Other Jurisdiction of

Incorporation or Organization) |       | (IRS Employer Identification No.) |

 

**2855 East Cottonwood Parkway, Suite 400**

**Salt Lake City, Utah 84121-1050**

(Address of principal executive offices)

 

Registrant’s telephone number, including area code:**(801) 736-5600**

 

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

 

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

 

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        Indicate by check mark if the registrantis a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct.   YES o  NO x

 

        Indicate bycheck mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.  YES o  NO x

 

        Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. YES x  NO o

 

        Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

 

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

 
| Large accelerated filer o | Accelerated filer o                            | Non-accelerated filer  x | Smaller reporting company o |
|---------------------------|------------------------------------------------|-------------------------------|-----------------------------|
|                      | (Do not check if a  smaller reporting company) |                          |

 

        Indicate bycheck mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act).

YES o  NO x

 

        On March 15,2008, 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 15,2008, 100 common interests of registrant were outstanding.

 

### **DOCUMENTSINCORPORATED BY REFERENCE:  None**

 

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

### ** **

**TABLE OF CONTENTS**

 
|          |                                                                                        | **Page** |
|---------------|---------------------------------------------------------------------------------------------|----------|
|          |                                                                                        |     |
| PART I   |
|          |                                                                                        |     |
| Item 1.       | Business                                                                                    | 4        |
|          |                                                                                        |     |
| Item 1A.      | Risk Factors                                                                                | 16       |
|          |                                                                                        |     |
| Item 2.       | Properties                                                                                  | 25       |
|          |                                                                                        |     |
| Item 3.       | Legal Proceedings                                                                           | 25       |
|          |                                                                                        |     |
| Item 4.       | Submission of  Matters to a Vote of Security Holders                                        | 25       |
|          |                                                                                        |     |
| PART II  |
|          |                                                                                        |     |
| Item 5.       | Market for  Registrant’s Common Equity and Related Stockholder Matters                 | 26       |
|          |                                                                                        |     |
| Item 6.       | Selected Financial  Data                                                                    | 26       |
|          |                                                                                        |     |
| Item 7.       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations | 27       |
|          |                                                                                        |     |
| Item 7A.      | Quantitative  and Qualitative Disclosures about Market Risk                                 | 50       |
|          |                                                                                        |     |
| Item 8.       | Financial  Statements and Supplementary Data                                                | 50       |
|          |                                                                                        |     |
| Item 9.       | Changes In and  Disagreements With Accountants on Accounting and Financial Disclosure       | 50       |
|          |                                                                                        |     |
| Item 9A.      | Controls and  Procedures                                                                    | 50       |
|          |                                                                                        |     |
| Item 9B.      | Other Information                                                                           | 51       |
|          |                                                                                        |     |
| PART III |
|          |                                                                                        |     |
| Item 10.      | Directors and  Executive Officers of the Registrant                                         | 52       |
|          |                                                                                        |     |
| Item 11.      | Executive  Compensation                                                                     | 55       |
|          |                                                                                        |     |
| Item 12.      | Security  Ownership of Certain Beneficial Owners and Management                             |     |
|          | and Related  Stockholder Matters                                                            | 63       |
|          |                                                                                        |     |
| Item 13.      | Certain  Relationships and Related Transactions                                             | 64       |
|          |                                                                                        |     |
| Item 14.      | Principal Accounting Fees and Services                                                      | 66       |
|          |                                                                                        |     |
| PART IV  |
|          |                                                                                        |     |
| Item 15.      | Exhibits and  Financial Statement Schedules                                                 | 67       |
|          |                                                                                        |     |
| SIGNATURES    | 77                                                                                          |

 

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        Unless the context otherwise requires,references in this report to the terms “Company,”  “we,” “us,” or “our” generally refer to Mrs. FieldsFamous Brands, LLC, a Delaware limited liability company, and its subsidiaries.

 

**DISCLOSUREREGARDING FORWARD-LOOKING STATEMENTS**

 

        This report includes “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995.  Forward-looking statements arethose 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 tradenames and trademarks owned or registered by third parties, such as “NexCen,” “Nabisco,”“Keebler” and “Dove.”  We have notidentified the owners of such marks, who are unrelated to the Company.

 

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**PART I**

** **

# **Item 1. Business**

# ** **

# **Overview**

# ** **

        We are a well establishedfranchisor in the premium snack food industry, featuring Mrs. Fieldsâand TCBYâ as our core brands.  Through our franchisees’ retail stores, weare one of the largest retailers of freshly baked, on-premises specialtycookies and brownies in the United States of America (the “United States”) andthe largest retailer of soft-serve frozen yogurt with live active cultures inthe United States.  In addition, weoperate a gifts and a branded retail business and have entered into licensingarrangements that attempt to leverage awareness of some of our core brandsamong our retail customer base.  As of December 29,2007, our franchise systems operated through a network of 1,608 retail conceptlocations throughout the United States and in 22 foreign countries.

 

### ***Our History***

### ** **

        We were formed in March 2004 in connection with thereorganization of certain entities and segments that are under the commoncontrol of Mrs. Fields’ Companies, Inc. (“MFC”).  We are awholly owned subsidiary of Mrs. Fields’ Original Cookies, Inc. (“MFOC”).  MFOC is a wholly owned subsidiary of Mrs. Fields’Holding Company, Inc. (“MFH”) and MFH is a wholly owned subsidiary ofMFC.  The majority shareholders of MFCare 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 of transactions, weformed or acquired from MFOC new single member domestic limited liabilitycompanies that are disregardedentities for U.S. federal income tax purposes for each of our major brands,including Mrs. Fields Franchising, LLC (“MFF”) and TCBY Systems, LLC (“TCBY”).  These subsidiaries hold certain assets of,and act 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). Until recently, our subsidiaries also included the franchisors forthe Great American Cookiesâ, Pretzel Timeâ and Pretzelmakerâ brands (collectively, “Pretzel Brands”), aswell as GAMAN, LLC, formerly Great American Manufacturing, LLC (“GAM”), whichproduced the batter for Great American Cookie franchisees.  We and our subsidiaries subsequently soldthese brands and substantially all of the assets associated with theirbusinesses.  The activities for thePretzel Brands are included in the accompanying consolidated financialstatements through August 7, 2007, the date of sale.  The activities for the Great American Cookiebrands are included in the accompanying consolidated financial statements forfiscal year 2007 as the date of the sale was subsequent to year end.

 

        We are highlyleveraged.  As of December 29, 2007,our outstanding long-term debt consisted of $80.7 million of 9 percent seniorsecured notes (the “9 percent Senior Secured Notes”) and $115.0 million of 111⁄2percent senior secured notes (the “111⁄2 percent Senior Secured Notes” togetherwith the 9 percent Senior Secured Notes, the “Senior Secured Notes”).

 

### ***Business Strategy***

### ** **

        Webelieve our business strategy aligns the interests of our company with theinterests of our retail franchisees and focuses our joint efforts onstrengthening and broadening the appeal of our brands through satisfying thewants and needs of consumers.  Duringfiscal year 2007, our strategy focused on one key objective:

 

·                  to focus on the growth ofeach of our brands by increasing the number of retail units and profitablesales.

 

        To accomplish this objective, wereorganized all of our resources on December 31, 2006 to focus primarilyon those key areas we identified as vital to the future growth of ourbrands.  We believe our currentorganization provides us with the structure necessary to maintain that focus.

 

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Aswe worked towards accomplishing our key objective for fiscal year 2007, we usedsimilar performance indicators to those we used in fiscal year 2006 to measureour progress:

 

·                  year-over-year same storefranchise sales;

·                  net change in number ofretail concept locations; and

·                  growth in branded retail,licensing and gifts revenues.

 

Aspart of our organization, we have appointed presidents for each of our brandgroups, including Mrs. Fields and TCBY. While their respective responsibilities differ somewhat, thesepresidents focus solely on their brands and are accountable for the futuregrowth and development of those brands. They also have responsibility for each of the support functionsnecessary for brand success.

 

## ***GreatAmerican Cookies, Pretzel Time and Pretzelmaker***

## *** ***

Priorto the sale of the Great American Cookie and Pretzel Brands, these brands wereheaded by a president responsible for the operations, development, real estateand marketing functions that supported these brands.  The president also had responsibility for theGAM facility.

 

Asdiscussed below, the Pretzel brands were sold in August 2007 and GACCF,LLC (“GACCF”) and GAMAN, LLC, formerly Great American Cookie CompanyFranchising, LLC and GAM (collectively “GAC”) were sold in January 2008.

 

## ***Mrs. Fields***

## *** ***

OurMrs. Fields brand is headed by a president responsible for overseeing eachof the sales channels through which we approach customers under the Mrs. Fieldsname.  The president of Mrs. Fields is also responsible foroverseeing functions in support of the brand, including operations,development, real estate and marketing. We operate in four distinct channels:

 

·                  Franchising, which includes franchised retailstores located mostly in malls;

·                  Gifting, our online and catalogue baseddirect sales business, that sells cookie and brownie gift assortments;

·                  Branded Retail, which includes our packagedgoods cookies sold through grocery stores, drug stores, convenience stores andother merchants; and

·                  Licensing, which generates revenues bylicensing our brand name to manufacturers of boxed chocolates, gourmet popcorn,ice cream sandwiches and other products.

 

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

 

## ***TCBY***

## *** ***

Our TCBY brand is headed by a president responsible for the operations,development, real estate and marketing, as well as the further testing anddevelopment of a new dairy concept, Yovana® Yogurt Café (“Yovana”).  We have invested in the TCBY brand and workedto rebuild and grow the TCBY business. We continue to believe that the TCBY brand has great potential withconsumers.

 

## ***Administration***

## *** ***

The Company’sExecutive Vice President and Chief Legal Officer oversees the legal, humanresources, training, and purchasing and distribution departments and also hasresponsibility for international operations and development.  In addition, he has been integral incompleting the recent sale of several of our brands as discussed more fullybelow.

 

## ***Financeand Accounting***

## *** ***

The Company’s VicePresident and Chief Accounting Officer oversees finance, planning and analysis,accounting, information technology and internal audit.

 

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***Recent Developments***

 

## ***Sale of Pretzel Brands***

## *** ***

On August 7, 2007(the “Pretzel Closing Date”), the Company and its wholly owned subsidiaries,PTF, LLC and PMC, LLC, formally Pretzel Time Franchising, LLC and PretzelmakerFranchising, LLC, respectively, (collectively “Pretzels”), completed a sale ofcertain assets, consisting primarily of identifiable intangible assets ofPretzels, to NexCen Brands, Inc. (“NexCen Brands”), through its whollyowned subsidiary, NexCen Asset Acquisition, LLC (collectively with NexCenBrands, “NexCen”), for $29.3 million, consisting of $22.0 million in cash and997,671 shares of NexCen Brands common stock valued at $7.35 per share on thedate of the sale.  Under the terms of theasset purchase agreement, $2.9 million (397,121 shares) and $1.0 million(136,054 shares) of the NexCen Brands common stock, valued at $7.35 per share,will be held in escrow for nine and fifteen months, respectively, pendingsatisfaction of certain standard representations and warranties.  The carrying amount of the identifiableintangible assets was $0 on the date of the sale as the intangible assets wereeither internally generated or fully amortized. Goodwill related to Pretzels totaled $13.8 million on the date of sale.  The total amount of net proceeds from thesale of Pretzels was $20.0 million at December 29, 2007 and is included inrestricted cash in the accompanying consolidated financial statements.

 

We are restricted fromselling the shares of the NexCen Brands common stock until twelve months afterthe Pretzel Closing Date and then only 25 percent of the total number of sharesevery three months thereafter.  Due tothe restrictions on the sale of the NexCen Brands common stock, we recorded theshares at a 25 percent discount from the fair value on the date of sale.  The shares that may be traded within 12months of December 29, 2007 ($2.5 million) have been reported as of December 29,2007 as available-for-sale securities in accordance with Statement of FinancialAccounting Standards (“SFAS”)  No. 115,“Accounting for Certain Investments in Debt and Equity Securities” in theaccompanying consolidated financial statements. The remainder of the stock that is not available for sale within 12months of December 29, 2007 ($2.7 million) is accounted for using the costmethod at the discounted basis and is included in other assets in theaccompanying consolidated financial statements.

 

The net proceeds of thesale, taking into effect the 25 percent discount for the restricted stock,totaled $26.1 million (net of $1.4 million of direct costs of the sale) andresulted in a gain on sale totaling $12.2 million.  This gain does not necessarily reflect thevalue we may ultimately realize from this investment.  Our ability to realize the recorded value ofour shares of NexCen is subject to various risks, including NexCen’sperformance in the future, volatility in the market price for the shares andthe existence of sufficient market liquidity to absorb our position, all ofwhich are beyond our control.  As aresult, the amount we will realize from this investment is uncertain.

 

## ***Sale of GAC Brands***

## *** ***

On January 29, 2008(the “GAC Closing Date”), the Company and its wholly owned subsidiaries, GAC,completed the sale of substantially all of the assets of GAC to NexCen,pursuant to an asset purchase agreement (the “GAC Agreement”), for a totalpurchase price of approximately $93.6 million (the “GAC Transaction”). The purchase price consisted of $89.0 million in cash and 1,099,290 shares ofNexCen Brands common stock valued at $4.23 per share.  The net proceeds from the sale of GAC isconsidered restricted cash and will be reflected as restricted cash in ourconsolidated financial statements.  Theshares were deposited into an escrow account subject to an escrow agreement toindemnify NexCen for certain claims that may be made under the GAC Agreementfor a period ending nine months from January 29, 2008.  Additionally, Mrs. Fields was requiredto pay $6.7 million of the GAC Transaction proceeds to certain of GACCF’sfranchisees at the GAC Closing Date, in satisfaction of rights they held inconnection with the sale of the GACCF system, as described in a Settlement andRelease Agreement signed as of January 29, 2008, by and among suchfranchisees, NexCen Brands, GACCF, the Company and MFOC.  Under the termsof the GAC Agreement, we are not permitted to sell the shares issued for sixmonths following the GAC Closing Date and thereafter, certain of the shareswill be subject to resale limitations through the 15-month anniversary of theGAC Closing Date.

 

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#### * *

#### ***Description of Business***

#### * *

###### *Our Brands*

###### * *

*Mrs. Fields. *Debbi Fields opened her first store in Palo Alto,California in 1977.  The Mrs. Fieldsname quickly became associated with quality, freshly baked cookies rightout-of-the-oven in a retail setting.  Thestrength of the Mrs. Fields brand name enjoys high consumer brandawareness.  By building on its legendarychocolate chip and white chocolate macadamia nut cookies, the Mrs. Fieldsbrand has developed a comprehensive product line that includes many of America’smost beloved snack food treats.

 

After 30 years, consumers still know and love the Mrs. Fieldsbrand.  However, we are in the process of revitalizing our brand image toconsumers.  We initiated these efforts in fiscal year 2007 with the “Searchfor the 30th Anniversary Cookie” — a contest for one of our customers to becomethe creator of the next Mrs. Fields cookie.  Additionally, we havebeen focused on developing a new store design that highlights our brand. This new store design is intended to capture more customers in a typical mallenvironment by being more attractive and captivating.  Our objectivesthrough this design are to provide a contemporary version of Mrs. Fields,to reinforce our indulgent brand equity and to grow sales in an effort to helpmake our business model more attractive to franchisees.

 

Across our other channelsof business outside of franchised stores, we continue to focus on ensuring thequality of our Mrs. Fields products. Additionally, we are continuing to innovate our packaging so that itpromotes our brand.  We are also pursuing brand equity by strengtheninglicensee partnerships to launch products, such as the Mrs. Fields/BreyersCookie Ice Cream Sandwich.  Above all, weare focused on continuing to serve the best cookies, brownies and cookie cakeson the market in celebration of Debbi’s 30 year legacy.

 

*TCBY.* TCBY has been a frozen treats productinnovator since its first opening in Little Rock, Arkansas in 1981.  The great tasting frozen yogurt conceptreceived an enthusiastic response from an increasingly health conscious publicand was the first in a line of ground breaking menu items.  TCBY product milestones include (i) developingnon-fat and no-sugar added frozen treats; (ii) launching a line of frozenyogurt and sorbet novelties; (iii) introducing frozen yogurt to airportsand travel plazas through its joint venture agreement with HMS Host, assuccessor-in-interest to Host International, Inc., Host Marriott ServicesUSA, Inc. and Host Marriott Tollroads Inc., (collectively “HMS Host”); and(iv) developing a soft-serve and hardpack frozen yogurt product with moretypes of live active cultures than any other yogurt brand.  In fiscal year 2008, we intend to continue toexplore ways to grow and take advantage of yogurt’s increasing appeal to today’shealth conscious consumer.

 

TCBY is also in the process of testing anadditional yogurt-focused concept — Yovana — currently located in two airportterminals.  In fiscal year 2007, TCBYintroduced a new line of fruit and yogurt smoothies — Beriyo — now availablethroughout the TCBY system.  We alsodeveloped a new store design for TCBY stores. Over 100 franchisees completed the first phase of a remodel toincorporate this new design in their TCBY stores.  The intent of the new design is not only toimprove the store design and image for consumers, but also to improve theprofitability and business model for Franchisees.  Franchisees who participated in this programreceived certain incentives, including a reimbursement of some of the yogurtformulation charges we collect when they purchase TCBY yogurt products from ourdistributors.  During fiscal year 2007,these incentives were approximately $800,000 and we estimate that they willtotal approximately $1.3 million in fiscal year 2008.

 

These new activities are designed to relaunch theTCBY brand, making the concept more relevant for consumers and more profitablefor the franchisees.   For example, thenew store décor is contemporary and highlights TCBY’s key point of difference —its high quality, real dairy yogurt. Beriyo smoothies target consumers’ demand for nutritious fruit andyogurt smoothies and complements TCBY frozen yogurt treats.  The Yovana concept introduces a menu thatappeals to multiple day-parts and is built around premium yogurt prepared freshdaily in the store, drinkable fruit and yogurt smoothies, as well as frozenyogurt treats.

 

During fiscal year 2008, we plan on expandingYovana to a small number of additional stores in captive locations.   In addition, the new TCBY store design isbeing used in the development of new TCBY stores. A core group of existing TCBYstores will complete the second phase of a remodel to more fully incorporatethe design in their stores during fiscal year 2008.  Because we made Beriyo smoothies availablethroughout the TCBY system, we concluded our test of Beriyo as a conversionoption for existing TCBY stores and do not currently plan on offering a Beriyoconversion program in the near future. We paid certain costs and expenses of approximately $220,000 duringfiscal year 2007 in connection with the conclusion of this phase of the Beriyotest.

 

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#### *Our Products*

#### * *

*        **Cookies, Brownies, Cookie Cakes and Other BakeryProducts***.  The franchisedcookie retail stores continuously bake and serve numerous varieties offreshly baked cookies, brownies, cookie cakes and other bakeryproducts.  Although cookie and brownie salesare generally impulse purchases, cookie cakes can be decorated withcustomized messages and designs for any special occasion and provide anopportunity for the cookie stores to become destination locations.  Our bakery products are made using highquality ingredients. 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.  We regularly develop and test new productsand promotions to give our customers satisfying experiences.

 

        *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, whichconvert pasteurized milk to yogurt during fermentation and are required by U.S.Food and Drug Administration (“FDA”) standards in order for a product to becalled yogurt.  One benefit of theseyogurt cultures is that they act as friendly bacteria that “pre-digest” orbreak down the lactose so that yogurt may be tolerated by many individuals withlactose intolerance.  In addition, ouryogurts provide healthy doses 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 TCBY franchised retail stores arefocused on providing our premium frozen yogurt to our customers in manydifferent forms.  TCBY offers ouroriginal 96% fat free soft-serve frozen yogurt, non-fat frozen yogurt, no-sugaradded/non-fat frozen yogurt and non-fat/non-dairy sorbets.  Additionally, to capitalize on yogurt’scontinued strong consumer appeal, we launched a line of TCBY hand-dipped frozenyogurt products in the second quarter of fiscal year 2006.  Franchised locations serve a variety of menuitems based on these products, including waffle cones, parfaits, shakes andsundaes.  They also offer a premium lineof frozen yogurt cakes and deep-dish pies and our own TCBY Shiver® and CappuccinoChiller® products. TCBY yogurt is available in a variety of flavors.  During fiscal year 2007, we introduced thenew line of nationally available Beriyo smoothies.

 

*        Yogurt Test Concept Products. *Our Yovana test concept isthe first concept of its kind to sell premium yogurt prepared fresh daily inthe store.  This fresh yogurt is combinedwith fresh fruits and organic granolas to provide consumers with a convenientsource for healthy and nutritious foods in a relaxed and upscale setting.  These items are also combined with ourpremium frozen yogurt to provide consumers with a healthy treat alternative toice cream.

 

        *Beverages.*  We sell Coca-Cola soft drinks, Dannon bottledwater and other beverage products exclusively in all of our franchise locationsunder agreements with Coca-Cola USA Fountain. Some of our Mrs. Fields franchises also sell a Breezer Smoothiedrink that incorporates certain products provided by Coca-Cola USAFountain.  Our franchised locations mayalso sell other beverages, such as coffee and tea, purchased from one or moreof our approved suppliers.

 

*        Branded Retail Products. *In addition to products sold in our franchised retailstores, we sell Mrs. Fields branded ready-to-eat, shelf stable cookies andnovelty frozen food items wholesale to the retail grocery trade.

 

*Ingredients, Suppliers and Distributors*

##### * *

        We rely primarily on outside suppliers and distributors forthe ingredients used in our products and other items used in our franchisees’stores.

 

*        Cookies, Brownies, Muffins and OtherBakery Products.*  Countryside Baking, Inc., a Dawn FoodProducts Company (“Countryside”), manufactures the majority of Mrs. Fieldsbrand frozen cookie dough and bakery products, 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 thatapply.

 

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Our supply agreement withCountryside gives us the right to oversee the quality of the products, but alsorequires Countryside to exercise its own quality control to ensure that itmeets all applicable standards, including those established by the UnitedStates Food, Drug and Cosmetic Act and Title 21 of the Code of FederalRegulations of the United States relating to Food Manufacturing Practices.  In December 2006, we signed a newagreement with Countryside for making frozen products for us with an initialterm of 5 years, replacing a supply agreement previously entered into withCountryside.

 

Our shelf stablecookies sold in various distribution channels by our branded retail group aremanufactured by Oak State Products, Inc. (“Oak State”).  We are currently negotiating a new supplyagreement with Oak State.

 

*FrozenSoft-Serve and Hand-Dipped Yogurt. * Wehave two Product Supply Agreements (each, a “Supply Agreement”), both datedeffective as of December 5, 2006. The first Supply Agreement, between Scott Brothers Dairy, Inc. (“ScottBrothers”) and us, provides for the manufacturing of our soft-serve frozenyogurt.  The second Supply Agreement,between Yarnell Ice Cream Company, Inc. (“Yarnell”) and us, provides formanufacturing of our hand-scooped frozen yogurt products.   Under the Supply Agreements, Scott Brothersand Yarnell make the frozen yogurt products available to TCBY’s designateddistributors, who purchase the products for resale to TCBY franchisees.  Each Supply Agreement has an initial term ofthree years and includes provisions related to the licensing of TCBY’s marksfor purposes of production, pricing, payment, invoicing and collection,inventory controls, quality standards and assurance, and indemnification andconfidentiality.

 

Our yogurtproducts, manufactured by our suppliers, are sold to our approved distributorsfor sale and distribution to TCBY and Yovana stores.  During fiscal years 2007 and 2006, we enteredinto supply agreements with eight regional distributors who service our dairystores in various regions throughout the United States.  These eight distributors replaced our formerprimary TCBY distributor, Blue Line Distributing (“Blue Line”).  Blue Line continued to deliver products to asmall number of franchisees served by two of its distribution centers under anextension 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 theproducts, supplies and equipment purchased for sale or use by our franchiseesmust meet our specifications and standards for quality, design, appearance,function and performance.  We have theright to designate certain suppliers and distributors for any of these items.

 

**OurBusiness Segments**

 

During fiscal year 2007, our business was divided into three businessunits for financial reporting purposes: Mrs. Fields (defined below), GreatAmerican Cookies, Pretzel Time and Pretzelmaker (collectively “GAC/Pretzels”)and TCBY (“Dairy”), which represented 60.5 percent, 29.5 percent and 9.9percent of total revenues, respectively, for the year ended December 29,2007.

 

We have thefollowing six reportable operating segments:

 
| Mrs. Fields Gifts  Mrs. Fields Branded Retail  Mrs. Fields Franchising  Mrs. Fields Licensing |        | (collectively “Mrs. Fields”) |
|-------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|
| GAC/Pretzels  Dairy                                                                                               |   |                                        |

 

As discussed above, the Pretzel Brands were sold in August 2007and the GAC brand was sold in January 2008.

 

As a result, for fiscal year 2008, our reportablesegments will consist of Mrs. Fields Gifts, Mrs. Fields BrandedRetail, Mrs. Fields Franchising, Mrs. Fields Licensing and Dairy.

 

The accountingpolicies for the segments are the same as those discussed in the summary ofsignificant accounting policies in Note 4 to our consolidated financialstatements contained elsewhere in this report. Sales and transfers between segments are eliminated in consolidation.

 

The Mrs. FieldsGifts operating segment includes sales generated from our gift catalog andwebsite.  These sales consist primarilyof cookie and brownie assortments.

 

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The Mrs. Fields Branded Retail operating segmentincludes sales generated directly from the sale of Mrs. Fields productsthrough various retail channels.  Wecommenced selling shelf stable cookies in July 2006 directly throughretail channels following the termination of certain license agreements.  Prior to this time, our branded retailactivities consisted only of sales of Mrs. Fields branded cookie doughdirectly through retail channels

 

The Mrs. FieldsLicensing operating segment includes licensing activitives with five thirdparty licensors for the sale of products bearing our brand names, such as Mrs. Fieldsice cream novelties.

 

The Mrs. FieldsFranchising and Dairy operating segments include revenues received eitherdirectly or indirectly from cookie and yogurt stores, which are owned andoperated by third parties.  Theserevenues include initial franchise or license fees, monthly royalties based ona percentage of a franchisees’ gross sales, sales of cookie dough that weproduce and certain product formulation fees and supplier allowances which arebased upon sales to franchisees.

 

For furtherdisclosure of reportable segments, see Note 11, *ReportableSegments*, to our consolidated financial statements containedelsewhere in this report.

 

## ***Mrs. Fields,GAC and Dairy Franchising***

## *** ***

We operate througha network of franchised stores located throughout the United States and in 22foreign countries.  We actively recruitnew franchisees and 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:

 

·                  emphasizing the use ofproprietary dough, fresh and frozen yogurt and dessert products, minimizingproduct quality issues and promoting a consistent product across all outlets;

·                  requiring quality, serviceand cleanliness evaluations of franchised stores by trained operations supportstaff; and

·                  providing initial andcontinuing training of franchisees and operational tools to help improve thefinancial and retail sales skills of franchisees.

 

However, there canbe no guarantee that we will be able to successfully recruit a significantnumber of new franchisees.

 

As of December 29,2007, our store portfolio consisted of 1,238 domestic franchisedlocations, 275 international franchised locations and 95 licensedlocations, which are described in more detail below.  Our franchisees’ and licensees’ conceptlocations by concept are distributed as follows:

| ** **                      | ** ** | **Domestic**   | ** ** | **International** | ** ** | **Licensed**  | ** ** | ** ** | ** ** |
|---------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                      | ** ** | **Franchised** | ** ** | **Franchised**    | ** ** | **Locations** | ** ** | **Total**  | ** ** |
| Mrs. Fields                |       | 318            |       | 84                |       | 25            |       | 427        |       |
|                            |       |           |       |              |       |          |       |       |       |
| GAC                             |       | 296            |       | 1                 |       | —        |       | 297        |       |
|                            |       |           |       |              |       |          |       |       |       |
| TCBY - traditional stores       |       | 303            |       | —            |       | —        |       | 303        |       |
| TCBY - non-traditional  stores  |       | 313            |       | 190               |       | 68            |       | 571        |       |
| Yovana - test stores  (1)  |       | 1              |       | —            |       | 2             |       | 3          |       |
| TCBY/Beriyo                     |       | 7              |       | —            |       | —        |       | 7          |       |
|                            |       |           |       |              |       |          |       |       |       |
| Dairy                           |       | 624            |       | 190               |       | 70            |       | 884        |       |
|                            |       |           |       |              |       |          |       |       |       |
| Total                           |       | 1,238          |       | 275               |       | 95            |       | 1,608      |       |

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(1) Thedomestic franchised Yovana test stores include one store owned and operated byus that was closed in January 2008. We assumed operations at this store from a franchisee in an effort tomore closely monitor the results of the test.

 

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The previous tablecounts each concept location individually. For example, if a physical location had a Mrs. Fields store and aTCBY store together, this would be counted as two concept locations in thetable above.  If actual physical storeswere counted rather than concept locations, total store counts would be reducedby 82 locations to 1,526.  Aspreviously discussed, the GAC stores were sold in January 2008, furtherreducing our store count by 297 locations.

 

*StoreLocation and Configuration.*

 

Possibilities for franchised locations include high pedestrian trafficareas, such as malls, airport concourses, office building lobbies and shoppingand lifestyle centers.  We have developeda number of retail configurations designed to adapt to a variety of retailenvironments.  In addition to the storesthat have been designed for prime mall locations, we have developed otherformats, such as kiosks, in-line retail and carts intended to extend our brands’presence within and beyond mall locations.

 

*Mrs. Fields*.  Mrs. Fieldsstores are primarily located in “A” and “B” grade malls in the UnitedStates.  These stores are uniformlydesigned in accordance with the Mrs. Fields prototype, which is intendedto create an upscale, open and inviting look. Individual store sizes typically range from 500 to 800 square feet,while kiosks tend to be somewhat smaller.

 

*TCBY*. Generally, traditional TCBY domestic franchised stores are located inshopping centers, freestanding locations and shopping malls.  TCBY non-traditional locations include TCBYstores operated in conjunction with other concepts, such as Subway, Exxon andother convenience stores and petroleum outlets. TCBY non-traditional locations also include “captive” outlets such asairports, toll road travel plazas, hospitals, office buildings and sportsarenas.  A traditional TCBY store usuallyoccupies 800 to 1,600 square feet and accommodates both carryout and in-storebusiness.  Our traditional TCBY storesare designed as a “destination experience” and generally include some customerseating as well as a display case for yogurt cakes and pies.  TCBY non-traditional domestic franchisedstores are generally much smaller, offer a more limited menu than traditionalTCBY stores and often serve TCBY products through kiosks, soft-serve vendingcarts and countertop units located within other branded premises or captivelocations.  Yovana stores are in theearly stages of testing and we anticipate that their locations andconfiguration will evolve during the test period.  TCBY has developed a new store design for itstraditional stores that will continue to be implemented into the system duringfiscal year 2008.

 

###### *Franchise Agreements*

###### * *

Our franchises are typically granted for a specific site selected bythe franchisee and approved by us. Franchisees must offer the products and services that we designate.  We provide franchisees with suggested retailpricing for products and services, but franchisees are generally free to setthe retail prices at their stores.

 

*Mrs. Fields.* Each Mrs. Fields brand franchisee typically pays an initialfranchise fee of $30,000 per Mrs. Fields brand store location and isresponsible for funding the build-out of the new store and purchasing initialdough inventory and supplies.  Existingand prospective franchisees may qualify for certain incentives when theypurchase franchises.  The cost of openinga new store or purchasing an existing store can vary widely based on individualoperating and location costs.  After astore is established, a franchisee pays weekly royalty fees of six percent ofthe franchised store’s gross sales for the prior week and a weekly advertisingfee of from one to three percent (currently one percent) of such grosssales.  Mrs. Fields franchisees arerequired to purchase proprietary dough from our authorized distributors orsuppliers, which may 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 on terms setforth in the then-current form of the franchise agreement.

 

*TCBY.*  Each new TCBY franchisee typically pays aninitial franchise fee of $12,500 per traditional store and from $2,500 to$15,000 per non-traditional location. The franchisee is responsible for fundingthe build-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.

 

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As part of a new program to encourage franchisees to remodel orrelocate their existing stores and to support a stronger business model for newdevelopment, some or all of the formulation fees that we collect on purchasesby participating TCBY franchisees will be returned to them in the form of arebate on an ongoing basis.  Duringfiscal year 2007, these incentives were approximately $800,000 and based uponthe stores currently enrolled, we anticipate the cost of these incentives willtotal approximately $1.3 million in fiscal year 2008.

 

Franchises for traditional TCBY stores are usually granted for a periodof ten years.  Typically, franchisees ingood standing have an option to renew for an additional ten years at thethen-current terms.  For non-traditionalstores, the initial term is usually five years with a renewal term of fiveyears.  Currently, many TCBY franchiseespay an ongoing royalty fee of four percent of a store’s net revenues and anongoing advertising fee of three percent of its net revenues, though all newerfranchise agreements give TCBY the right to charge a six percent royalty and upto a three percent advertising fee. Also, as part of the remodel program described above, participatingfranchisees signed a new form of franchise agreement that will change theirroyalty rate to six percent of net revenues and will temporarily lower theiradvertising fee rate.  The advertisingfee rate will eventually increase in increments until it is restored to a totalof three percent of net revenues.  Manyfranchisees currently pay the royalty and advertising fees by way of asurcharge on TCBY products, either collected by our authorized distributor andremitted to us, or collected directly by us. Franchisees that participated in the remodel program installed a POS systemin their stores, which has allowed us to begin transitioning those stores to aroyalty collection method based on reported sales and remitted directly to usby the franchisees.

 

*International*. Generally, we enter into master franchise agreements for internationaldistribution of our products.  A masterfranchisee is granted the right to develop a minimum number of locations in thedefined territory within a certain time period. We determine, on a country-by-country basis, whether we will exportproprietary products from the United States to that country or license theproduction of products locally or regionally, possibly to the masterfranchisee.  In addition, we may grant tothe master franchisee the distribution rights of certain products in the definedcountry.  The master franchisee generallyreceives sub-franchising rights within the country that is the subject of themaster franchise agreement if it maintains a specified level of its ownlocations.  International locations aregenerally smaller than domestic locations and produce lower sales and royaltiesper location.  Revenues from any singlecountry outside of the United States were not material.  In the aggregate, revenues from internationallocations, generated by our franchise and branded retail segments for fiscalyears 2007, 2006 and 2005, were $4.7 million, $3.6 million and $1.5 million,respectively, and represented 4.8 percent, 3.7 percent and 1.7 percent oftotal revenues, respectively.

 

*FranchiseeTraining*

 

We believetraining our franchisees is a critical component of creating an effectiveretail environment  Accordingly, each ofour brand concepts requires new franchisees to complete a training programconducted by our training specialists at our training facility in Salt LakeCity, Utah.  The initial trainingprograms last from 7-9 days, depending on the concept.  We also make ongoing training programsavailable to franchisees to improve their quality and effectiveness and mayrequire certain franchisees to attend refresher training as part of operationalcompliance programs.  The trainingprograms provide instruction to franchisees regarding equipment use, foodpreparation and safety, customer service, employee scheduling, methods ofcontrolling operating costs, general management, job functions of hourlyemployees and other aspects of retail store operations.  Ongoing training courses in new products andstandards and procedures are available at our training facilities or regionalmeetings throughout the year to all franchisee personnel.  We have the right to charge a reasonable feefor refresher or additional training. Franchisees pay their own costs to attend training, such as livingexpenses and travel costs.

 

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*** ***

*FranchiseConcept Licensing*

 

We have developeda concept licensing program for certain non-mall retail outlets.  This licensing program enables us to enterdifficult-to-reach markets and facilitate brand exposure through “presence” and“prestige” marketing.  Our licenseesduplicate our franchisee store concept and purchase our products from ourvarious approved distributors.  Ourlicensees are generally food service corporations or contract managementcompanies that manage and operate food service in “captive” locations.  Our licensees include HMS Host or itssuccessor, which currently has a license to sell TCBY products in airports andtravel plazas under a joint venture agreement with TCBY and a test license forYovana stores within certain captive locations. Our licensees also include Marriott Management Services Corp. andSodexho U.S.A., Inc. or their successors, which have non-exclusivelicenses to sell certain Mrs. Fields products in licensed stores that theydevelop and operate in specified locations where they provide food services,such as commercial buildings or complexes. The Marriott and Sodexho licenses are under a month-to-month extensionof trademark 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.

 

***Gifts***

 

We market a variety offreshly baked Mrs. Fields cookies, brownies, candies and other gift itemson the Internet and through gift catalogs.  In fiscal year 2007, wegenerated revenues of approximately $31.0 million and carried morethan 375 gifting items. These items represented 100 product groupings rangingfrom customized cookie tins with company logos to birthday towers filled with cookiesand brownies.  Our gifts segment is run through Mrs. Fields Gifts, Inc.,our separate, wholly owned subsidiary for gifts operations.  The giftssegment has four direct sales channels: Internet, telephone, onlineaffiliate programs and strategic partnerships/corporate accounts.

 

*Internet.* During fiscal year 2007, approximately 44.0 percent of all sales in thegifts segment where placed on-line.  Our website allows each customerto establish an account and track each order.  Our principal URL is *www.mrsfields.com.*

 

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

 

*OnlineAffiliate**Programs.*  We have an onlineaffiliate program with one of the largest pay-for-performance affiliatemarketing networks on the Internet.  We have over 325 affiliates who have a text link orbanner on their website to *www.mrsfields.com*. We compensate online affiliates on a commission basis for each sale thatoriginates from their website.

 

*StrategicPartnerships/Corporate Accounts.*  We have a number ofpartnerships with large online and catalog retailers that advertise Mrs. Fieldsbrand products to their customers for gifting purposes.  Gifts are sold topartners at wholesale prices.  The partners are responsible for shippingto the ultimate customer, advertising and customer service costs involved withthe Mrs. Fields gift program.  We also have corporate giftrelationships with a number of large companies who use Mrs. Fields brandproducts to motivate employees and reward customers.

 

***Branded Retail***

 

Fiscal year 2007 was thefirst full year we directly managed and operated our branded retailbusiness after terminating our license with Shadewell Grove IP, LLC in July 2006. The branded retail business sells certain shelf stable Mrs. Fieldsproducts in various retail distribution channels, either directly or throughbrokers.  Our branded retail segmentpurchases inventory from contract manufacturers and arranges for distributionof products to customers.

 

 

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***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 boxed chocolates, gourmetglazed popcorn and ice cream sandwiches. Additionally, TCBY has entered into a license agreement for thedistribution of high quality, yogurt covered pretzel products utilizing certainTCBY trademarks.

 

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 premiumchocolate products in certain distribution channels under a Trademark LicenseAgreement dated January 3, 2000 (the “License”).  The Option grantsMFF an option to repurchase the License, exercisable during a period from thesecond to the fifth anniversary of the date of the Option.  The Optionpurchase price is $1.0 million, one-half of which was paid by to Maxfield whenthe Option was signed by the parties and one-half of which was paid to Maxfieldon the first anniversary of that date.  The repurchase price for theLicense, due only if MFF exercises the Option, ranges from $4.5 million to $7.0million, depending on when the Option is exercised.  One-half of theOption purchase price will be credited to the License repurchase price in amanner described in the Option if MFF exercises the Option.  The partiesagreed to certain modifications of the License as part of the Option.  To date, MFF has not exercised the Option**. **As of December 29,2007, we determined that the Option was impaired.  Accordingly, an impairment charge of $424,000was recorded as of December 29, 2007.

 

**GeographicInformation**

 

Revenuesfrom franchisees, customers and licensees within the United States wereapproximately $93.4 million, $93.0 million and $86.5 million for fiscal years 2007, 2006 and 2005, respectively, andrepresented 95.2 percent, 96.3 percent and 98.3 percent of total revenues forfiscal years 2007, 2006 and 2005,respectively.  Revenues frominternational franchisees, customers and licensees were approximately $4.7million, $3.6 million and $1.5 million for fiscal years 2007, 2006 and 2005, respectively,and represented 4.8 percent, 3.7 percent and 1.7 percent of total revenues forfiscal years 2007, 2006 and 2005, respectively. Revenues from any single foreign country were not material.  Providing geographical information regardinglong-lived assets is impracticable.

 

**IntellectualProperty**

 

We are the holderof numerous trademarks that have been federally registered in the United Statesand in other countries located throughout the world.  We are not currently a party to anymaterial disputes with respect to our trademarks in the United States orany foreign jurisdictions, although we are challenging the useof certain registered domain names that may infringe on our trademarksoriginating from various sources.  In theopinion of management, none of these disputes is material to our business,financial condition or results of operations.

 

As of December 29,2007 (excluding certain trademarks that we sold with the GAC brand in January 2008),we held 65 federal trademark registrations in the United States and 451trademark registrations in 113 countries and other jurisdictions outside theUnited States.  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 licenseagreements, our licensees receive the rights to use our recipes, proprietaryproducts and/or our registered trademarks. We view our trademarks, and the ability to license them to thirdparties, as some of our most valuable assets.

 

Wehave pending, or are in the process of filing, applications for trademarkregistrations in a number of foreign countries. In some of these countries it may not be possible to register the nameTCBY where the laws do not permit the registration of acronyms.  Similarly, registering offices in some limited jurisdictions may refuse toregister certain marks by taking the position that they are merely descriptiveof the product.  In a few foreigncountries, unrelated third parties have filed applications for registration of one or more of our trademarks.  Upon discovery of such filings, we routinelycontest such applications to preserve our ability to register our trademarks inthose countries or to protect our existing registrations.

 

 

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**Employees**

 

As of December 29,2007, we had 382 employees, including 108 temporary seasonal employees whosepositions are largely on-call or part-time. We typically employ seasonal labor in connection with our gifts segmentin the fourth quarter in response to increased demand around the holidays.   None of our employees are covered bycollective bargaining agreements.

 

### **Seasonality**

### ** **

Oursales and contribution from franchisees’ store operations are highly seasonal,but our various brands experience counteracting overall seasonal effects.  Our Mrs. Fields stores, primarilylocated in malls, tend to mirror customer traffic flow trends in malls, whichincrease significantly during the fourth quarter, primarily betweenThanksgiving and the end of the calendar year. Holiday gift purchases also are a significant factor in increased salesin the fourth quarter.  However, Dairystores experience their strongest sales periods during the warmer months fromlate Spring through early Fall, which helps to balance the impact ofseasonality on our operations.  Thecombined revenues for each quarter of the Mrs. Fields Franchising andDairy operating segments as a percentage of total combined revenues for thefiscal year ended December 29, 2007 were 24.2 percent for the firstquarter, 28.5 percent for the second quarter, 25.6 percent for the thirdquarter and 21.7 percent for the fourth quarter.

 

Oursales and contribution from our Mrs. Fields Gifts operating segment arehighly seasonal, primarily due to holiday gift purchases that increase sales inthe fourth quarter.  Sales in the fourthquarter of fiscal year 2007 were $17.6 million, which represents 56.8 percentof total sales of the gifts segment for the fiscal year ended December 29,2007.

 

### **Customers**

### ** **

OurMrs. Fields Franchising and Dairy segments are not dependent upon anysingle franchisee.

 

OurMrs. Fields Gifts segment has one customer that accounted for $4.2 million,$4.0 million and $3.6 million, or 13.4 percent, 13.0 percent and11.8 percent of revenues of the gifts segment for fiscal years 2007, 2006and 2005, respectively.

 

OurMrs. Fields Branded Retail segment is not dependent upon any singlecustomer.

 

Our Mrs. Fields Licensing segment, for fiscal years 2007, 2006 and2005, respectively, has:

·                  a licensee thataccounted for approximately $543,000, $565,000 and $684,000 or 59.1 percent,30.7 percent and 17.0 percent of the revenues of the licensing segment;

·                  a licensee thataccounted for approximately $127,000, $0 and $0 or 13.8 percent, 0 percent and0 percent of the revenues of the licensing segment; and

·                  a licensee thataccounted for approximately $120,000, $120,000 and $97,000 or 13.1 percent, 6.5percent and 2.4 percent of the revenues of the licensing segment.

 

### **Competition**

### ** **

In our Mrs. FieldsFranchising and Dairy segments, we compete for customers with other cookie,yogurt and ice cream retailers, as well as other confectionery, sweet snack andspecialty food retailers, including cinnamon rolls, baked goods and candyshops.  The specialty retail food andsnack industry is highly competitive with respect to price, service, locationand food quality and there are many well-established competitors with greaterresources than ours.  We compete withthese retailers on the basis of price, quality, location and service.  We face competition from a wide variety ofsources, including such companies as Cinnabon, Haagen-Dazs, Baskin-Robbins 31Flavors and Cold Stone Creamery, as well as stores operated by franchisees ofour former brands, GAC and Pretzel Brands. We also compete for franchisees with a broad segment of other franchisecompanies, both within and beyond the food service industry.  These franchisors may have greater resourcesor more favorable business models than ours with which to attract newfranchisees.

 

 

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In our mall-basedand captive locations, we tend to compete with a wide variety of foodretailers, including both quick service restaurants and, to a lesser extent,sit-down dining establishments and centrally located “food courts.”  In our strip mall and stand-alone retailstores, our competition tends to be with other food retailers within ageographical radius of our franchisees’ stores, which vary based on storelocation.

 

Our gifts segmentcompetes for customers primarily with other food gifting and mail ordercompanies.  The food gifting and mailorder industry is highly competitive with respect to quality, freshness,selection, uniqueness, customer service and to a lesser extent, price.  There are many well-established competitorswith greater resources than ours.  Ourcompetitors include such companies as Cheryl and Company (acquired by1-800-FLOWERS), Harry and David, Omaha Steaks, Popcorn Factory and Mrs. Beasley’s.

 

Our Branded Retail segment competes for customers primarily with othercookie 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 competitors with greater resources thanours pursuing aggressive promotional and pricing strategies.  Our direct competitors include such companiesas Pepperidge Farms, Nabisco, Keebler, Hershey’s and Dove.

 

### **Environmental Matters**

### ** **

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 year 2007, we did not incur any material capital expenditures forenvironmental control facilities and no such material expenditures areanticipated.

 

### **Additional information**

### ** **

We are subject to theinformational requirements of the Securities Exchange Act of 1934.  Accordingly, we file periodic reports andother information with the Securities and Exchange Commission (the “SEC”).  We make our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to those reports available through our website*,*www.mrsfields.com,as soon as reasonably practicable after electronically filing such materialswith the SEC.  They may also be obtainedby writing to Mrs. Fields Famous Brands at 2855 East Cottonwood Parkway, Suite 400,Salt Lake City, UT 84121-1050.  Inaddition, copies of these reports may be obtained through the SEC website at www.sec.govor 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 expectations expressedin this report.  If any of the followingrisks and uncertainties or other risks and uncertainties not currently known tous or not currently considered to be material actually occur, our business,financial condition or operating results could be harmed substantially.

 

***Risks Related to Our Business***

 

*Theresults of operations of our business in the future will depend upon theeffectiveness of our business strategy and whether we are able to successfullyimplement our business strategy, the implementation of which depends on factorsthat are beyond our control.*

 

We believe we have asound business strategy that will enable us to grow our revenues andprofitability.  We believe that theimplementation of our business strategy is key to enabling us to grow ourrevenues and profitability and, ultimately, our future success.  Our business strategy in fiscal year 2008 isfocused on the growth of each of our brands by increasing the number of retailunits and profitable sales.

 

*Our cash on hand and expected futurecash flows from operations are inadequate to meet our fiscal year 2008obligations.*

 

Concerns over our abilityto generate cash flows in amounts sufficient to meet our scheduled semi-annualinterest payments commencing September 2008 raise substantial doubt about ourability to continue as a going concern. We are pursuing various actions to improve our operating cash flow,results of operations and overall liquidity position.

 

Blackstone AdvisoryServices (“Blackstone”) is also assisting us in reviewing our alternatives aspart of its strategic review process.  Inaddition, Blackstone, management and a committee of bondholders representingapproximately 70 percent of the outstanding bonds have agreed to shareconfidential information about the company’s operations and a proposal torestructure the company’s bonds.  Thecommittee has agreed to refrain from trading bonds owned by its members forfour weeks while it reviews the confidential information.  

 

Failure to improve ourcash flows would likely result in the our inability to meet our interestpayment obligations.  Failure to makethese payments could have a material adverse impact on our future operationsand carrying value of assets.  There canbe no assurance that the planned actions will be successful or that theCompany’s financial position will improve.

 

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*From time to time, we may berestricted from selling our franchises.*

 

The sale of franchises is regulated by various statelaws as well as by the Federal Trade Commission.  The Federal Trade Commission requires thatfranchisors make extensive disclosure in a franchise disclosure document toprospective 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 certain events that require us to makecertain disclosure to state authorities. Further, renewal of franchise disclosure document registrations arerequired in several states within a certain period of time following our fiscalyear end.  From time to time in thefuture, there will be periods of time after certain events, such as materialchanges to our officers, or financial performance, or commencement of materiallitigation, 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.  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 a broad segment of other businessopportunities and franchise companies for franchisees.  There is alsoaggressive competition from many sources for favorable sites for newstores, both within and outside the mall environment.  Many ofour competitors have greater resources or more favorable businessmodels than ours with which to attract new investors and procuresites.  If we are unable to attract new or existing franchisees topurchase new franchises, or represent a competitive opportunity forleaseholders, it will limit our ability to develop new franchisedlocations.

 

*Adecline in mall traffic and other events signaling or related to a downturn inthe United States economy could cause our Mrs. Fields brand franchiseincome to decrease materially.*

 

We believe that the amount and proximity of pedestriantraffic near our bakery brand stores strongly influence sales of our products,which we believe are frequently impulse purchases.  In recent years, we believe visits to majorshopping malls, where at December 29, 2007 the majority of our bakeryfranchisees’ stores are located, have experienced periods of decline.  This trend has had a negative impact on ourrevenues.  We cannot predict whether thistrend will not continue or that this trend can be offset by increased sales percustomer.  Decrease in mall traffic, andother events that signal or arise from a downturn in the United States economy,such as continued increases in energy costs and other expenses that negativelyaffect consumer spending, could adversely affect our financial condition andresults of operations

 

*Wehave experienced a number of franchise store closures since fiscal year2004.  If this trend continues, ourfinancial position and results of operations could continue to be adverselyaffected.*

 

Since the end of fiscal year 2004, 28 retail conceptlocations were closed by MFOC and 1,067 retail concept locations were closed byother franchisees.  These closuresrepresent 40.7 percent of the total number of stores open at the beginning offiscal year 2005.  In comparison, 385retail concept locations have opened since the end of fiscal year 2004.

 

Since the end of fiscal year 2004, the number of Mrs. Fieldsbrand locations has decreased by 18.0 percent, the number of TCBY brandtraditional locations has decreased by 35.4 percent and the number of TCBYbrand non-traditional locations has decreased by 40.8 percent.  Additional store closures could occur in thefuture and we may be unable to successfully open additional new stores in thefuture.  If this trend continues, ourfinancial condition and results of operations may be adversely affected.

 

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*        We believe our brand identity iscritical to the success of our business. If we are unable to use any of our trademarks or to protect our tradesecrets, our sales and our results of operations will be adversely affected.*

 

        We believe that our trademarks havesignificant value and are important to the marketing of our retail outlets andproducts and the operations of our franchisees’ stores, gifts segment andlicensing strategy.  Most of ourtrademarks are federally registered before the United States Patent andTrademark Office and registered 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 anddistributors.*

 

        We depend on several primary suppliers,including Countryside and Oak State, which supply products for our Mrs. Fieldsfranchise system, gifts and branded retail business.  We also depend on two main suppliers forproduction of our TCBY branded yogurt products under Supply Agreements withScott Brothers and Yarnell. We also depend on our primary distributors fordistribution of perishable and non-perishable items to our franchisees.

 

        Our reliance on our suppliers anddistributors subjects us to a number of risks, including possible delays orinterruptions in supplies, diminished control over quality and a potential lackof adequate raw material capacity.  Anydisruption in the supply of or degradation in the quality of the raw materialsprovided by our suppliers could have a material adverse effect on our business,operating results and financial condition. In addition, such disruptions in supply or degradations in quality couldhave a long-term detrimental impact on our efforts to develop a strong brandidentity and a loyal consumer base.  Ifany supplier or distributor fails to perform as anticipated, or if there is atermination or any disruption in any of these relationships for any reason, itcould have a material adverse effect on our results of operations.

 

*        Our information systems are an integralpart 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 system and telecommunications equipment in working order and toreasonably protect them from interruption is critical to the success of ourgifts business segment.  Our website mustaccommodate regular 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.

 

*        We believe that our relationship withour 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.*

 

        Ten of our franchisees or licensees ownten or more retail concept locations.  Intotal, these franchisees own 189 retail concept locations and contributedapproximately $3.8 million or 8.3 percent of our franchise revenues forthe year ended December 29, 2007. For the same period, franchise revenues made up 47.3 percent of ourtotal revenues.  The termination of thesekey franchise or retail license agreements or lower than anticipated sales mayhave an adverse affect on our financial condition and results ofoperations.  We cannot be sure that ourrelations with franchisees and licensees will not change or that our licenseeswill continue to perform as they have in the past, which could result infranchise or license agreements being terminated by us or by our franchisees orlicensees.

 

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        Generally, we believe our relationshipswith our franchisees and our licensees is a critical component in the successof our business.  As required by stateand federal franchise disclosure rules, we must provide all prospectivefranchisees with the name and contact information for each of the concept’sexisting franchisees.  Prospects oftencontact existing franchisees as part of their due diligence before making afranchise purchase decision.  If ourrelationship with existing franchisees is strained, it may slow or suspendfranchise development with new franchisees, as well as curtail additionaldevelopment with existing franchisees. Strained relationships with existing franchisees can also contribute toadditional or accelerated closure of existing stores, particularly upontransfer or expiration of franchise agreements and leases.

 

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

 

        Our franchisees and licensees generallyare independent business owners 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,reputation and brand may suffer and our franchise and license revenues as wellas our ability to attract prospective franchisees may be adversely affected.

 

*        We arevulnerable to fluctuations in the cost, availability and quality of ouringredients.*

 

        The cost, availability and quality ofthe ingredients we use to prepare our products in our gifts operations aresubject to a range of factors, many of which are beyond our control.  Fluctuations in economic and politicalconditions, weather and demand could adversely affect the costs of ingredientsthat we and our suppliers use to make our products, which may in turn affectthe costs that our customers and franchisees may be required to pay for ourbranded products.  Significant priceincreases may in turn contribute to decreases in customer counts in our giftingand branded retail business, as well as decreases in store profits andincreases in store closures.  We have nocontrol over fluctuations in the price of commodities and we may not be able topass through any cost increases to our customers.  We are dependent on frequent deliveries offresh ingredients, thereby subjecting us to the risk of shortages orinterruptions in supply.  All of thesefactors could cause adverse market conditions which could adversely affect ourfinancial results.

 

        *Ourbranded retail business is still relatively new and exists in a verycompetitive environment.*

 

        The sale of snack products to grocery,club stores and similar distribution channels is highly competitive and subjectto ongoing expenses related to slotting fees, advertising credits and discounts*. *Similarly, the business relies onrelationships with vendors, brokers and customers.  We commenced this business in July 2006,and as with any relatively new business, we may be unable to predict with anycertainty the costs associated with operating the branded retail group or therevenues we expect to generate.

 

*        If we lose key management personnel, wemay 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 continuedservices of our senior management, particularly Stephen Russo, our Presidentand Chief Executive Officer.  Inaddition, our continued growth depends, in part, on attracting and retainingskilled managers and employees as well as management’s ability to utilizeeffectively our key personnel.  IfStephen Russo or any other senior management personnel leaves us, we may have difficulty inimplementing the business strategy they have developed and may fail to achieveexpected profits as a result.  We cannotbe sure that management’s efforts to integrate, utilize, attract and retainpersonnel will be successful.

 

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*        Our failure to respond to demographictrends, changes in consumer preferences and other factors and our failure toimplement new marketing strategies could have a material adverse effect on ourresults of operations.*

 

        The specialty and snack food industry isaffected by changes in consumer preferences, tastes and eating habits, local,regional, national and international economic conditions, demographic trendsand mall traffic patterns.  A number offactors, including increased food, labor and benefits costs, the availabilityof experienced 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.

 

        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.  Our recent development and introduction ofnew products, such as the Beriyo smoothie line, and the new store design forTCBY traditional stores are integral parts of our plans to accomplish thisrepositioning.  However, we do not knowhow successful we will be in developing or implementing this plan or the extentto which the capital investment required of us and our franchisees to implementsuch a plan will be available when needed. If we are unable to successfully implement this or any other aspect ofour business strategy, our business operations and our financial conditioncould be adversely affected.

 

        We have also initiated efforts torevitalize our Mrs. Fields brand, including a new store design for franchises.While these efforts are designed to strengthen and revitalize the Mrs. Fieldsbrand to help our franchisees achieve a higher level of profitable sales, wecannot be certain that these efforts will have this effect.

 

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

 

        The specialty retail food and snack foodindustry is highly competitive with respect to price, service, location andfood quality and within the industry we compete with cookie, baked goods,frozen yogurt and ice cream retailers, as well as other confectionary, sweetsnack and specialty foods retailers, many of which have greater resources thanwe do.  Consequently, we cannot becertain that we can compete successfully with these other food retailers.   We will also face competition from NexCen,who recently acquired the GAC and Pretzel Brand concepts formerly owned andoperated by us.

 

        In addition to the risks we face fromcurrent competitors, we cannot be certain that we can successfully compete withany new entrants into the specialty retail food and snack food industry who mayintroduce new and successful products or marketing.  Our inability to compete adequately wouldhave a material adverse effect on our results of operations.

 

*        Adverse publicity, particularly abouthealth concerns, could reduce our sales and adversely affect results of operations.*

 

        Our ability to compete depends in parton maintaining our reputation with consumers. We could be adversely affected by publicity resulting from food quality,illness, injury or other health concerns, including food borne illness claimsor operating issues stemming from one store, a limited number of stores or evena competitor’s store.  In addition, weuse ingredients in several of our products, such as nuts, to which some peoplemay have allergies, 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 are exposedto various risks that could have a material adverse effect on our results ofoperations and financial condition.*

 

        We have franchised and licensed retailstores in numerous foreign countries. While most of our operations are in the United States, through ourfranchised retail store locations and our branded retail activities, we alsohave operations in numerous other regions, including operations in Canada,Mexico, Australia, South America, the Caribbean, the Middle East and Asia,representing approximately 4.8 percent of our total revenue during fiscal year2007.  We expect to expand intoadditional regions in the future.  Ourinternational operations are subject to many additional risks, including:

·                  the burden ofcomplying with multiple and possibly conflicting laws and any unexpectedchanges in regulatory requirements;

·                  import andexport restrictions and tariffs;

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

·                  litigation inforeign jurisdictions;

·                  potentiallyadverse tax consequences;

·                  increasedcompetition as a result of subsidies to local companies;

·                  politicalinstability or war;

·                  culturaldifferences;

·                  the impact ofbusiness cycles and economic instability; and

·                  increasedexpense as a result of inflation.

 

        Any one of these factors could have amaterial adverse affect on our sales of products or services to ourinternational customers and curtail our expansion strategy.

 

*        Government regulation of our businesscould adversely affect the results of our operations.*

 

        Numerous governmental authorities haveissued regulations that apply to us and our franchisees’ stores, including,without limitation, federal, state and local laws and regulations governinghealth, sanitation, environmental protection, safety, hiring and employmentpractices, including laws, such as the Fair Labor Standards Act, governing suchmatters as minimum 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, or if existing or new regulation leads tomaterial changes in the quality, taste, consumer appeal, or availability of ourproducts.  Our products, themanufacturers and their manufacturing facilities are also subject to periodicinspection.  Discovery of problems mayreduce our results of operations because of costs of compliance or inability tomanufacture or sell products for failure to comply with regulations.

 

        In addition, the sale of franchises isregulated by various state laws as well as by the Federal TradeCommission.  The Federal Trade Commissionrequires that franchisors make extensive disclosure in a franchise disclosuredocument to prospective franchisees, but does not require registration.  However, a number of states require registrationof the Franchise Disclosure Document with state authorities or other disclosurein connection with franchise offers and sales. In addition, several states have “franchise relationship laws” or “businessopportunity laws” that limit the ability of the franchisors to terminateagreements or to withhold consent to renewal or transfer of theseagreements.  While we believe that we arein compliance with existing regulations in the jurisdictions where we currentlyoffer franchises, we cannot predict the effect of any future legislation orregulation on our business operations or financial condition.  Additionally, bills have occasionally beenintroduced in Congress which would provide for federal regulation of aspects offranchisor-franchisee relationships.  Wecannot predict what effect those regulations could have on our business.

 

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*Anyinterruption in funding sources used by franchisees to purchase and develop ourfranchises could adversely impact our ability to market franchises.*

 

        Many of our franchisees must obtainloans to purchase and develop our franchises. One significant source of this funding is the U.S. Small BusinessAdministration (“SBA”).  Any suspensionof funding or delays in approval of the SBA’s funding budget will affect ourfranchisees’ ability to obtain funding from this significant source andadversely impact our ability to market franchises.  Recent developments in the mortgage andfinance industries have adversely affected some sources of funding and may alsomake it more difficult for franchisees to obtain funding for current operationsand new development.

 

*        Litigation, including product liabilitylitigation, could reduce our results of operations or increase our lossesbecause of the cost of paying on successful claims and we may not be able tocontinue to obtain adequate insurance.*

 

        We are involved in routine litigation inthe ordinary course of business, including franchise disputes.  Although we have not been significantly adverselyaffected in the past by litigation, there can be no assurance as to the effectof any future disputes.

 

        Although we currently are not subject toany product liability litigation, we could experience product liabilitylitigation in the future involving our products.  Our quality control program is designed tomaintain high standards for the food and materials and food preparationprocedures used by franchised stores. Products are periodically inspected by our personnel at both the pointof sale locations and the manufacturing facilities to ensure that they conformto our standards.  In addition toinsurance held by our suppliers, we maintain insurance relating to personalinjury and product liability in amounts that we consider adequate for the retailfood industry.  While we have been ableto obtain insurance in the past, there can be no assurance that we will be ableto maintain these insurance policies in the future.  Consequently, any successful claim againstus, in an amount materially exceeding our coverage, could adversely affect ourresults of operations and financial condition.

 

*        Our operating results are subject toquarterly fluctuations and seasonality.*

 

        Our operating results are subject toquarterly and seasonal fluctuations.  Oursales and income from franchisees’ store operations are seasonal given thesignificant impact 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 besuccessful in 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.

 

        We recently sold our Pretzel Brands andGAC brands. The sale of these businesses could increase our exposure toquarterly and seasonal fluctuations.

 

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***Risks Related to Our SubstantialIndebtedness***

 

*        Our substantial level of indebtednesscould adversely affect our financial condition and prevent us from fulfillingour obligations under our Senior Secured Notes.*

 

        We have substantial indebtednessrepresented by our Senior Secured Notes. In addition, subject to restrictions in the Indenture governing theSenior Secured Notes, we may incur additional indebtedness.

 

Our high level ofindebtedness could have important consequences, including the following:

·                  our ability toobtain additional financing for working capital, capital expenditures,acquisitions or general corporate purposes may be limited;

·                  we must use asubstantial portion of our cash flow from operations to pay interest andrequired principal on the Senior Secured Notes and, to the extent incurred, ourother indebtedness, which will reduce the funds available to us for operationsand other purposes;

·                  our high levelof indebtedness could place us at a competitive disadvantage compared to ourcompetitors that may have proportionately less debt;

·                  our flexibilityin planning for, or reacting to, changes in our business and the industry inwhich we operate may be limited; and

·                  our high levelof indebtedness makes us more vulnerable to economic downturns and adversedevelopments in our business.

 

        We expect to obtain the money to pay ourexpenses and to pay the amounts due under the Senior Secured Notes and ourother debt primarily from our operations. Our ability to meet our expenses and make these payments thus depends onour future performance, which will be affected by financial, business, economicand other factors, many of which we cannot control.  Excluding cash received upon the sale ofcertain businesses, our available cash has decreased since fiscal year2005.  Our business may not generatesufficient 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 significant operatingand financial restrictions, which may prevent us from pursuing certain businessopportunities and taking certain actions.*

 

        The Indenture imposes significantoperating and financial restrictions on us. These restrictions limit, among other things, our ability to:

·                  incuradditional indebtedness;

·                  repaysubordinated indebtedness prior to stated maturities;

·                  pay dividendson or redeem or repurchase our stock;

·                  issue capitalstock;

·                  makeinvestments;

·                  create liens;

·                  sell certainassets or merge with or into other companies;

·                  enter intocertain transactions with stockholders and affiliates;

·                  sell stock inour subsidiaries;

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

·                  otherwiseconduct necessary corporate activities.

 

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        To the extent that we wish to conductthese restricted activities, we must do so in strict accordance with theprovisions of the Indenture.  Theserestrictions could adversely affect our ability to finance our futureoperations or capital needs and pursue available business opportunities.  A breach of any of these restrictions couldresult in a default in respect of the related indebtedness.  If a default occurs, the relevant lenderscould elect to declare the indebtedness, together with accrued interest andfees, to be immediately due and payable and proceed against any collateralsecuring that indebtedness, which includes substantially all of ourassets.  Acceleration of our otherindebtedness could result in a default under the terms of the Indenture and ourassets may not be sufficient to satisfy our obligations under our indebtedness,including the Senior Secured Notes.

 

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

 

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

 

# **Item 2. Properties**

# ** **

We currently lease approximately 43,000 square feet of office space inSalt Lake City, Utah, which is used as our company headquarters and franchiseesupport center.  MFOC uses undividedportions of this space as corporate headquarters pursuant to a sublease betweenMFOC and us.  We also currently leaseapproximately 13,000 square feet of space in multiple other locations in SaltLake City, Utah for product development and training associated with our Mrs. Fieldsand dairy reporting segments and approximately 159,000 square feet of space inSalt Lake City, Utah for our state-of-the-art gifting operations, which openedduring the third quarter of fiscal year 2006. We own substantially all of the equipment used in these facilities.  We are currently under lease obligation for54,000 square feet of space formerly used for our gifts reporting segment thatwas vacated in the third quarter of fiscal year 2006.  We are attempting to terminate the leases onthe former gifting facility and have sublet a significant portion of thefacility.

 

# **Item 3. Legal Proceedings**

# ** **

        We and our products are subject toregulation by numerous governmental authorities, including, without limitation,federal, state and local laws and regulations governing franchising, health,sanitation, environmental protection, safety and hiring and employmentpractices.

 

In the ordinary course ofbusiness, we are involved in routine litigation, including franchise disputesand trademark disputes.  We are not aparty to any legal proceedings that, in our opinion, after consultation withlegal counsel, is material to our business, financial condition or results ofoperations, that have not already been reflected in our consolidated financialstatements contained elsewhere in this report.

 

# **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**

# ** **

**Market Information and Number of Stockholders**

 

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

 

**Dividends**

 

        Foreach of the three fiscal years in the period ended December 29, 2007, wedid not declare or pay cash dividends. Our ability to declare or pay cash dividends is restricted by theindenture pertaining to our 9 percent senior secured notes (the “9 percentSenior Secured Notes”) and our 111⁄2 percent senior secured notes (the “111⁄2percent Senior Secured Notes” together with the 9 percent Senior Secured Notes,the “Senior Secured Notes”).  For adescription of these restrictions, see Note 5 to our consolidated financialstatements contained elsewhere in this report.

 

# **Item 6. Selected Financial Data**

# ** **

        Thefollowing table presents our historical financial data as of the dates and forthe periods indicated.  We operate usinga 52/53-week year ending on the Saturday closest to December 31.  Fiscal year 2003 includes 53 weeks; whereas,all other fiscal years include 52 weeks. The selected historical financial data at December 29, 2007, December 30,2006, December 31, 2005, January 1, 2005 and January 3, 2004 andfor fiscal years 2007, 2006, 2005, 2004 and 2003 have been derived from ouraudited consolidated financial statements. The selected historical financial data should be read in conjunctionwith “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.”

 
| ** **                                               | ** ** | **Fiscal Year Ended**      | ** ** |
|----------------------------------------------------------|------------|----------------------------|------------|
| ** **                                               | ** ** | **December 29,**      | ** ** | **December 30,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** | **January 3,** | ** ** |
| ** **                                               | ** ** | **2007**                   | ** ** | **2006** | ** ** | **2005** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                               | ** ** | **(Dollars in thousands)** | ** ** |
| **Income Statement Data:**                               | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total revenues                                           |       | $                          | 98,068     |   | $ | 96,588 |   | $ | 87,952 |   | $ | 87,060 |   | $ | 81,988 |   |
| Income (loss) before income  taxes                  |       | 4,687                      |       | (24,341 | ) | (40,716 | ) | 4,816 |   | 6,916 |   |
|                                                     |       |                       |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data (at end of  period):**              | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total assets                                             |       | $                          | 120,798    |   | $ | 121,720 |   | $ | 139,897 |   | $ | 181,781 |   | $ | 162,602 |   |
| Total debt (including  capital lease obligations)   |       | 196,158                    |       | 196,251 |   | 196,336 |   | 196,210 |   | 185,762 |   |

 

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

# ** **

**Executive Summary**

 

        Weare a well established franchisor in the premium snack food industry, featuringMrs. Fields® and TCBY® as our core brands. Through our franchisees’ retail stores, we are one of the largestretailers of freshly baked, on-premises specialty cookies and brownies in theUnited States of America (the “United States”) and the largest retailer ofsoft-serve frozen yogurt with live active cultures in the United States.  In addition, we operate a gifts and brandedretail business and have entered into licensing arrangements to leverageawareness of some of our core brands among our retail customer base.  As of December 29, 2007, our franchisesystems operated through a network of 1,608 retail concept locations throughoutthe United States and in 22 foreign countries.

 

        During fiscal year 2007, our businesswas divided into three business units for financial reporting purposes: Mrs. Fields(defined below), Great American Cookies, Pretzel Time and Pretzelmaker(collectively “GAC/Pretzels”) and TCBY (“Dairy”), which represented 60.5percent, 29.5 percent and 9.9 percent of total revenues, respectively, for theyear ended December 29, 2007.  Asdiscussed elsewhere in this report, the Pretzel Time® and Pretzelmaker® brands (collectively, the “Pretzel Brands”)were sold in August 2007 and the Great American Cookies® and the Great American Manufacturing, LLCbusinesses were sold in January 2008.

 

We have thefollowing six reportable operating segments:

 
| Mrs. Fields Gifts  Mrs. Fields Branded Retail  Mrs. Fields Franchising  Mrs. Fields Licensing |        | (collectively “Mrs. Fields”) |
|-------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|
| GAC/Pretzels  Dairy                                                                                               |   |                                        |

 

        Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 131,“Disclosures about Segments of an Enterprise and Related Information,” we haverestated the segment disclosures for the fiscal years 2006 and 2005 to conformto the presentation of the new operating segments.

 

        During fiscal year 2007,our strategy focused on one key objective:

 

·                  to focus on the growth ofeach of our brands by increasing the number of retail units and profitablesales.

 

        Our performance against this key performance indicator ispresented and discussed throughout this Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

 

        As of December 29, 2007, our store portfolio consistedof 1,238 domestic franchised locations, 275 international franchised locationsand 95 licensed locations. Our franchisees’ and licensees’ concept locations bybrand are distributed as follows:

*** ***
| ** **                      | ** ** | **Domestic**   | ** ** | **International** | ** ** | **Licensed**  | ** ** | ** ** | ** ** |
|---------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                      | ** ** | **Franchised** | ** ** | **Franchised**    | ** ** | **Locations** | ** ** | **Total**  | ** ** |
|                            |       |           |       |              |       |          |       |       |       |
| Mrs. Fields                |       | 318            |       | 84                |       | 25            |       | 427        |       |
| Great American                  |       | 296            |       | 1                 |       | —        |       | 297        |       |
| TCBY - traditional stores       |       | 303            |       | —            |       | —        |       | 303        |       |
| TCBY - non-traditional  stores  |       | 313            |       | 190               |       | 68            |       | 571        |       |
| Yovana - test stores  (1)  |       | 1              |       | —            |       | 2             |       | 3          |       |
| TCBY/Beriyo                     |       | 7              |       | —            |       | —        |       | 7          |       |
| Dairy subtotal                  |       | 624            |       | 190               |       | 70            |       | 884        |       |
| Total                           |       | 1,238          |       | 275               |       | 95            |       | 1,608      |       |

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(1) ) Thedomestic franchised Yovana test stores include one store owned and operated byus that was closed in January 2008. We assumed operations at this store from a franchisee in an effort tomore closely monitor the results of the test.

 

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        The table above counts each concept locationindividually.  For example, if a physicallocation had a Mrs. Fields store and a TCBY store together, this would becounted as two concept locations in the table above.  If actual physical stores were counted ratherthan concept locations, total store count would be reduced by 82 locations fora total of 1,526 locations at December 29, 2007.  As previously discussed, the GAC business wassold in January 2008, which reduced our store count by 297 locations.

 

        During the fiscal year ended December 29, 2007, MFOCowned one franchised Pretzel Brands retail concept; we recognized $16,000 offranchise royalties relating to the retail concept location owned by MFOC.  As this location is a Pretzel Brands, whichwas sold in August 2007, no additional royalties will be paid to us fromMFOC.

 

        During the three-year period from January 1, 2005 to December 29,2007, our store portfolio declined from 2,688 concept locations to 1,608concept locations, as follows:

 
| ** **                       | ** ** | **Total Company** | ** ** |
|----------------------------------|------------|-------------------|------------|
| ** **                       | ** ** | **Domestic**      | ** ** | **International** | ** ** | **Licensed** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Franchised**    | ** ** | **Franchised** | ** ** | **Locations** | ** ** | **Total** | ** ** |
| 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 (closings),  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 (closings),  net  |       | (4                | )          | (1 | ) | (1 | ) | (6 | ) |
| Balance, December 30,  2006 |       | 1,804             |       | 356 |   | 153 |   | 2,313 |   |
|                             |       |              |       |   |   |   |   |   |   |
| New development openings         |       | 68                |       | 38 |   | — |   | 106 |   |
| Permanent closings               |       | (314              | )          | (64 | ) | (51 | ) | (429 | ) |
| Sale of Pretzel stores           |       | (315              | )          | (53 | ) | (8 | ) | (376 | ) |
| Other openings (closings),  net  |       | (5                | )          | (2 | ) | 1 |   | (6 | ) |
| Balance, December 29,  2007 |       | 1,238             |       | 275 |   | 95 |   | 1,608 |   |

 

        The following tables provide additional detail of newdevelopment openings, permanent closings and other openings (closings), net ofour concept locations during the three-year period from January 1, 2005 toDecember 29, 2007:

 

**Domestic Franchised**

** **
| ** **                       | ** ** | ** **           | ** ** | ** **       | ** ** | ** **      | ** ** | **Non-**        | ** ** | ** ** | ** ** |
|----------------------------------|------------|----------------------|------------|------------------|------------|-----------------|------------|-----------------|------------|------------|------------|
| ** **                       | ** ** | ** **           | ** ** | ** **       | ** ** | **Traditional** | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Mrs. Fields** | ** ** | **GAC/Pretzels** | ** ** | **Dairy**       | ** ** | **Dairy**       | ** ** | **Total**  | ** ** |
| Balance, January 1,  2005   |       | 386                  |       | 659              |       | 469             |       | 631             |       | 2,145      |       |
|                             |       |                 |       |             |       |            |       |            |       |       |       |
| New development openings         |       | 22                   |       | 27               |       | 15              |       | 14              |       | 78         |       |
| Permanent closings               |       | (34                  | )          | (59              | )          | (61             | )          | (105            | )          | (259       | )          |
| Other openings (closings),  net  |       | (1                   | )          | 6                |       | 1               |       | 8               |       | 14         |       |
| Balance, December 31,  2005 |       | 373                  |       | 633              |       | 424             |       | 548             |       | 1,978      |       |
|                             |       |                 |       |             |       |            |       |            |       |       |       |
| New development openings         |       | 17                   |       | 47               |       | 11              |       | 4               |       | 79         |       |
| Permanent closings               |       | (31                  | )          | (56              | )          | (58             | )          | (104            | )          | (249       | )          |
| Other openings (closings),  net  |       | 1                    |       | (2               | )          | (1              | )          | (2              | )          | (4         | )          |
| Balance, December 30,  2006 |       | 360                  |       | 622              |       | 376             |       | 446             |       | 1,804      |       |
|                             |       |                 |       |             |       |            |       |            |       |       |       |
| New development openings         |       | 13                   |       | 40               |       | 10              |       | 5               |       | 68         |       |
| Permanent closings               |       | (56                  | )          | (49              | )          | (71             | )          | (138            | )          | (314       | )          |
| Sale of Pretzel stores           |       | —               |       | (315             | )          | —          |       | —          |       | (315       | )          |
| Other openings (closings),  net  |       | 1                    |       | (2               | )          | (4              | )          | —          |       | (5         | )          |
| Balance, December 29,  2007 |       | 318                  |       | 296              |       | 311             |       | 313             |       | 1,238      |       |

 

27

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**International Franchised**

 
| ** **                       | ** ** | ** **           | ** ** | ** **       | ** ** | **Non-**        | ** ** | ** ** | ** ** |
|----------------------------------|------------|----------------------|------------|------------------|------------|-----------------|------------|------------|------------|
| ** **                       | ** ** | ** **           | ** ** | ** **       | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Mrs. Fields** | ** ** | **GAC/Pretzels** | ** ** | **Dairy**       | ** ** | **Total**  | ** ** |
| Balance, January 1,  2005   |       | 82                   |       | 48               |       | 208             |       | 338        |       |
|                             |       |                 |       |             |       |            |       |       |       |
| New development openings         |       | 18                   |       | 12               |       | 29              |       | 59         |       |
| Permanent closings               |       | (14                  | )          | (5               | )          | (55             | )          | (74        | )          |
| Other openings (closings),  net  |       | 1                    |       | —           |       | 4               |       | 5          |       |
| Balance, December 31,  2005 |       | 87                   |       | 55               |       | 186             |       | 328        |       |
|                             |       |                 |       |             |       |            |       |       |       |
| New development openings         |       | 21                   |       | 9                |       | 31              |       | 61         |       |
| Permanent closings               |       | (11                  | )          | (8               | )          | (13             | )          | (32        | )          |
| Other openings (closings),  net  |       | —               |       | (1               | )          | —          |       | (1         | )          |
| Balance, December 30,  2006 |       | 97                   |       | 55               |       | 204             |       | 356        |       |
|                             |       |                 |       |             |       |            |       |       |       |
| New development openings         |       | 17                   |       | 5                |       | 16              |       | 38         |       |
| Permanent closings               |       | (30                  | )          | (7               | )          | (27             | )          | (64        | )          |
| Sale of Pretzel stores           |       | —               |       | (53              | )          | —          |       | (53        | )          |
| Other openings (closings),  net  |       | —               |       | 1                |       | (3              | )          | (2         | )          |
| Balance, December 29,  2007 |       | 84                   |       | 1                |       | 190             |       | 275        |       |

 

**Licensed Locations**

 
| ** **                       | ** ** | ** **           | ** ** | ** **       | ** ** | **Non-**        | ** ** | ** ** | ** ** |
|----------------------------------|------------|----------------------|------------|------------------|------------|-----------------|------------|------------|------------|
| ** **                       | ** ** | ** **           | ** ** | ** **       | ** ** | **Traditional** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Mrs. Fields** | ** ** | **GAC/Pretzels** | ** ** | **Dairy**       | ** ** | **Total**  | ** ** |
| Balance, January 1,  2005   |       | 60                   |       | 20               |       | 125             |       | 205        |       |
|                             |       |                 |       |             |       |            |       |       |       |
| New development openings         |       | 1                    |       | —           |       | 1               |       | 2          |       |
| Permanent closings               |       | (9                   | )          | (7               | )          | (17             | )          | (33        | )          |
| Other openings (closings),  net  |       | —               |       | (1               | )          | —          |       | (1         | )          |
| Balance, December 31,  2005 |       | 52                   |       | 12               |       | 109             |       | 173        |       |
|                             |       |                 |       |             |       |            |       |       |       |
| New development openings         |       | —               |       | —           |       | —          |       | —     |       |
| Permanent closings               |       | (8                   | )          | (2               | )          | (9              | )          | (19        | )          |
| Other openings (closings),  net  |       | —               |       | —           |       | (1              | )          | (1         | )          |
| Balance, December 30,  2006 |       | 44                   |       | 10               |       | 99              |       | 153        |       |
|                             |       |                 |       |             |       |            |       |       |       |
| New development openings         |       | —               |       | —           |       | —          |       | —     |       |
| Permanent closings               |       | (19                  | )          | (2               | )          | (30             | )          | (51        | )          |
| Sale of Pretzel stores           |       | —               |       | (8               | )          | —          |       | (8         | )          |
| Other openings (closings),  net  |       | —               |       | —           |       | 1               |       | 1          |       |
| Balance, December 29,  2007 |       | 25                   |       | —           |       | 70              |       | 95         |       |

 

        Weare experiencing a trend of declining store counts.  We have implemented a number of strategiesdesigned to reverse this trend, including identifying stores that are at riskof closure for operational issues, lease or franchise agreement expiration andworking with franchisees to relocate, transfer or correct operationaldeficiencies.  We are also testingprograms to refresh, remodel or re-concept some of our concept locations, asmore fully discussed elsewhere in this report. There can be no assurance that our strategies will succeed.  If store counts continue to decline, ourbusiness operations or financial condition could continue to be adverselyaffected.

 

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

 

28

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**RecentDevelopments**

 

# ***Sale of Great American CookieCompany and Great American Manufacturing***

# ** **

On January 29, 2008(the “GAC Closing Date”), the Company and our wholly owned subsidiaries, GACCF,LLC (“GACCF”) and GAMAN, LLC (“GAM”, collectively with GACCF, “GAC”), formerlyGreat American Cookie Company Franchising, LLC and Great AmericanManufacturing, LLC, completed the sale of substantially all of the assets ofGAC to NexCen Brands, Inc. (“NexCen Brands”) pursuant to an asset purchaseagreement (the “GAC Agreement”) with NexCen Brands, through its wholly ownedsubsidiary, NexCen Asset Acquisition, LLC (collectively with NexCen Brands, “NexCen”),for a total purchase price of approximately $93.6 million (the “GACTransaction”).  The purchase price consisted of $89.0 million in cash and1,099,290 shares of NexCen Brands common stock valued at $4.23 per share.  The net proceeds from the sale of GAC isconsidered restricted cash and will be reflected as restricted cash in ourconsolidated financial statements.  Theshares were deposited into an escrow account subject to an escrow agreement toindemnify NexCen for certain claims that may be made under the GAC Agreementfor a period ending nine months from January 29, 2008.  Additionally, we were required to pay $6.7million of the GAC Transaction proceeds to certain of GACCF’s franchisees atthe GAC Closing Date, in satisfaction of rights they held in connection withthe sale of the GACCF system, as described in a Settlement and ReleaseAgreement signed as of January 29, 2008, by and among such franchisees,NexCen Brands, Inc., GACCF, the Company, and MFOC. Under the terms ofthe GAC Agreement, we are not permitted to sell the shares issued for sixmonths following the GAC Closing Date and thereafter certain of the shares willbe subject to resale limitations through the 15-month anniversary of the GACClosing Date.

 

# **Reclassifications**

# ** **

        Inconnection with our reorganization and change in our reporting segments,certain prior year amounts have been reclassified to conform to the currentyear presentation.  We reclassified prioryear revenues and expenses as follows:

 

·                  Franchising was reclassifiedamong the Mrs. Fields, GAC/Pretzels and Dairy business units; and

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

 

        Thesereclassifications did not impact previously reported consolidated net loss oraccumulated deficit.

 

29

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**Results of Operations**

 

        The followingtable sets forth, for the periods indicated, certain information relating toour operations and percentage changes from period to period.  We report our results using a 52/53-week yearending on the Saturday closest to December 31.  Fiscal years 2007, 2006 and 2005 are all52-week periods.

 
| ** **                                          | ** ** | **Fiscal Year Ended**      | ** ** |
|-----------------------------------------------------|------------|----------------------------|------------|
| ** **                                          | ** ** | **December 29,**      | ** ** | **December 30,** | ** ** | **%** | ** ** | **December 31,** | ** ** | **%** | ** ** |
| **Statement of Operations Data:**                   | ** ** | **2007**                   | ** ** | **2006** | ** ** | **Change** | ** ** | **2005** | ** ** | **Change** | ** ** |
| ** **                                          | ** ** | **(Dollars in thousands)** | ** ** |
| REVENUES:                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Mrs Fields Gifts                                    |       | $                          | 31,046     |   | $ | 30,708 |   | 1.1 |   | $ | 30,136 |   | 1.9 |   |
| Mrs Fields Branded Retail                           |       | 19,625                     |       | 10,989 |   | 78.6 |   | 272 |   | NM |   |
| Mrs Fields Franchising                              |       | 7,754                      |       | 8,494 |   | (8.7 | ) | 9,234 |   | (8.0 | ) |
| Mrs Fields Licensing                                |       | 919                        |       | 1,838 |   | (50.0 | ) | 4,016 |   | (54.2 | ) |
| Mrs. Fields                                    |       | 59,344                     |       | 52,029 |   | 14.1 |   | 43,658 |   | 19.2 |   |
| GAC/Pretzels                                        |       | 28,891                     |       | 31,832 |   | (9.2 | ) | 29,711 |   | 7.1 |   |
| Dairy                                               |       | 9,743                      |       | 12,727 |   | (23.4 | ) | 14,583 |   | (12.7 | ) |
| Other                                               |       | 90                         |       | — |   | NM |   | — |   | NM |   |
| Total revenues                                      |       | 98,068                     |       | 96,588 |   | 1.5 |   | 87,952 |   | 9.8 |   |
|                                                |       |                       |       |   |   |   |   |   |   |   |   |
| OPERATING COSTS AND  EXPENSES:                      |       |                       |       |   |   |   |   |   |   |   |   |
| Mrs Fields Gifts                                    |       | 27,268                     |       | 32,379 |   | (15.8 | ) | 28,418 |   | 13.9 |   |
| Mrs Fields Branded Retail                           |       | 18,539                     |       | 11,397 |   | 62.7 |   | 219 |   | NM |   |
| Mrs Fields Franchising                              |       | 2,939                      |       | 2,463 |   | 19.3 |   | 2,828 |   | (12.9 | ) |
| Mrs Fields Licensing                                |       | (9                         | )          | 1,411 |   | NM |   | 1,132 |   | 24.6 |   |
| Mrs. Fields                                    |       | 48,737                     |       | 47,650 |   | 2.3 |   | 32,597 |   | 46.2 |   |
| GAC/Pretzels                                        |       | 14,655                     |       | 15,006 |   | (2.3 | ) | 14,283 |   | 5.1 |   |
| Dairy                                               |       | 5,909                      |       | 6,429 |   | (8.1 | ) | 4,577 |   | 40.5 |   |
| General and administrative                          |       | 10,721                     |       | 11,803 |   | (9.2 | ) | 8,585 |   | 37.5 |   |
| Depreciation                                        |       | 2,166                      |       | 2,442 |   | (11.3 | ) | 1,145 |   | 113.3 |   |
| Amortization                                        |       | 2,499                      |       | 2,111 |   | 18.4 |   | 2,831 |   | (25.4 | ) |
| Impairment of goodwill and intangible assets   |       | —                     |       | 14,568 |   | (100.0 | ) | 43,707 |   | (66.7 | ) |
| Gain on sale of intangible assets                   |       | (12,222                    | )          | — |   | NM |   | — |   | NM |   |
| Gain on sale of land held for sale                  |       | (128                       | )          | — |   | NM |   | — |   | NM |   |
| Other, net                                          |       | (3                         | )          | — |   | NM |   | — |   | NM |   |
| Total operating costs and expenses                  |       | 72,334                     |       | 100,009 |   | (27.7 | ) | 107,725 |   | (7.2 | ) |
| Income (loss) from operations                       |       | 25,734                     |       | (3,421 | ) | NM |   | (19,773 | ) | (82.7 | ) |
|                                                |       |                       |       |   |   |   |   |   |   |   |   |
| Interest expense, net                               |       | (21,047                    | )          | (20,892 | ) | 0.7 |   | (20,943 | ) | (0.2 | ) |
| Other expense                                       |       | —                     |       | (28 | ) | NM |   | — |   | NM |   |
|                                                |       |                       |       |   |   |   |   |   |   |   |   |
| Income (loss) before income tax provision (benefit) |       | 4,687                      |       | (24,341 | ) | NM |   | (40,716 | ) | (40.2 | ) |
| Income tax provision (benefit)                      |       | 6,393                      |       | (2,413 | ) | NM |   | (2,808 | ) | (14.1 | ) |
| Net loss                                            |       | $                          | (1,706     | ) | $ | (21,928 | ) | (92.2 | ) | $ | (37,908 | ) | (42.2 | ) |
|                                                |       |                       |       |   |   |   |   |   |   |   |   |
| Cash flows from operating  activities               |       | $                          | (4,974     | ) | $ | (2,236 | ) | 122.5 |   | $ | 6,564 |   | NM |   |
| Cash flows from investing  activities               |       | $                          | 572        |   | $ | (5,359 | ) | NM |   | $ | (2,674 | ) | 100.4 |   |
| Cash flows from financing  activities               |       | $                          | (122       | ) | $ | (105 | ) | 16.2 |   | $ | (72 | ) | 45.8 |   |

----

NM - not meaningful

 

30

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**Fiscal Year Ended December 29,2007**

**Compared to the Fiscal Year Ended December 30,2006**

 

*        Income from Operations—Overview*. Income from operations was $25.7 million for fiscal year 2007, anincrease of $29.1 million from a loss from operations of $3.4 million forfiscal year 2006.  This increase inincome from operations was primarily due to:

 

·                  impairment ofgoodwill associated with the Dairy reporting unit of $14.6 million in fiscalyear 2006;

·                  gain on sale ofthe Pretzel Brands of $12.2 million in fiscal year 2007;

·                  increasedcontribution from our business units of $1.2 million;

·                  decrease ingeneral and administrative expenses of $1.1 million;

·                  decreaseddepreciation expense of $200,000;

·                  increase inother revenues of $100,000; and

·                  gain on sale ofland of $100,000 resulting from a sale that occurred in fiscal year 2007.

 

        The foregoing increases in income fromoperations were partially offset by an increase in amortization of $400,000.

 

        The increase in contribution from ourbusiness units of $1.2 million is composed of the following:

 

·                  Mrs. Fieldsbusiness unit contribution increase of $6.2 million; partially offset by

·                  GAC/Pretzelsbusiness unit contribution decrease of $2.6 million; and

·                  Dairy businessunit contribution decrease of $2.4 million.

 

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

 

·                  sales ofproducts through our gift catalog and website, less direct operating expensesin our Mrs. Fields Gifts operating segment;

·                  sales of ourbranded products through retail channels by us and through food brokers lessrelated cost of sales and direct selling and operating expenses in our Mrs. FieldsBranded Retail operating segment;

·                  sales of newfranchises and royalties from existing franchises less direct operatingexpenses in our Mrs. Fields Franchising operating segment; and

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

 

        Our GAC/Pretzels and Dairy business unitcontribution is composed of sales of new franchises and royalties from existingfranchises less direct operating expenses. Our GAC/Pretzels business unit also includes sales of batter to our GACfranchisees less cost of product and direct operating expenses from ourmanufacturing facility.

 

        The following table sets forth thecontribution from each of our business units (in thousands):

 
| ** **                 | ** ** | **For the Fiscal Year Ended** | ** ** | ** **            | ** ** |
|----------------------------|------------|-------------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **December 29,**         | ** ** | **December 30,** | ** ** | **%** | ** ** |
| ** **                 | ** ** | **2007**                      | ** ** | **2006**              | ** ** | **Change** | ** ** |
| ** **                 | ** ** | **(Dollars in thousands)**    | ** ** | ** **            | ** ** |
| Mrs. Fields           |       | $                             | 10,607     |                  | $          | 4,379 |   | 142.2 |   |
| GAC/Pretzels               |       | 14,236                        |       | 16,826                |       | (15.4 | ) |
| Dairy                      |       | 3,834                         |       | 6,298                 |       | (39.1 | ) |
| Total segment contribution |       | $                             | 28,677     |                  | $          | 27,503 |   | 4.3 |   |

 

31

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**Mrs. Fields**

 

        The following table details the revenuesand operating expenses of the Mrs. Fields business unit (in thousands):

 
| ** **                                | ** ** | **Fiscal Year Ended**      | ** ** | ** **             | ** ** |
|-------------------------------------------|------------|----------------------------|------------|------------------------|------------|
| ** **                                | ** ** | **December 29,**      | ** ** | **December 30,%** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **2007**                   | ** ** | **2006**               | ** ** | **Change** | ** ** |
| ** **                                | ** ** | **(Dollars in thousands)** | ** ** | ** **             | ** ** |
| Mrs. Fields Gifts                    |       | $                          | 31,046     |                   | $          | 30,708 |   | 1.1 |   |
| Mrs. Fields Branded  Retail          |       | 19,625                     |       | 10,989                 |       | 78.6 |   |
| Mrs. Fields  Franchising             |       | 7,754                      |       | 8,494                  |       | (8.7 | ) |
| Mrs. Fields Licensing                |       | 919                        |       | 1,838                  |       | (50.0 | ) |
| Total Mrs. Fields revenues           |       | 59,344                     |       | 52,029                 |       | 14.1 |   |
|                                      |       |                       |       |                   |       |   |   |
| Mrs. Fields Gifts                    |       | 27,268                     |       | 32,379                 |       | (15.8 | ) |
| Mrs. Fields Branded  Retail          |       | 18,539                     |       | 11,397                 |       | 62.7 |   |
| Mrs. Fields  Franchising             |       | 2,939                      |       | 2,463                  |       | 19.3 |   |
| Mrs. Fields Licensing                |       | (9                         | )          | 1,411                  |       | NM |   |
| Total Mrs. Fields operating expenses |       | 48,737                     |       | 47,650                 |       | 2.3 |   |
|                                      |       |                       |       |                   |       |   |   |
| Total Mrs. Fields contribution       |       | $                          | 10,607     |                   | $          | 4,379 |   | 142.2 |   |

 

***Mrs. Fields Gifts***

 

*        Mrs. Fields Gifts Revenues.*  Mrs. FieldsGifts revenues were $31.0 million for fiscal year 2007, an increase of $300,000or 1.1 percent from $30.7 million for fiscal year 2006.  This increase in revenues was primarily dueto:

 

·                  paid search engine revenuesincrease of $1.9 million due to consumer preferences to purchase online; and

·                  national accounts partnersrevenues increase of $700,000 due to stronger sales from major customers.

 

The foregoingincreases in revenues were partially offset by the following decreases:

 

·                  revenues from affiliates of$1.2 million due to a reduction in the number of affiliates; and

·                  catalog driven salesdecrease of $1.1 million due to decreased circulation of our catalogs.

 

*        Mrs. Fields Gifts Expenses.*  Mrs. FieldsGifts expenses are comprised of cost of sales for products sold,selling and promotional expenses and direct operating costs of thissegment.  Mrs. Fields Gifts expenses were$27.3 million for fiscal year 2007, a decrease of $5.1 million or 15.8percent from $32.4 million for fiscal year 2006.  This decrease in expenses was primarily dueto the following:

 

·                  shipping and processingcosts of $1.3 million due to higher use of ground shipping;

·                  catalog and advertisingexpenses of $1.3 million due to decreased circulation of our catalogs;

·                  cost of sales of $900,000primarily due to reformulated product and product mix;

·                  compensation and relatedcosts of $600,000 due to the reduced headcount resulting from our managementreorganization that occurred in January 2007;

·                  rent and occupancy expensesof $400,000 incurred in fiscal year 2006 related to the old Gifts facility;

·                  expense of $200,000 incurredin fiscal year 2006 associated with moving to the new Gifts facility;

·                  recruiting and relocation expensesof $200,000 incurred in fiscal year 2006;

·                  severance of $100,000incurred in fiscal year 2006;

·                  professional fees of$100,000 due to projects completed in fiscal year 2006; and

·                  other operating expenses of$400,000.

 

        The foregoing decreases in expenses werepartially offset by increases in bonus expense of $400,000 for fiscal year2007.

 

32

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***Mrs. Fields Branded Retail***

 

*        Mrs. Fields Branded RetailRevenues. *Mrs. FieldsBranded Retail revenues were $19.6 million for fiscal year 2007, an increase of$8.6 million or 78.6 percent from $11.0 million for fiscal 2006.  This increase is due to the revenuesgenerated from the sale of Mrs. Fields branded shelf stable cookies.  As previously discussed, we commenced sellingMrs. Fields branded shelf stable cookies in July 2006 directlythrough retail channels following the termination of certain licenseagreements.

 

*        Mrs. Fields**BrandedRetail Expenses.*  Mrs. FieldsBranded Retail expenses are comprised of cost of sales for product sold,selling and promotional expenses and other direct operating expenses of thissegment.  Mrs. Fields Branded Retailexpenses were $18.5 million for fiscal year 2007, an increase of $7.1 millionor 62.7 percent from $11.4 million for fiscal year 2006.  This increase consists of cost of sales,compensation and related costs and other operating expenses associated with thebranded retail activities which commenced in July 2006.

 

***Mrs. Fields Franchising***

 

        The following table details the yearover year (“YOY”) percentage change in same store sales:

 
| ** **       | ** ** | **Fiscal Year Ended** | ** ** |
|------------------|------------|-----------------------|------------|
| ** **       | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
| ** **       | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Mrs. Fields |       | (1.3                  | )%         | (1.7 | )% |

 

        Our Mrs. Fields concept’s YOY same store sales decreaseof 1.3 percent for fiscal year 2007 was a result of a continueddecline in customer counts at the stores partially offset by increases in ouraverage ticket price due to promotional focus on the Big Cookie Cake programand our Breezer smoothie program.  Our YOY results slid in the 4th quarterof fiscal year 2007 by 2.4 percent due to the impact of economic concerns ontraffic at traditional mall retail locations.

 

        *Mrs. Fields**Franchising Revenues. *Mrs. Fields Franchising revenues were $7.8 million forfiscal year 2007, a decrease of $700,000 or 8.7 percent from $8.5 million forfiscal year 2006.  This decrease inrevenues was primarily attributable to approximately 1,900 or 10.0 percentfewer franchised unit weeks and a decrease in YOY same store sales of 1.3percent.

 

*Mrs. FieldsFranchising Expenses.*  Mrs. Fieldsfranchising expenses are comprised primarily of:

 

·                  operation andsupervision expenses wherein we provide support, direction and supervision tothe franchisees; and

·                  development and support expensesincluding product development costs, expenses relating to new franchisedevelopment, marketing and advertising, bad debt expense and other directfranchising expenses.

 

Mrs. Fields Franchising expenses were $2.9million for fiscal year 2007, an increase of $400,000 or 19.3% from $2.5million for fiscal year 2006.  Thisincrease in expenses was primarily due to the following:

 

·                  compensation and relatedcosts of $600,000 primarily due to a newly appointed president as part of themanagement reorganization that occurred in January 2007;

·                  bonus expense of $300,000for fiscal year 2007;

·                  franchise operations andsupervision costs of $200,000 primarily due to additional salaries and travelcosts; and

·                  recruiting costs of$100,000.

 

        The foregoing increases in expenses wereoffset by decreases in:

 

·                  expenses of $600,000 relatedto shared resources for product development, purchasing, training and customerservice; and

·                  expenses of $200,000associated with brand initiatives primarily associated with cookiereformulation.

 

33

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***Mrs. Fields Licensing***

 

*        Mrs. Fields LicensingRevenues. *Mrs. FieldsLicensing revenues were $900,000 for fiscal year 2007, a decrease of $900,000or 50.0 percent from $1.8 million for fiscal year 2006.  This decrease in revenues was primarily dueto:

 

·                  royalties of $600,000 infiscal year 2006 under our terminated licensing agreement for the sale of TCBYfrozen food specialty products through retail channels that were not repeatedin fiscal year 2007; and

·                  licensing royalties earnedin fiscal year 2006 of $400,000 under our terminated licensing agreement forthe sale of Mrs. Fields branded shelf stable cookies that were notrepeated in fiscal year 2007.

 

        The foregoing decreases in revenues werepartially offset by an increase of $100,000 under a new license agreement for Mrs. Fieldscookie and brownie ice cream sandwiches.

 

*        Mrs. Fields LicensingExpenses. *Mrs. FieldsLicensing expenses are comprised of selling and promotional expenses, bad debtand other direct operating expenses of this segment.  * *Mrs. FieldsLicensing expenses were negligible for fiscal year 2007, a decrease of $1.4million from $1.4 million for fiscal 2006. This decrease in expenses was primarily due to the following:

 

·                  bad debt expense of$700,0000 in fiscal year 2006 related to a terminated license agreement;

·                  cost of sales, legal,advertising and promotion expenses totaling approximately 500,000; and

·                  compensation and relatedcosts of $200,000 due to the reduced headcount resulting from our managementreorganization that occurred in January 2007.

 

**GAC/Pretzels**

 

**       **The following table details the YOY percentage changein same store sales:

 
| ** **             | ** ** | **Fiscal Year Ended** | ** ** |
|------------------------|------------|-----------------------|------------|
| ** **             | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
| ** **             | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **             | ** ** | ** **            | ** ** | ** ** | ** ** |
| Great American Cookies |       | (0.4                  | )%         | 3.0 | % |

 

        Our Great American Cookies concept’s YOYsame store sales decrease of 0.4  percentfor fiscal year 2007 was primarily the result of decreasing mall traffic,resulting in decreased YOY customer counts and a poorer than anticipatedholiday season.  This decrease waspartially offset by increases due to new quarterly cookie and frozen beverageproduct introductions, as well as a revamped Cookie Cake marketing programthat, in part, included a new consumer website, brand new Cookie Cake designsand new marketing and in-store and local store marketing promotion.

 

        *GAC/Pretzels Revenues*.  GAC/Pretzels revenues were $28.9 million forfiscal year 2007, a decrease of $2.9 million or 9.2 percent from $31.8million for fiscal year 2006.  Revenuesrelated to the Pretzel Brands through the date of the sale in August 2007were $3.5 million, a decrease of $2.8 million from $6.3 million for fiscal year2006.  The decrease in revenuesassociated with the GAC brand was primarily due to the following:

 

·                  decreased initial franchisefees of $200,000  primarily due to fewernew store openings; offset by

·                  increased royalties of$100,000 due to approximately 400 or 3.1 percent additional franchised unitweeks.

 

*GAC/PretzelsExpenses. *GAC/Pretzels expenses are comprised primarilyof:

 

·                  operation and supervisionexpenses wherein we provide support, direction and supervision to thefranchisees;

·                  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 salesassociated with our Great American Cookies manufacturing facility including rawingredients, labor and other manufacturing costs.

 

34

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GAC/Pretzels expenses were$14.7 million for fiscal year 2007, a decrease of $300,000 or 2.3 percentfrom $15.0 million for fiscal year 2006. This decrease in expenses was primarily due to the following:

 

·                  costs of $700,000 due toshared resources related to product development, purchasing, training andcustomer service; and

·                  operating expenses of$100,000 associated with our GAC manufacturing facility.

 

        The foregoing decreases in expenses werepartially offset by the following increases:

 

·                  cost of product of $200,000associated with our GAC manufacturing facility;

·                  compensation and relatedcosts of $200,000; and

·                  bad debt expense of$100,000.

 

**Dairy**

 

        The following table details the YOYpercentage change in same store sales:

 
| ** ** | ** ** | **Fiscal Year Ended** | ** ** |
|------------|------------|-----------------------|------------|
| ** ** | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
| ** ** | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** ** | ** ** | ** **            | ** ** | ** ** | ** ** |
| TCBY       |       | (0.2                  | )%         | (1.3 | )% |

 

Our Dairy segment’s YOY same store sales were anegative 0.2 percent for fiscal year 2007 primarily as a result of decreasedrevenues resulting from the continued decline in customer counts on a samestore basis.  This decrease was partiallyoffset by increased revenues due to product improvements, menu enhancements anda remodel program that was rolled out initially to over 100 existing TCBYtraditional franchised stores.

 

*Dairy Revenues.  *Dairy revenues were $9.7 million for fiscal year 2007, adecrease of $3.0 million or 23.4 percent from $12.7 million for fiscal year2006.  This decrease in revenues wasprimarily due to the following:

 

·                  reduced product formulationrevenues of $2.3 million resulting from: (i) fewer purchases of TCBYproducts by franchisees due to approximately 5,000 or 16.9 percent fewertraditional equivalent unit weeks; and (ii) rebates of $800,000 offered tofranchisees as an incentive to remodel their stores; and

·                  royalties of $800,000principally attributable to fewer traditional equivalent unit weeks.

 

The foregoing decreases in revenues were partiallyoffset by increased revenues of $100,000 from a Yovana test store we beganoperating in the fourth quarter of fiscal year 2006.

 

We anticipate that our traditional equivalent unitweeks will continue to decline in the near future.  If this trend continues, our businessoperations or financial condition could continue to be adversely affected.

 

*        Dairy Expenses.* Dairy expenses are comprised primarily of:

 

·                  operation and supervisionexpenses wherein we provide support, direction and supervision to thefranchisees: and

·                  development and supportexpenses including product development costs, expenses relating to new franchisedevelopment, marketing and advertising, bad debt expense and other directfranchising expenses of this segment

 

        Dairy expenses were $5.9 million forfiscal year 2007, a decrease of $500,000 or 8.1 percent from $6.4 millionfor fiscal year 2006.  This decrease inexpenses was primarily attributable to the following:

 

·                  costs of $400,000 related toshared resources related to product development, purchasing, training andcustomer service;

·                  distribution costs of$700,000 associated with the distribution of our products to our dairyfranchise system resulting from the Blue Line Extension Agreement that ended inMarch 2007;

·                  bad debt of $400,000primarily associated with the bankruptcy in fiscal year 2006 of Americana, ourformer manufacturer of proprietary yogurt products,

·                  compensation and relatedcosts of $400,000 due to the decrease in headcount resulting from ourreorganization;

·                  severance costs of $300,000for amounts incurred in fiscal year 2006; and

·                  travel and related costs of$200,000.

 

35

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        The foregoing decreases in expenses werepartially offset by the following increases:

 

·                  brand initiatives of$900,000 to test the Beriyo and Yovana concepts and to prepare for the TCBY newstore décor;

·                  bonus expense of $400,000for fiscal year 2007;

·                  operating costs of $300,000related to a Yovana test store that we began operating in the fourth quarter of2006;

·                  product development costs of$200,000; and

·                  professional fees of$100,000.

 

**Other**

 

*        General and Administrative Expenses.* General and administrative expenses were $10.7 million for fiscal year2007, a decrease of $1.1 million or 9.2 percent from $11.8 million for fiscalyear 2006.  This decrease in general andadministrative expenses was primarily attributable to the following decreases:

 

·                  compensation and relatedcosts of $1.0 million primarily due to the decrease in headcount resulting fromour reorganization;

·                  severance costs of $1.0million incurred in fiscal year 2006 primarily resulting from ourreorganization;

·                  legal expenses of $200,000;and

·                  other general andadministrative expenses of $100,000.

 

        The foregoing decreases in expenses werepartially offset by an increase in bonus expense of $1.2 million for fiscalyear 2007.

 

*        Depreciation and Amortization Expense.* Depreciation expense was $2.2 million for fiscal year 2007, a decreaseof $200,000 or 11.3 percent from $2.4 million for fiscal year 2006.  This decrease in depreciation expense was dueto the following decreases:

 

·                  $400,000 attributable toleasehold improvements and equipment associated with a Yovana test store; and

·                  $500,000 attributable toleasehold improvements in our old gifting facility.

 

The foregoing decreasesin depreciation expense were partially offset by an increase in depreciationexpense of $600,000 associated with the new gifting facility and $100,000 inequipment and leasehold improvements associated with Yovana and Beriyo teststores.

 

        Amortization expense was $2.5 millionfor fiscal year 2007, an increase of $400,000 or 18.4 percent from $2.1 millionfor fiscal year 2006.  This increase inamortization expense was due to a $400,000 write-down of intangible assets  due to the impairment of the Maxfield’soption in fiscal year 2007.

 

**        ConsolidatedFinancial Condition**

 

        Total assets at December 29, 2007were $120.8 million, a decrease of $900,000 or 0.8 percent from$121.7 million at December 30, 2006. This decrease in assets was primarily attributable to the following:

 

·                  Cash and cash equivalents of$4.6 million;

·                  accounts receivable, net of$2.7 million;

·                  inventories of $300,000;

·                  property and equipment of$1.8 million;

·                  goodwill of $13.8 millionassociated with the Pretzel Brands which we sold in August 2007;

·                  trademarks and otherintangible assets, net of $2.4 million; and

·                  deferred loan costs of $1.2million.

 

        The foregoing decreases in assets werepartially offset by the following increases:

 

·                  restricted cash of $20.0million associated with the Pretzel Brands which we sold in August 2007;

·                  marketable securities heldfor sale and other assets of $5.0 million primarily composed of the stockreceived as part of the sale of the Pretzel Brands;

·                  prepaid expenses of$200,000; and

·                  deferred tax asset of$700,000.

 

36

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        Total liabilities at December 29,2007 were $226.0 million, a decrease of $1.5 million or 0.6 percentfrom $227.5 million at December 30, 2006.  This decrease in liabilities was primarilyattributable to the following:

 

·                  accounts payable of $3.6million;

·                  accrued liabilities of$800,000;

·                  capital lease obligations of$100,000; and

·                  deferred revenues and otherliabilities of $800,000.

 

The foregoingdecreases in liabilities were partially offset by an increase in amounts due toaffiliates of $3.8 million, primarily a result of amounts due under a taxsharing agreement.

 

###### ***Consolidated Cash Flows***

###### * *

        Net cash flows used inoperating activities were $5.0 million for fiscal year 2007, an increased usageof $2.8 million from net cash flows used in operating activities of $2.2million for fiscal year 2006.  Thisincreased usage was primarily due to changes in our working capital of $5.1million.   These increased usages werepartially offset by  increases incontribution by our operating segments of $1.2 million and a decrease ingeneral and administrative expenses of $1.1 million.

 

        Net cash flows provided byinvesting activities were $600,000 for fiscal year 2007, an increase of $6.0million from net cash used in investing activities of $5.4 million for fiscalyear 2006.  This increase was primarilyattributable to the following increases:

 

·                  net proceeds from the sale of our Pretzel Brandsof $20.6 million;

·                  proceeds from the sale ofland held for sale of $300,000;

·                  purchase of licenserepurchase option of $500,000 in fiscal year 2006; and

·                  decreased purchases ofproperty and equipment of $4.7 million principally associated with our newgifts facility.

 

        The foregoing increaseswere partially offset by the following decreases:

·      restrictedcash of $20.0 million from the sale of our Pretzel Brands; and

·      proceeds from the sale of equity warrantsin Nonni’s Food Company of $100,000 in fiscal year 2006.

 

        Net cash flows used infinancing activities were $100,000 for fiscal year 2007 and 2006, representingprincipal payments on capital lease obligations.

 

37

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**Fiscal Year Ended December 30,2006**

**Compared tothe Fiscal Year Ended December 31, 2005**

 

*        LossFrom Operations—Overview*.  Lossfrom operations was $3.4 million for fiscal year 2006, a decrease of $16.4million from loss from operations of $19.8 million for fiscal year2005.  This decrease was primarilyattributable to the following;

 

·                  decrease in the impairmentof goodwill and intangible assets of $29.1 million;

·                  decrease in contribution (asdefined below) from our business segments of $9.0 million:

·                  increase in general andadministrative expenses of $3.2 million; and

·                  increase in depreciation andamortization of $500,000.

 

        The decreases in contributionfrom our business segments of $9.0 million was comprised of:

 

·                  decreases in our Mrs. Fieldsbusiness unit contribution of $6.7 million; and

·                  decreases in our Dairybusiness unit contribution of $3.7 million.

 

        These decreases werepartially offset by an increase in our GAC/Pretzel business unit contributionof $1.4 million.

 

*BusinessUnit Contribution.* Our**Mrs. Fields business unit contribution iscomposed of the following:

 

·                  sales of products throughour gift catalog and website, less direct operating expenses in our Mrs. FieldsGifts operating segment;

·                  net sales of our brandedproducts through retail channels by us and through food brokers less relatedcost of sales and direct selling and operating expenses in our Mrs. FieldsBranded Retail operating segment;

·                  sales of new franchises androyalties from existing franchises less direct operating expenses in our Mrs. FieldsFranchising operating segment; and

·                  licensing fees received fromthird parties for the sale of products bearing our brand names less directoperating expenses in our Mrs. Fields Licensing operating segment.

 

        Our GAC/Pretzel and Dairy business unitcontribution is composed of sales of new franchises and royalties from existingfranchises less direct operating expenses. Our GAC/Pretzel business unit also includes sales of batter to our GACfranchisees, less cost of product and direct operating expenses, from ourmanufacturing facility.

 

The followingtable sets forth the contribution from each of our business units (inthousands):

 
| ** **                       | ** ** | **For the Fiscal Year Ended** | ** ** | ** **            | ** ** |
|----------------------------------|------------|-------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **December 30,**         | ** ** | **December 31,** | ** ** | **%** | ** ** |
| **Reporting Segment**            | ** ** | **2006**                      | ** ** | **2005**              | ** ** | **Change** | ** ** |
|                             |       | **(Dollars in thousands)**    |       |                  |       |
| Mrs. Fields Gifts           |       | $                             | (1,671     | )                     | $          | 1,718 |   | NM |   |
| Mrs. Fields Branded  Retail |       | (408                          | )          | 53                    |       | NM |   |
| Mrs. Fields  Franchising    |       | 6,031                         |       | 6,406                 |       | (5.9 | ) |
| Mrs. Fields Licensing       |       | 427                           |       | 2,884                 |       | (85.2 | ) |
| Total Mrs. Fields           |       | 4,379                         |       | 11,061                |       | (60.4 | ) |
|                             |       |                          |       |                  |       |   |   |
| GAC/Pretzels                     |       | 16,826                        |       | 15,428                |       | 9.1 |   |
| Dairy                            |       | 6,298                         |       | 10,006                |       | (37.1 | ) |
| Total segment contribution       |       | $                             | 27,503     |                  | $          | 36,495 |   | (24.6 | ) |

 

38

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**Mrs. Fields**

 

        The following table details the revenuesand operating expenses of the Mrs. Fields business unit for fiscal year2006 and 2005:

** **
| ** **                                | ** ** | **December 30,**      | ** ** | **December 31,** | ** ** | **%**      | ** ** |
|-------------------------------------------|------------|----------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                | ** ** | **2006**                   | ** ** | **2005**              | ** ** | **Change** | ** ** |
| ** **                                | ** ** | **(Dollars in thousands)** | ** ** | ** **            | ** ** |
| Mrs. Fields Gifts                    |       | $                          | 30,708     |                  | $          | 30,136     |       | 1.9 |   |
| Mrs. Fields Branded  Retail          |       | 10,989                     |       | 272                   |       | NM         |       |
| Mrs. Fields  Franchising             |       | 8,494                      |       | 9,234                 |       | (8.0       | )          |
| Mrs. Fields Licensing                |       | 1,838                      |       | 4,016                 |       | (54.2      | )          |
| Total Mrs. Fields revenues           |       | 52,029                     |       | 43,658                |       | 19.2       |       |
|                                      |       |                       |       |                  |       |       |       |
| Mrs. Fields Gifts                    |       | 32,379                     |       | 28,418                |       | 13.9       |       |
| Mrs. Fields Branded  Retail          |       | 11,397                     |       | 219                   |       | NM         |       |
| Mrs. Fields  Franchising             |       | 2,463                      |       | 2,828                 |       | (12.9      | )          |
| Mrs. Fields Licensing                |       | 1,411                      |       | 1,132                 |       | 24.6       |       |
| Total Mrs. Fields operating expenses |       | 47,650                     |       | 32,597                |       | 46.2       |       |
|                                      |       |                       |       |                  |       |       |       |
| Total Mrs. Fields contribution       |       | $                          | 4,379      |                  | $          | 11,061     |       | (60.4 | ) |

 

***Mrs. Fields Gifts***

 

*        Mrs. FieldsGifts Revenues.*  Mrs. FieldsGifts revenues were $30.7 million for fiscal year 2006, an increase of $600,000or 1.9 percent from $30.1 million for fiscal 2005.  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 2006 wasdue to the following increases in sales through:

 

·                  Internet search engines of$1.1 million:

·                  our partners and affiliatesof $600,000; and

·                  national accounts of$400,000.

 

        These increases were partially offset byreductions in sales through our catalog and website of $1.0 million and airlineand other customers of $500,000.

 

*        Mrs. FieldsGifts Expenses.*  Mrs. FieldsGifts expenses are comprised of cost of sales for products sold, selling andpromotional expenses and direct operating costs of this segment.  Mrs. Fields Gifts expenses were $32.4million for fiscal 2006, an increase of $4.0 million or 13.9 percent from $28.4million for fiscal 2005.  This increase in expenses was due to thefollowing:

 

·                  cost of goods sold of $3.0 million due to increases inraw materials, production costs and freight expenses;

·                  facility expenses of $1.0 million primarily due toaccrued rents on the former gifting facility;

·                  severance compensation related to this businesssegment of $400,000:

·                  compensation and related costs of $300,000;

·                  utilities and occupancy costs of $200,000;

·                  insurance costs of $100,000;

·                  moving costs to our new facility of $100,000; and

·                  other costs of $100,000.

 

        The foregoing increases were partiallyoffset by the following decreases:

 

·                  professionalfees of $800,000 for consultants in fiscal 2005 for the assistance anddevelopment of our gifting business strategy;

·                  recruiting andrelocation costs of $300,000; and

·                  bad debt expenseof $100,000.

 

39

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***Mrs. Fields Branded Retail***

 

*        Mrs. Fields Branded RetailRevenues. *Mrs. FieldsBrandedRetail net sales were $11.0 million for fiscal 2006, an increase of $10.7million from $300,000 for fiscal 2005. Following the termination of certain license agreements with ShadewellGrove IP, LLC (“ Shadewell”), in July 2006 we commenced selling Mrs. Fieldsbranded shelf stable cookies directly through retail channels.  Prior to this time, our branded retailrevenues consisted only of sales of Mrs. Fields branded cookie dough directlythrough retail channels.

 

        *Mrs. FieldsBranded Retail Expenses*.  Mrs. FieldsBranded Retail expenses are comprised of cost of sales for product sold,selling and promotional expenses and other direct operating expenses of thissegment.  Mrs. Fields Branded Retailexpenses were $11.4 million for fiscal 2006, an increase of $11.2 million from$200,000 for fiscal 2005.  This increasewas primarily due to the operating costs associated with the new branded retailactivities which commenced in July 2006, increases in severance costs of$400,000 associated with the management reorganization and professional feespaid to Shadewell of $400,000.

 

***Mrs. Fields Franchising***

 

        The following table details the YOYpercentage change in same store sales:

 
| ** **       | ** ** | **Fiscal Year Ended** | ** ** |
|------------------|------------|-----------------------|------------|
| ** **       | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **       | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **       | ** ** | ** **            | ** ** | ** ** | ** ** |
| Mrs. Fields |       | (1.7                  | )%         | (0.6 | )% |

 

        Our Mrs. Fieldsconcept’s YOY same store sales were a negative 1.7 percent for fiscal 2006compared to a negative 0.6 percent for fiscal 2005.  Decreased YOY same store sales for our Mrs. Fieldsconcept were a result of lower customer counts which led to a decrease in salesduring the key holiday seasons.

 

        *Mrs. FieldsFranchising Revenues.* Mrs. Fields Franchising revenues were$8.5 million in fiscal 2006, a decrease of $700,000 or 8.0 percent from $9.2million in fiscal 2005.  The decrease inrevenues in our Mrs. Fields franchise system was principally attributableto the following:

 

·                  lower initialfranchise fees of $300,000;

·                  allowancesearned from our beverage vendors and product formulation revenues generated bypurchases of certain bakery products by franchisees of $300,000; and

·                  royalties of$100,000 primarily due to decreases in YOY same store sales.

 

        The decrease in initialfranchise fees was due to initial franchise fees earned in Canada in fiscal2005 of $200,000 that were not repeated in fiscal 2006 and lower averageinitial franchise fees earned for new store openings in fiscal 2006 compared tofiscal 2005.

 

        *Mrs. FieldsFranchising Expenses.*  Mrs. FieldsFranchising expenses are comprised primarily of the following:

 

·                  operation andsupervision expenses wherein we provide support, direction and supervision tothe franchisees; and

·                  development andsupport expenses including product development costs, expenses relating to newfranchise development, marketing and advertising, bad debt expense and otherdirect franchising expenses.

 

        Mrs. FieldsFranchising expenses were $2.5 million for fiscal 2006, a decrease of $300,000or 12.9 percent from $2.8 million for fiscal 2005.  This decrease was due to the following:

 

·                  reductions in brand investment initiatives of$300,000;

·                  franchise development costs of $200,000; and

·                  costs associated with royalty assurance of$100,000.

 

        The foregoing decreaseswere partially offset by the following increases:

 

·                  compensation andrelated benefits of $200,000; and

·                  bad debt expenseof $100,000 associated with our franchisees.

 

40

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***Mrs. Fields Licensing***

 

*        Mrs. FieldsLicensing Revenues. * Mrs. Fields Llicensing revenues were $1.8million for fiscal 2006, a decrease of $2.2 million or 54.2 percent from$4.0 million for fiscal year 2005.  This decreasewas due primarily to the following:

 

·                  licensing royalties earnedunder our licensing agreement with Shadewell for the sale of Mrs. Fieldsbranded shelf stable cookies of $1.9 million;

·                  licensing royalties earnedunder an agreement for the sale of Mrs. Fields branded premium hot cocoathat was terminated in early fiscal 2005 of $100,000;

·                  licensing royalties earnedunder a license agreement with Americana of $100,000; and

·                  royalties earned under otherlicensed products of $100,000.

 

        We do not anticipateearning any further royalties under the terminated license agreements for thesale of Mrs. Fields branded shelf stable cookies or for TCBY brandedfrozen products under a license agreement with Americana.

 

        *Mrs. Fields**Licensing Expenses.*  Mrs. Fields Licensing expenses arecomprised of selling and promotional expenses, bad debt and other directoperating expenses of this segment.  Mrs. FieldsLicensing expenses were $1.4 million for fiscal 2006, an increase of $300,000or 24.6 percent, from $1.1 million for fiscal 2005.  This increase was due principally to thefollowing:

 

·                  bad debt expense as a result of the termination of ourlicense agreements for the sale of Mrs. Fields branded shelf stablecookies of $300,000; and

·                  bad debt expense related to Americana of $300,000 .

 

        The foregoing increases were partiallyoffset by a decrease in legal costs of $300,000 for the termination of licenseagreements for the sale of Mrs. Fields branded shelf stable cookies.

 

***GAC/Pretzels***

 

        The following table details the YOYpercentage change in same store sales:

 
| ** **   | ** ** | **Fiscal Year Ended** | ** ** |
|--------------|------------|-----------------------|------------|
| ** **   | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **   | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **   | ** ** | ** **            | ** ** | ** ** | ** ** |
| GAC          |       | 3.0                   | %          | 4.8 | % |
| Pretzel Time |       | 8.0                   | %          | 2.7 | % |
| Pretzelmaker |       | 10.5                  | %          | 10.7 | % |

 

        Our GAC conceptexperienced its third consecutive year of YOY same store sales growth.  Our GAC concept YOY same store sales were 3.0percent for fiscal 2006 compared to 4.8 percent for fiscal 2005.  The three significant contributors to fiscal2006 growth were:

 

·                  continued growth in higher priced CookieCakes;

·                  products, such as Disney’s Winnie the Poohcookies and merchandise, Chocolate Peanut Butter Supreme Brownie, White ChunkCranberry Cookie; and

·                  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 growth over the prior year was driven bynew and fresher tasting dough and a focus on high margin pretzel bites andBreezer frozen beverages.

 

*        GAC/PretzelsRevenues. *TheGAC/Pretzels revenues were $31.8 million for fiscal 2006, an increase of $2.1million or 7.1 percent from $29.7 million for fiscal 2005.  Thisincrease in revenues was primarily due to the following

 

·                  batter purchases of $1.6 million by our GACfranchisees as a result of continued positive YOY same store sales by ourfranchisees; and

·                  royalties of $800,000 primarily due to aprice increase to our franchisees of 5.0 percent effective April 2006.

 

41

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        The forgoing increases in revenues werepartially offset by the following decreases;

 

·                  productformulation revenues of $200,000 earned through our GAC/Pretzel franchisesystem; and

·                  initialfranchise fees due to initial franchise fees earned in Canada from ourPretzelmaker concepts in fiscal 2005 of $100,000 that were not repeated infiscal 2006 and  lower average initialfranchise fees earned for new store openings in fiscal 2006 compared to fiscal2005.

 

*        GAC/Pretzels Expenses*. GAC/Pretzels expenses are comprised primarily of:

 

·                  operation and supervision expenses wherein weprovide support, direction and supervision 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 GACmanufacturing facility including raw ingredients, labor and other manufacturingcosts.

 

        GAC/Pretzels expenses were$15.0 million for fiscal 2006, an increase of $700,000 or 5.1 percent from$14.3 million for fiscal 2005.  Thisincrease was due to the following:

 

·                  operating expenses at our GAC manufacturingfacility of $700,000 as result of its increased sales;

·                  compensation and related benefits of$300,000; and

·                  franchise development costs of $300,000.

 

        The foregoing increaseswere partially offset by reductions in brand investment initiatives of $500,000and costs associated with royalty assurance of $100,000.

 

***Dairy***

 

        The following table details the YOYpercentage change in same store sales:

 
| ** ** | ** ** | **Fiscal Year Ended** | ** ** |
|------------|------------|-----------------------|------------|
| ** ** | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** ** | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** ** | ** ** | ** **            | ** ** | ** ** | ** ** |
| TCBY       |       | (1.3                  | )%         | (0.8 | )% |

 

        Our TCBY concept YOY samestore sales were a negative 1.3 percent for fiscal 2006 compared to a negative0.8 percent for fiscal 2005.  We continueto focus on and emphasize store level operation and standards enforcement toimprove operations and the consumer experience in the store.  In addition we continue to focus our efforts aroundour yogurt products with the introduction of hand scooped frozen yogurt,replacing our ice cream products, as well as improving the quality of ouryogurt by increasing the number of live, active cultures in our products.  This work is being executedin parallel to various reconcepting tests, as more fully discussed elsewhere inthis report.  This reconcepting work isdesigned to leverage consumer trends, provide a new platform for sales growth,build an improved franchisee business model and strengthen our new store developmentinitiatives.

 

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*        Dairy Revenues. *The Dairy revenues were$12.7 million for fiscal 2006, a decrease of $1.9 million or 12.7 percent from$14.6 million in fiscal 2005.  Thisdecrease in revenues was primarily due to the following:

 

·                  fewer product formulationrevenues generated by purchases of TCBY products by franchisees of $1.0 millionor 10.7 percent;

·                  royalties of $500,000 or 9.2percent; and

·                  initial franchise fees of$400,000 or 64.2 percent.

 

The decrease in royalties and product formulation is principallyattributable to approximately 3,800 or 11.3 percent fewer unit weeks and adecrease in our franchisees’YOY same store sales of 1.3 percent.  Weanticipate that our dairy unit weeks will continue to decline in the nearfuture, at least until our reconcepting tests for Yovana and the rollout infiscal year 2007 of the Beriyo line of smoothie products to TCBY traditionalstores are completed.  We haveconcluded our test of Beriyo as a conversion option for existing TCBY storesand do not currently plan on offering a Beriyo conversion program in the nearfuture.  We plan on paying certain costsand expenses in fiscal year 2007 in connection with the conclusion of thisphase of the Beriyo test.  

 

*        DairyExpenses. *Dairy expenses are comprised primarilyof:

 

·                  operation andsupervision expenses wherein we provide support, direction and supervision tothe franchisees: and

·                  development andsupport expenses including product development costs, expenses relating to newfranchise development, marketing and advertising, bad debt expense and otherdirect franchising expenses of this segment.

 

The Dairy expenses were $6.4 million for fiscal 2006, an increase of$1.8 million or 40.5 percent from $4.6 million for fiscal 2005.  This increase was primarily due to thefollowing:

 

·                  advertising costsof $500,000;

·                  distribution costsof $500,000;

·                  severancecompensation of $500,000 as a result of of the management reorganization;

·                  bad debt of$400,000 associated with Americana;

·                  compensation andrelated benefits of $200,000;

·                  franchisedevelopment costs of $200,000;

·                  costs of $200,000associated with Beriyo and Yovana new store designs; and

·                  bad debt expenseof $100,000 associated with our franchisees.

 

        The foregoing increaseswere partially offset by the following decreases;

 

·                  brand initiativesof $700,000; and

·                  costs of $100,000associated with royalty assurance.

 

**Other**

 

*        Generaland Administrative Expense.*  General and administrative expenses were $11.8million for fiscal 2006, an increase of $3.2 million or 37.5 percent, from $8.6million for fiscal 2005.  This increase was primarily due to:

 

·                  a reduction in the amount we received for managementservices provided to our parent company, MFOC, of $1.7 million;

·                  increases in severance costs of $900,000 associatedwith our management reorganization;

·                  professional fees of $700,000 primarily associatedwith potential debt refinancing alternatives;

·                  rent reimbursement amount of $200,000 as a result ofthe decrease in the number of stores owned and operated by MFOC;

·                  salaries and related benefits of $200,000;

·                  health insurance expense of $200,000; and

·                  expense of $100,000 due to shared resources related topurchasing and corporate salaries.

 

        The foregoing increaseswere partially offset by reductions in recruiting and relocation of $600,000and professional fees of $200,000 associated with information technologyservices and internal controls.

 

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*        Depreciationand Amortization Expense. *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 August 2006,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.

 

*        Impairmentof Goodwill and Intangible Assets. *For fiscal 2006, we recorded an impairment charge of $14.6 millioncompared to $43.7 million for fiscal 2005 to reduce the carrying value of goodwillassociated with our Dairy reporting unit. This impairment was principally the result of the eroding dairyfranchise operations evidenced by fewer locations, consistent negative YOY samestore sales by our dairy franchisees 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.

 

**Consolidated Financial Condition**

 

        Total assets at December 30, 2006were $121.7 million, a decrease of $18.2 million or 13.0 percent from$139.9 million at December 31, 2005. This decrease in assets was primarily attributable to the following:

 

·                  cash and cash equivalents of $7.7 million;

·                  prepaid expenses and other assets of $400,000;

·                  deferred tax assets of $200,000;

·                  goodwill of $14.6 million;

·                  trademarks and other intangible assets, net of $2.0million; and

·                  deferred loan costs of $800,000.

 

        The foregoing decreases in assets werepartially offset by the following increases:

 

·                  receivables, net of $2.6 million;

·                  inventories of $1.1 million; and

·                  net property and equipment of $3.8 million.

 

        Total liabilities at December 30,2006 were $227.5 million, an increase of $6.2 million or 2.8 percentfrom $221.3 million at December 31, 2005.  This increase in liabilities was primarilyattributable to the following:

 

·                  accounts payable of $3.1 million;

·                  accrued liabilities of $2.5 million; and

·                  other liabilities of $1.3 million.

 

        The foregoing decreases in liabilitieswere partially offset by the following increases:

 

·                  amounts due to affiliates of $200,000;

·                  capital lease obligations of $100,000; and

·                  deferred revenues and other liabilities of $400,000.

 

###### ***Consolidated Cash Flows***

###### * *

        Net cash flows used inoperating activities were $2.2 million for fiscal 2006, a decrease of $8.8million from net cash flows provided by operating activities of $6.6 millionfor fiscal 2005.  This decrease wasprincipally due to decreases in contribution by our operating segments of $9.0million and an increase in general and administrative expenses of $3.1 millionfunded through changes in our working capital of $3.3 million.

 

        Net cash flows used ininvesting activities were $5.4 million for fiscal 2006, an increase of $2.7million from net cash used in investing activities of $2.7 million for fiscal2005.  This increase was attributable toincreases in purchases of property and equipment of $2.8 million principallyassociated with our new gifts facility partially offset by proceeds from thesale of equity warrants in Nonni’s Food Company of $100,000.

 

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Netcash flows used in financing activities were negligible for fiscal year 2006and 2005.

 

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

###### * *

*       *Our principal sources of liquidity are cash on handand cash flows generated from the sale of operating assets, the latter to theextent not otherwise restricted by our Indenture.  At December 29, 2007, we had $11.4million of cash on hand, excluding the $20.0 million of restricted cash.  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 September 15, 2008 and March 15, 2009.  In addition, to the extent we have cashavailable and it is permitted by the indenture governing the Senior SecuredNotes, we may pay dividends to our parent companies for uses such asacquisitions, debt repayments and dividends. We do not expect to be required, but we may offer, to repurchase aportion of the Senior Secured Notes as described below.

 

        We are highly leveraged. At December 29, 2007, we had $195.7 million of long-term debtrepresented by the Senior Secured Notes. The Senior Secured Notes mature on March 15, 2011, with interestpayable semi-annually on March 15 and September 15.  Due to borrowing restrictions under theindenture governing the Senior Secured Notes, our ability to obtain additionaldebt financing is significantly limited. The Senior Secured Notes require us to offer to repurchase a portion ofthe notes at 100 percent of the principal amount, plus accrued and unpaidinterest thereon to the date of purchase, with 50 percent of our “excesscash flow,” as defined in the indenture agreement, when the ratio of our netindebtedness to consolidated EBITDA is above 3.75 to 1.0 and the cumulativeunpaid excess cash flow offer amount exceeds $10.0 million.  We do not anticipate that our “excess cashflow” will exceed the levels that would require us to offer to repurchase aportion of the notes described above.

 

Our consolidated financialstatements, contained elsewhere in this report, were prepared on a goingconcern basis, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business. The realizationof assets and the satisfaction of liabilities in the normal course of businessare dependent on, among other things, our ability to operate profitably and togenerate positive cash flows from operations. We have suffered recurring net losses and negative cash flows fromoperations and have a net member’s deficit at December 29, 2007.  As a result, we may be unable to make our scheduled semi-annualinterest payments on our Senior Secured Notes commencing September 2008 in theamount of $10.2 million. Failure to make the scheduled semi-annual interestpayments would constitute an event of default under the Indenture which couldcause the Senior Secured Notes to become immediately due and payable.  We do not currently have the ability to repaythe Senior Secured Notes should they become due and payable.  These matters raise substantial doubt about ourability to continue as a going concern.  Weare pursuing various actions to improve our results of operations, cash flowsand financial position.  These actions include, but are not limited to, thefollowing:

 

·                  staff reductions and other initiatives toreduce expenses and increase revenues;

·                  reinvestment of net proceeds from the saleof the Pretzel and GACCF, LLC  (“GACCF”)and GAMAN, LLC, formerly Great American Cookie Company Franchising, LLC andGreat American Manufacturing, LLC (collectively with GACCF, “GAC”) businessesinto higher yielding investments; 

·                  restructuring of the Company’s SeniorSecured Notes; and

·                  raising additional equity capital.

 

Management and our majorshareholder have engaged Blackstone Advisory Services (“Blackstone”) to assistin reviewing our strategic alternatives for raising additional equity capitaland restructuring our Senior Secured Notes.  Blackstone and management areworking with a committee of noteholders representing approximately 70 percentof the outstanding Senior Secured Notes on a proposal to restructure our SeniorSecured Notes.  Management expects to be able to renegotiate the terms ofour Senior Secured Notes on terms that are favorable to the Company; however noassurances can be provided.  There can be no assurance that any of thestrategic alternatives being considered will be successful or that our resultsof operations, cash flows and financial position will improve, absentsuccessful execution of some or all of the alternatives being considered.

 

###### ***Contractual Obligations***

###### * *

        The following table reflects our future contractualobligations as of December 29, 2007 (in thousands):

 
| ** **                                      | ** ** | **Payments Due by Fiscal Year** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|
| **Contractual Obligations**                     | ** ** | **Total**                       | ** ** | **2008** | ** ** | **2009 - 2010** | ** ** | **2011 - 2012** | ** ** | **After 2013** | ** ** |
| Senior Secured Notes                            |       | $                               | 195,747    |   | $ | — |   | $ | — |   | $ | 195,747 |   | $ | — |   |
| Interest on Senior Secured  Notes               |       | 71,722                          |       | 20,492 |   | 40,984 |   | 10,246 |   | — |   |
| Capital lease obligations  (including interest) |       | 528                             |       | 131 |   | 190 |   | 179 |   | 28 |   |
| Operating leases                                |       | 14,259                          |       | 2,423 |   | 5,019 |   | 2,851 |   | 3,966 |   |
| Total Contractual  Obligations                  |       | $                               | 282,256    |   | $ | 23,046 |   | $ | 46,193 |   | $ | 209,023 |   | $ | 3,994 |   |

 

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We have enteredinto a supply agreement to buy frozen dough products, which stipulates minimumannual purchase commitments of not less than 12.5 million pounds ofproducts, approximately $14.8 million based on weighted average prices ineffect December 29, 2007, each year through the end of the contract, December 2011.  These annual purchase commitments aresatisfied primarily through the direct purchase of frozen dough products by ourfranchisees.  Should we fail to meet theannual 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.  Since these purchasecommitments do not represent cash obligations to us, we have not included themin our contractual obligations table.

 

**Certain Information Concerning Off-Balance SheetArrangements**

 

As of December 29,2007, we did not have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes.  We are,therefore, not materially exposed to financing, liquidity, market or creditrisk that could arise if we had engaged in such relationships.

 

**Inflation**

 

The impact ofinflation on our business has not been significant in recent years.  Some of our employees are paid hourly wagesat the federal minimum wage level. Minimum wage increases will negatively impact our payroll costs in theshort term, but management believes such impact can be offset in the long termthrough lower staffing of operations and, if necessary, through product priceincreases.

 

**Seasonality**

 

Our sales andcontribution from franchisees’ store operations are highly seasonal, but ourvarious brands experience counteracting overall seasonal effects.  Our Mrs. Fields stores, primarilylocated in malls, tend to mirror customer traffic flow trends in malls, whichincrease significantly during the fourth quarter, primarily between Thanksgivingand the end of the calendar year. Holiday gift purchases also are a significant factor in increased salesin the fourth quarter.  However, Dairystores experience their strongest sales periods during the warmer months fromlate Spring through early Fall, which helps to balance the impact ofseasonality on our operations.  Thecombined revenues for each quarter of the Mrs. Fields Franchising andDairy operating segments as a percentage of total combined revenues for thefiscal year ended December 29, 2007 were 24.2 percent for the firstquarter, 28.5 percent for the second quarter, 25.6 percent for the thirdquarter and 21.7 percent for the fourth quarter

 

Our sales andcontribution from our gifts segment are highly seasonal primarily due to holidaygift purchases that increase sales in the fourth quarter.  Sales in the fourth quarter of fiscal year2007 were $17.6 million, which represents 56.8 percent of total sales andcontribution of the gifts segment for the year ended December 29, 2007.

 

**Critical Accounting Policies**

 

        The preparation of financial statements requires us 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 we use 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 initial franchising fees and licensingfees when all material services or conditions relating to the franchising orlicensing have been substantially performed or satisfied, which is generallyupon the opening of a store by a franchisee or licensee.  Franchise and license royalties, which arebased on a percentage of gross store sales, are recognized as earned, which isgenerally upon sale of product by franchisees or licensees.  Minimum royalty payments under certainlicensing agreements are deferred and recognized on a straight-line basis overthe term of the agreement.  Revenues fromthe sale of cookie dough that we produce and sell to certain franchisees arerecognized at the time of shipment and classified in franchising revenues.  Revenues, net of sales discounts andallowances, from the sale of branded retail products such as cookie dough andshelf stable cookies to grocery stores and wholesale clubs are recognized upondelivery and included in branded retail revenues.  Revenues, net of state and local sales tax, fromgift sales are recognized at the time of shipment.

 

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        We receive cash payments for product formulation fees andallowances from suppliers based on the amount of product purchased directly byour distributors 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 our franchisees.  Formulation fees and allowances are recordedas revenues within the Mrs. Fields Franchising, GAC/Pretzels and Dairyoperating segments upon shipment of product to our distributors orfranchisees.  Included in revenues ineach of the operating segments for such formulation fees and allowances are thefollowing (in thousands):

 
| ** **       | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| Mrs. Fields |       | $                     | 1,870      |                  | 2,100      |   |
| GAC/Pretzels     |       | 970                   |       | 1,337                 |       |
| Dairy            |       | 5,696                 |       | 8,021                 |       |
|             |       | $                     | 8,536      |                  | $          | 11,458 |   |
|                  |            |                       |            |                       |            |  |  |

 

        In March 2003, we received $2.0million from a supplier as an advance to maintain and expand beverage conceptsat our franchised store locations.  Thisadvance is being recognized as franchising revenue on a ratable basis over thesix-year term of the agreement.

 

*        Impairment of Goodwill.* Goodwill is not amortized, but is subject to an annual assessment forimpairment, or more frequently if circumstances indicate potential impairment,through a comparison of fair value to its carrying amount.  The two-step approach to assess our goodwillimpairment requires that we first compare the estimated fair value of eachreporting unit with goodwill to the carrying amount of the reporting unit’sassets and liabilities, including its goodwill. If the fair value of the reporting unit is below its carrying amount,then the second step of the impairment test is performed, in which the currentfair value of the reporting unit’s assets and liabilities will determine thecurrent implied fair value of the reporting unit’s goodwill.

 

        On an annual basis (during the fourth quarter), or morefrequently if circumstances indicate potential impairment, we perform anassessment for impairment of our goodwill associated with each of our reportingunits, by comparing each reporting unit’s fair value with its carryingvalue.  The estimated fair value ofgoodwill 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 ourgoodwill.  To the extent that thecarrying value of a reporting unit exceeds its fair value, goodwill is writtendown to its implied fair value.  Changesin our business plan or operating results that are different than the projectionsused to develop the reporting unit’s fair value may have an impact on thevaluation of goodwill.

 

        In conducting our impairment analyses, we perform analysesand tests of our 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.

 

*        Impairmentof Long-lived and Certain Identifiable Intangible Assets.* We review our long-lived assets for impairment when circumstancesindicate that the carrying value of an asset may not be fully recovered by theundiscounted net cash flow generated over the remaining life of the relatedasset or group of assets.  If the cashflows generated by the asset are not sufficient to recover the remainingcarrying value of the asset, we are required to write down the value of theasset to its estimated fair value.  Inevaluating whether the asset will generate sufficient cash flow to recover itscarrying value, we estimate the amount of cash flow that will be generated bythe asset and the remaining life of the asset. In making our estimate, we consider the performance trends related tothe asset, the likelihood that the trends will continue or change, at the assetgrouping level for which there are identifiable independent cash flows.

 

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*        Allowancefor Doubtful Accounts.*  We sell products to and receiveroyalties from our franchisees and sell products to other customers.  Sometimes these franchisees and customers areunable or unwilling to pay for the products that they receive or royalties thatthey owe.  Factors that affect ourability to collect amounts that are due to us include the financial strength ofa franchisee or customer and its operations, the economic strength of the mallwhere the franchisee is located and the overall strength of the retail economy.  We are required to establish an estimatedallowance for the amounts included in accounts receivable that we will not beable to collect in the future.  Toestablish this allowance, we evaluate the customer’s or franchisee’s financialstrength, payment history, reported sales and the availability of collateral tooffset potential losses.  If theassumptions that are used to determine the allowance for doubtful accountschange, we may have to provide for a greater level of expense in future periodsor reverse amounts provided in prior periods.

 

*        DeferredIncome 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.

 

*        Inventories.* In assessing the realizability of inventories, we make judgments as tofuture demand requirements and product expiration dates.  The inventory requirements change based onprojected customer demand, which changes due to fluctuations in marketconditions and product life cycles.

 

*Legal andRegulatory.*  We recordliabilities for legal and regulatory matters when the contingency is bothprobable and reasonably estimable.  Weare involved in several legal and regulatory matters.  After consultation with legal counsel, webelieve that the ultimate dispositions of these matters will not have amaterial negative impact on our financial position, liquidity or results ofoperations.  However, there can be noassurance that we will be successful in our efforts to satisfactorily resolvethese matters and the ultimate outcome could result in a material negativeimpact on our financial position, liquidity or results of operations.

 

# **New Accounting Pronouncements Not Yet Adopted**

# ** **

        In December 2007, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141 (revised 2007), BusinessCombinations (“SFAS 141R”). SFAS 141R establishes principles andrequirements for how an acquirer of a business recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any noncontrolling interest in the acquiree and the goodwill acquired.SFAS 141R also establishes disclosure requirements to enable theevaluation of the nature and financial effects of the business combination.SFAS 141R is effective for acquisitions in fiscal years beginning after December 15,2008 and will be adopted on December 30, 2008.

 

In February 2007,the FASB issued SFAS No. 159, (“SFAS 159”), “The Fair Value Option for FinancialAssets and Financial Liabilities—Including an Amendment of FASB Statement No. 115.”  SFAS 159 expands the use of fair valueaccounting but does not affect existing standards which require assets orliabilities to be carried at fair value. SFAS 159 gives a company the irrevocable option to carry most financialassets and liabilities at fair value, with changes in fair value recognized inearnings.  SFAS 159 is effective forfiscal years beginning after November 15, 2007 and is required to beadopted by us in the first quarter of fiscal year 2008.  The adoption of SFAS 159 is not expected tohave a material impact on our financial position, results of operations or cashflows.

 

In September 2006,the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value Measurements,” todefine fair value, establish a framework for measuring fair value and requiresenhanced disclosures about fair value measurements.  SFAS 157 is effective for fiscal yearsbeginning after November 15, 2007. Subsequently, the FASB provided for aone-year deferral of the provisions of SFAS 157 for non-financial assets andliabilities that are recognized or disclosed at fair value in the consolidatedfinancial statements on a non-recurring basis. We are currently evaluating the impact of adopting the provision of SFAS157 for non-financial assets and liabilities that are recognized or disclosedon a non-recurring basis. The Company does not expect this guidance forfinancial assets and liabilities to have a material impact on our consolidatedfinancial position and results of operations.

#  

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

# ** **

Our major market risk exposure is changing interest rates.  We do not hedge against changes in interestrates.

 

The table belowprovides information about our financial instruments that are sensitive tochanges in interest rates in the event of refinancing, including principal cashflows and related weighted average interest rates by year of expected maturitydates, based on the amount of indebtedness at December 29, 2007.

 
| ** **                                             | ** ** | **Expected Maturity Date** | ** ** |
|--------------------------------------------------------|------------|----------------------------|------------|
| **Liabilities**                                        | ** ** | **2008**                   | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **(Dollars in thousands)** | ** ** |
| Long-term debt, including current portion (fixed rate) |       | $                          | —     |   | $ | — |   | $ | — |   | $ | 195,747 |   | $ | — |   | $ | 195,747 |   |
| Weighted average interest  rate                        |       | —                     |       | — |   | — |   | 10.47 | % | — |   | 10.47 | % |
|                                                        |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The weightedaverage interest rate is calculated by applying the respective stated interestrate against the outstanding balance of our 9 percent Senior Secured Notes andour 111⁄2 percent Senior Secured Notes and calculating the average rate on thetotal outstanding balance of the Senior Secured Notes.

 

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

# ** **

Our consolidatedfinancial statements and supplementary data are listed in the index appearingunder Item 15A.

 

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

# ** **

        None.

 

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

# ** **

**DisclosureControls and Procedures**

 

        The Company’s management,with the participation of the Company’s Chief Executive Officer (“CEO”) andChief Accounting Officer (“CAO”), evaluated the effectiveness of the Company’sdisclosure controls and procedures as of the end of the period covered by thisreport.  Based on that evaluation, theCEO and CAO concluded that the Company’s disclosure controls and procedures, asof the end of the period covered by this report, are not operating effectivelyto provide reasonable assurance that the information required to be disclosed bythe Company in reports filed under the Securities Exchange Act of 1934 isrecorded, processed, summarized, reported in a manner and within the timeperiods specified in the SEC’s rules and forms, due to the materialweaknesses described below. A controls system, no matter how well designed andoperated, cannot provide absolute assurance that the objectives of the controlssystem are met and no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any, within a company havebeen detected.

 

        **Management’s Annual Report on Internal Control Over Financial Reporting**

 

        Management is responsiblefor establishing and maintaining adequate internal control over financialreporting as defined in Exchange Act Rule 13a-15(f).  Managementconducted an evaluation of the effectiveness of the internal control overfinancial reporting as of December 29, 2007, using the criteriaestablished in Internal Control — Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission.  Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

        A material weakness is acontrol deficiency, or combination of control deficiencies, that results inmore than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected.

 

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        Management identified internal controldeficiencies, none of which individually were considered material; however,when considered in the aggregate, in management’s judgment, represented amaterial weakness in internal control over our information technology function:policies and procedures around change management, backup and recovery, securityand datacenter incident management require development and adoption, systemaccess controls are not in place and are not monitored, and segregation ofduties within systems are inadequate.

 

        There were deficiencies identified in the followingareas of our general control environment which, when considered in aggregate,constitute a material weakness over financial reporting in internal control.The control deficiencies generally related to: lack of segregation of dutieswithin the purchasing and accounts payable processes, lack of financialreconciliation between systems at month end, and inadequate inventory controlsrelated to segregation of duties and physical inventory reconciliations.

 

Management has determined that both of the aforementioned deficienciesconstitute a material weakness in our internal controls over financialreporting as of December 29, 2007. Accordingly, management concluded that wedid not maintain effective internal control over financial reporting as of December29, 2007. However, management has performed additional procedures in ouraccounting close for fiscal year 2007 to ensure the accuracy of the consolidatedfinancial statements. The potential for material misstatement without theseadditional procedures still exists.

 

        This annual report doesnot include an attestation report of the Company’s registered public accountingfirm regarding internal control over financial reporting.  Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit thecompany to provide only management’s report in this annual report.

 

*Management’s Plan for Remediation*

 

        While we have not fullyremediated the control deficiencies discussed above during the fiscal yearended December 29, 2007, the Company is in the process of takingcorrective action to remediate the material weaknesses through the upgrade oftheir accounting system and the development of information technology andaccounting policies and procedures.

 

**Changesin Internal Control Over Financial Reporting**

 

        There has been no changein our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934) that occurred duringour fiscal quarter ended December 29, 2007, that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting.

 

# **Item 9B. Other Information**

# ** **

        None.

 

50

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**PART III**

 

# **Item 10. Directors, Executive Officers and Corporate Governance**

# ** **

**Managersand Executive Officers**

 

        The following table sets forth certaininformation regarding the managers, executive officers and certain otherofficers, of the Company as of March 1, 2008.  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        |       | 58      |       | Manager, President and Chief Executive Officer              |
| Steven K. Passey     |       | 45      |       | Vice President, Chief Accounting Officer and Treasure       |
| Michael R. Ward      |       | 49      |       | Executive Vice President, Chief Legal Officer and Secretary |
| Greg Berglund        |       | 41      |       | President, Mrs. Fields Gifts, Inc.                |
| John Lauck           |       | 52      |       | President of the Mrs. Fields Division of the Company   |
| Gregory K.  Barber   |       | 35      |       | President, TCBY                                             |
| Jon M. Biotti        |       | 39      |       | Manager                                                     |
| John D. Collins      |       | 69      |       | Manager                                                     |
| George N.  Fugelsang |       | 67      |       | Manager                                                     |
| Peter W. Mullin      |       | 67      |       | Manager                                                     |
| Don Rice             |       | 59      |       | Manager                                                     |
| John D. Shafer       |       | 63      |       | Manager                                                     |
| Christopher  Wright  |       | 50      |       | Manager                                                     |

 

***        Mr. Russo*** has been President, Chief ExecutiveOfficer (“CEO”) and Manager of the Company since March 2004 and has beenPresident, Chief Executive Officer and a Director of Mrs. Fields’ OriginalCookies, Inc. (“MFOC”), Mrs. Fields’ Holding Company, Inc. (“MFH”)and Mrs. Fields’ Companies, Inc. (“MFC”) since May 2003. He wasthe President of the TCBY Division of the Company from January 2007 to October 2007.  From July 1997 to April 2003, Mr. Russowas Retail Operations Officer for Allied Domecq QSR, where he was responsiblefor 10,700 units and total system wide sales of $4.2 billion for brandssuch as Dunkin’ Donuts, Baskin Robbins and Togo’s.  From January 1978 to June 1997, Mr. Russoserved 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. Passey***has been Vice President, Chief Accounting Officer (“CAO”), Corporate Controllerand Treasurer since October 2007.  Mr. Passeyjoined the Company in April 2007 as Vice President and CorporateController.  From September 2006 to March 2007,Mr. Passey was Chief Financial Officer (“CFO”) of EduSource.  From December 2004 to September 2006,Mr. Passey served as Director of SEC Compliance and Reporting for ExtraSpace Storage and from January 2001 to December 2004 was a SeniorManager for Ernst & Young, LLP.

 

***        Mr. Ward*** has been Chief Legal Officer of theCompany since February 2006 and Executive Vice President, General Counseland Secretary of the Company, MFOC, MFH and MFC since June 2004.  Since December 2004, Mr. Ward hasbeen a Director of MFOC.  From March 2004to June 2004, Mr. Ward was Senior Vice President, General Counsel andSecretary of the Company.  Mr. Wardwas Senior Vice President, General Counsel and Secretary of MFOC from June 2000to June 2004 and of MFC from its inception in September 2001 to June 2004.Mr. Ward was Vice President of Administration and the Legal Department ofMFOC from September 1996 to May 2000 and Secretary of MFOC since April 1999.  Between 1991 and 1996, Mr. Ward’sresponsibilities were overseeing the Legal Department and Human ResourcesDepartment for Mrs. Fields, Inc., a predecessor to MFOC.  Mr. Ward currently serves as a member ofthe Board of Directors of Prime Alliance Bank. Mr. Ward is admitted to practice law in the State of Utah.

 

***        Mr. Berglund*** has beenPresident of Mrs. Fields Gifts since August 2005.  From April 2001 to August 2005, Mr. Berglundwas Senior Vice President and General Manager of Disney Direct MarketingServices, Inc. in charge of the Walt Disney Company’s product-basedcatalog 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 VicePresident, Marketing for Cinmar, Inc., a Cornerstone Brands company.  There Mr. Berglund was a part of theFrontgate catalog and e-commerce business.

 

51

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***        Mr. Lauck*** has been President of the Mrs. FieldsDivision of the Company since January 2007.  From February 2006 to January 2007,he was Chief Marketing Officer of the Company and served as Executive VicePresident of Marketing of the Company from April 2004 to January 2007.  From September 2001 to April 2004, Mr. Lauckserved as President and Chief Marketing Officer for Arby’s FranchiseAssociation.  Prior to joining Arby’s, Mr. Lauckwas on a one-year sabbatical.  From February 2000to July 2001 Mr. Lauck was Senior Vice President and Chief MarketingOfficer for Groceryworks.com, a home grocery delivery start-up.  Between November 1998 and January 2000Mr. Lauck was the Senior Vice President and Chief Marketing Officer for Footactionand from November 1997 to November 1998 was the Vice President ofCorporate Development for Blockbuster Video. Prior to Blockbuster, Mr. Lauck served in various marketingpositions at Pizza Hut and General Mills.

 

***        Mr. Barber*** has been President of TCBY since October 2007.  Between January 2007 and October 2007,Mr. Barber served as CFO, Executive Vice President and Treasurer of theCompany, MFOC, MFH and MFC.  Between May 2005and January 2007, Mr. Barber served as the Company’s VicePresident of Strategy and Business Development. Mr. Barber was Director of Strategy at NCH Corporation from October of2002 to May of 2005 and a consultant at Bain and Company from August 2000to September 2002.

 

***        Mr. Biotti***has been a Manager of the Company and a Director of MFH and MFC since December 2006.  Mr. Biotti is a Managing Director ofCharlesbank 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. Collins***has been aManager of the Company and a Director of MFH and MFC since December 2004.  Since July 1999, Mr. Collins hasworked as a consultant to non-public companies. From June 1999 to June 2000, Mr. Collins was a consultantto KPMG LLP.  Prior to June 1999, Mr. Collinswas a 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 theBoard of Trustees and Chairman of the Finance Committee of LeMoyne College inSyracuse, New York, a member of the board of Columbia Atlantic funds, asupervisor/director of Suburban Propane, L.P. and a director of Montpelier Re.

 

***        Mr. Fugelsang*** has been a Manager of the Company and aDirector of MFH and MFC since May 2004. From May 2004 to December 2004,Mr. Fugelsang was a Director of MFOC. From 1994 through 2001, Mr. Fugelsang was CEO North America for theDresdner Bank Group, based in New York City. Mr. Fugelsang is a director of ART, Advanced ResearchTechnologies.  Mr. Fugelsang is alsoa member of the international advisory board of the Monterey Institute ofInternational Studies.

 

***        Mr. Mullin*** has been a Manager of the Company since March 2004and has been a Director of MFH since September 1996 and of MFC since itsinception in September 2001. From September 2001 to December 2004,Mr. Mullin was a Director of MFOC.  Mr. Mullinfounded Mullin Consulting, Inc., an executive compensation, benefitplanning and corporate insurance consulting firm, in 1969 and serves as itsChairman.  Mr. Mullin becameChairman of MullinTBG, 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***has been a Manager of the Company and aDirector of MFH and MFC since December 2006.  From January 1992, he has been theManaging Partner of RSTW, a private Equity and Mezzanine fund.  Since December 2005, he has served asChairman and CEO of Ascend Acquisition Corp. He is a member of the Board of Directors and Audit Committee ofNationsHealth, Inc.

 

        ***Mr. Shafer*** has been Manager of theCompany and Director of MFH and MFC since April 2005.  Mr. Shafer has been retired since2003.  Mr. Shafer served as CEO ofAllied Domecq, QSR from 1998 through January 2003 and served as ChiefOperating Officer from 1996 to 1998 of Allied Retailing.  Mr. Shafer served in various capacitiesof Dunkin’ 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.

 

52

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***        Mr. Wright*** has been a Manager of the Company since March 2004and has been a Director of MFH and MFC since February 2002.  From February 2002 until December 2004,Mr. Wright was a Director of MFOC. Since 2003, Mr. Wright has been an Advisory Director at Campbelllutyens @ Co. Ltd.  From 1995 to June 2002,Mr. Wright served as CEO of Dresdner Kleinwort Capital, LLC, the privateequity business of Dresdner Bank Group and from 2002 to June 2003 asManaging Director of Dresdner Kleinwort Wasserstein LLC.  Mr. Wright is a Director and serves onthe corporate governance and audit committees of the Board of Directors ofRoper Industries, Inc.  Mr. Wrighthas also been a Director of Merifin Capital, a private investment group since1989 and serves as director and advisory board member of several otherprivately-held companies in the United States and Europe.

 

**Board Committees**

 

        Three functioning committees of theBoard of Managers have been organized: an Executive Committee, a CompensationCommittee and an Audit Committee. Following is a brief description of each ofthese committees.

 

        *ExecutiveCommittee.*  The ExecutiveCommittee is composed of Messrs. Russo (Chairperson) and Fugelsang.  The purpose of this committee is to act onbehalf of the entire Board of Managers between Board meetings.

 

        *Compensation Committee.*  The Compensation Committee is composed of Messrs. Fugelsang(Chairperson), Mullin and Shafer.  Thepurpose of this committee is to ensure that the Company has a broad plan ofexecutive compensation that is competitive and motivating to the degree that itwill attract, retain and inspire performance of managerial and other keypersonnel of a quality and nature that will enhance the growth andprofitability of the Company.

 

*        Audit Committee.* The Audit Committee is composed of Messrs. Collins (Chairperson),Wright, Rice and Biotti.  The purpose ofthe Audit Committee is to provide assistance to the Board of Managers infulfilling their oversight responsibilities relating to the Company’sconsolidated financial statements and financial reporting process and internalcontrols in consultation with the Company’s independent registered publicaccounting firm and internal auditors. The committee also is responsible for ensuring that the independentregistered public accounting firm submits a formal written statement to theCompany regarding relationships and services which may affect the independent registeredpublic accounting firm’s objectivity and independence.

 

**AuditCommittee Financial Expert**

 

        The Board of Managers of the Company hasdetermined that Mr. Collins is the Company’s audit committee financialexpert, as defined by SEC rules and that he is “independent” as the termis used in Item 7(e)(3)(iv) of Schedule 14A of the proxy rules underthe Securities Exchange Act of 1934.  Mr. Collins’experience is described in his biographical information elsewhere in this Item10.

 

**Code ofEthics**

 

        The Company has adopted a Code ofEthical Conduct (the “Code”) that applies to all directors, officers andemployees of the Company, MFOC and its subsidiaries.  The Code requires that all of our employeesact ethically when conducting business. The Code provides a summary of the conduct required from all employeesof the Company and is a source for guidance, accountability for and enforcementof its provisions.  A complete copy ofthe Code has been posted on our website at *www.mrsfields.com/privacy/ethics/.*We will satisfy any disclosure requirements under Item 5.05 of Form 8-Kregarding an amendment to, or waiver from, any provision of the Code withrespect to our principal executive officer, principal financial officer,principal accounting officer and any persons performing similar functions bydisclosing the nature of such amendments or waiver on our website.

 

53

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# **Item 11. Executive Compensation**

# ** **

**CompensationDiscussion and Analysis**

 

        The following discussion and tables setforth information with regard to compensation for services rendered in allcapacities to the Company and its subsidiaries during the Company’s fiscal yearended December 29, 2007, by the CEO, CAO, the three most highlycompensated executive officers of the Company other than the CEO and CAO whowere serving as executive officers at the end of the last completed fiscal yearand two additional individuals who served as CFO or CAO for a portion of itslast completed fiscal year but no longer do so (collectively, the “Named Executive Officers”). The informationdiscussed below reflects compensation earned by such individuals for serviceswith MFC and its subsidiaries during the covered periods.

 

*CompanyCompensation Objectives*

 

        The Company’s objective is to maintain aprogram of executive compensation that is competitive and motivating to thedegree that it will attract, retain and inspire performance of executiveofficers who possess qualities, talents and abilities that will enhance thegrowth and profitability of the Company. The Company believes that its compensation program must include bothshort-term and long-term compensation elements and that some opportunity forequity participation upon the occurrence of certain triggering events is appropriateand necessary to attract and retain key members of management who are alignedwith the overall interests of the Company and its investors.  Our Board of Managers has organized aCompensation Committee to establish the Company’s program of executivecompensation.  Because we are controlledby MFC, however, certain elements of our compensation program are establishedor administered by the Board of Directors of MFC or a committee thereof.

 

*Elementsof Executive Compensation*

 

        The Company’s executive compensationprogram consists of two main elements of short-term compensation and severalelements of long-term and deferred compensation, each of which are discussedbelow.

 

**        Short-Term Compensation**

 

        *BaseSalary*.  The Company attemptsto set base salaries for executives at approximately the 75th percentilecompared to other companies in the Company’s peer group, but also considersother factors, such as survey data for other similarly situated companies,competitiveness in the market for persons with the necessary experience andabilities, and the candidate’s overall responsibilities, professionalqualifications and experience and the role that he or she is expected to playin helping the Company achieve its goals and objectives.

 

        *BonusProgram*.  Typically, theCompany identifies whether an executive will participate in its bonus programat the time an offer of employment is extended. A participant’s position within the Company’s organization hierarchy isconsidered when setting a participant’s level of participation in the program,expressed as a percentage of base salary. Sometimes, however, participation is subsequently extended, or bonuslevels are increased, to reward individual performance, recognize a promotionor retain key employees.  All of the NamedExecutive Officers are participants at various levels, from 40 percent to 100percent of base salary, in the Company’s bonus program.  The Company is not required to maintain abonus program, but if it chooses to do so, it has agreed to extend participationto certain employees, including the Named Executive Officers.

 

        Historically, the bonus program has beenfunded at levels based on Company performance targets and any payments areallocated or adjusted based on any individual performance targets.  The Company believes that rewardingexceptional performance most appropriately rewards participants and best alignsindividual executives with the Company’s goals. In March 2008, the Company paid $1.5 million to eligible employeesfor fiscal year 2007 bonuses earned under this program.

 

        During fiscal year 2007, the Companycommitted to pay retention bonuses to certain employees, based on individualcontributions and commitments to remain at the Company during transitionperiods associated with the sale of the assets of its Pretzel Time,Pretzelmaker and Great American Cookies brands.

 

54

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        The Company is currently finalizing thedetails of its fiscal year 2008 bonus program, which will be subject to theapproval of the Compensation Committee. The Company currently anticipates that the program will be similar tothe fiscal year 2007 bonus program, but with different performance targets thatwill be consistent with the Company’s projected financial results.

 

        **Long-Term Compensation**

 

        *Phantom Stock Plan.*  Effective May 23, 2004, the Board ofDirectors of MFC (the “Board of Directors”) adopted the Phantom Stock Plan of Mrs. Fields’Companies, Inc. (the “Phantom Plan”). The purpose of the Phantom Plan is to provide long-term incentives tokey employees of MFC or its subsidiaries (the “Participants”) as determined bythe Compensation Committee of the Board of Directors (the “Committee”).  The Phantom Plan is unfunded and Participantsdo not receive any payment under the Phantom Plan until the completion of thefirst to occur of: (i) a sale of substantially all of the assets of MFC; (ii) apublic offering of MFC’s Common Stock where MFC receives proceeds, net of anyunderwriter’s discounts and expenses, of not less than $50 million; or (iii) anystock 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 unitsin amounts recommended by MFC’s 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 any time at itssole discretion.  Upon the completion ofa Triggering Event, Participants receive payments reflecting the number andvalue of their performance units at the time of the completion of theTriggering Event.  Payments toParticipants may be made in cash or through issuance of equity securities ofMFC, as determined by the Committee, at which time MFC will recognizecompensation expense. The value of a performance unit at the completion of aTriggering Event is the value of one share of common stock of MFC as determinedin good faith by the Board of Directors. If the Board of Directors determines the need, it may seek the advice ofan independent advisor.

 

        The maximum number of performance unitsthat may be granted under the Phantom Plan is one million units. Subdivisions,splits or combinations involving MFC’s Common Stock will proportionately affectthe 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 year 2007, no performance unitswere granted to Participants.  Futuregrants, if any, shall also be determined by the Committee.  As of December 29, 2007, a total of460,130 performance units were issued and outstanding.   Certain of the Named Executive Officerscurrently employed by the Company are Participants and have received grants ofunits as more fully described elsewhere in this Item 11.

 

        Effective September 2004, MFCterminated its Employee Stock Option Plan (the “Plan”) pursuant to theprovisions of the plan.  No furtheroptions will be granted under the Plan. Valid and outstanding options granted to plan participants prior to thetermination were unaffected by the termination. The remaining 10,000 outstanding options expired without exercise in March 2007.  As of December 29, 2007, there were noissued or outstanding options under the Plan.

 

        *401(k) Plan*.  The Company also offers a voluntary 401(k) planto all eligible employees, including the Named Executive Officers.  Under the terms of the 401(k) plan, theCompany has the obligation to match 100 percent of the first three percent ofsalary and 50 percent of the next two percent of salary of each participant’scontribution.*** *** The Company funded this match for planparticipants in fiscal year 2007 and currently plans to do so in fiscal year2008.

 

        *SeveranceAgreements*.  In order toattract and retain highly qualified individuals, the Company may agree to makecertain severance payments upon any termination of such individuals withoutcause.  The existence and amount of theseverance depends on a number of factors, including whether an employee wasrequired 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.

 

55

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*FactorsConsidered; Evaluation Process*

 

        Under the leadership of the CompensationCommittee, the Company annually reviews its compensation programs, makingappropriate changes based on individual performance evaluations andresponsibilities, operating results of the Company and current economicconditions, including the overall competitiveness of the labor pool from whichthe Company draws its executives.   TheCompany believes the Named Executive Officers’ overall compensation should beheavily influenced by Company performance, including achievement of long-termstrategic objectives, profitable growth and increased stockholder value.  The Compensation Committee reviews andapproves 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.

 

*EmploymentAgreements*

 

        The Company does not typically enterinto a detailed employment agreement with its officers and employees andprefers to maintain greater flexibility in employer/employeerelationships.  The Company receivessufficient statutory protection against post termination disclosure or misuseof confidential and proprietary information and further generally supports freeemployment practices.  The Company’sapproach to employment agreements evolves to respond to employment marketconditions, its financial performance and other considerations.  The Company currently has employmentagreements with two of the Named Executive Officers, Steve Russo and MichaelWard.  These agreements are describedmore fully elsewhere in this Item 11.

 

        No other Named Executive Officer has anemployment agreement with the Company, but each of the Named Executive Officerscurrently employed by the Company except Messrs. Russo and Ward has anarrangement with the Company granting them the right to participate in theCompany’s bonus program and benefit plans and providing certain severance paymentsto them in the event of termination without cause.  More information about these arrangements isincluded elsewhere in this Item 11.

 

56

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**SummaryCompensation Table**

 

        The following table sets forthinformation with regard to compensation for services rendered in all capacitiesto the Company and its subsidiaries by the Named Executive Officers.  The information set forth in the tablereflects compensation earned by such individuals for services with MFC and itssubsidiaries during the covered periods. In accordance with the rules of the Securities and ExchangeCommission related to Executive Compensation disclosure, this table includesnewly required information only for the Company’s 2007 and 2006 fiscal years.

 

### **SUMMARYCOMPENSATION TABLE**

 
| ** **                                                                                   | ** ** | ** **       | ** ** | ** **                | ** ** | ** **               | ** ** | ** **             | ** ** | ** **             | ** ** | ** **             | ** ** | **Change in**          | ** ** | ** **             | ** ** | ** **                | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------|------------|--------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|---------------------------|------------|
| ** **                                                                                   | ** ** | ** **       | ** ** | ** **                | ** ** | ** **               | ** ** | ** **             | ** ** | ** **             | ** ** | ** **             | ** ** | **Pension**            | ** ** | ** **             | ** ** | ** **                | ** ** |
| ** **                                                                                   | ** ** | ** **       | ** ** | ** **                | ** ** | ** **               | ** ** | ** **             | ** ** | ** **             | ** ** | ** **             | ** ** | **Value and**          | ** ** | ** **             | ** ** | ** **                | ** ** |
| ** **                                                                                   | ** ** | ** **       | ** ** | ** **                | ** ** | ** **               | ** ** | ** **             | ** ** | ** **             | ** ** | **Non-Equity**         | ** ** | **Nonqualified**       | ** ** | **(3)**                | ** ** | ** **                | ** ** |
| ** **                                                                                   | ** ** | ** **       | ** ** | ** **                | ** ** | ** **               | ** ** | ** **             | ** ** | ** **             | ** ** | **Incentive**          | ** ** | **Deferred**           | ** ** | **All Other**          | ** ** | ** **                | ** ** |
| ** **                                                                                   | ** ** | ** **       | ** ** | ** **                | ** ** | **(2)**                  | ** ** | **Stock**              | ** ** | **Option**             | ** ** | **Plan**               | ** ** | **Compensation**       | ** ** | **Compen-**            | ** ** | ** **                | ** ** |
| **Name and Principal**                                                                       | ** ** | ** **       | ** ** | **Salary**                | ** ** | **Bonus**                | ** ** | **Awards**             | ** ** | **Awards**             | ** ** | **Compensation**       | ** ** | **Earnings**           | ** ** | **sation**             | ** ** | **Total**                 | ** ** |
| **Position**                                                                                 | ** ** | **Year**         | ** ** | **($)**                   | ** ** | **($)**                  | ** ** | **($)**                | ** ** | **($)**                | ** ** | **($)**                | ** ** | **($)**                | ** ** | **($)**                | ** ** | **($)**                   | ** ** |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **Stephen Russo**

President and Chief Executive Officer                                     |       | 2007  2006  2005 |       | 456,032

445,000

440,625 |       | 439,952

—

—  |       | —

—

— |       | —

—

— |       | —

—

— |       | —

—

— |       | 48,071

48,389

31,616 |       | 944,055

493,389

472,241 |       |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **Steven K. Passey (4)**

Vice President, Chief Accounting Officer and Treasurer             |       | 2007             |       | 110,875                   |       | 55,000                   |       | —                 |       | —                 |       | —                 |       | —                 |       | 1,478                  |       | 167,353                   |       |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **Michael R. Ward**

Executive Vice President,  Chief Legal Officer  and Secretary |       | 2007

2006

2005 |       | 318,500

310,000

276,499 |       | 225,001

—

—  |       | —

(1)

—    |       | —

—

— |       | —

—

— |       | —

—

— |       | 23,455

21,460

18,184 |       | 566,956

331,460

294,683 |       |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **John Lauck**

President, Mrs. Fields Division of the Company                          |       | 2007

2006

2005 |       | 371,459

362,250

358,677 |       | 150,000

—

—  |       | —

(1)

—    |       | —

—

— |       | —

—

— |       | —

—

— |       | 24,071

20,590

5,415  |       | 545,530

382,840

364,092 |       |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **Greg Berglund**

President, Mrs. Fields Gifts, Inc.                              |       | 2007

2006

2005 |       | 350,000

350,000

139,854 |       | 175,000

94,000

134,000 |       | —

(1)

—    |       | —

—

— |       | —

—

— |       | —

—

— |       | 9,298

9,457

199,611  |       | 534,298

453,457

473,465 |       |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **Former Officers**                                                                          | ** ** | ** **       | ** ** | ** **                | ** ** | ** **               | ** ** | ** **             | ** ** | ** **             | ** ** | ** **             | ** ** | ** **             | ** ** | ** **             | ** ** | ** **                | ** ** |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **Gregory K. Barber (5)**

Executive Vice President, Chief Financial Officer and Treasurer   | ** ** | 2007             | ** ** | 267,084                   | ** ** | 198,804                  | ** ** | —                 | ** ** | —                 | ** ** | —                 | ** ** | —                 | ** ** | 16,387                 | ** ** | 482,275                   | ** ** |
|                                                                                         |       |             |       |                      |       |                     |       |                   |       |                   |       |                   |       |                   |       |                   |       |                      |       |
| **Mark C. McBride (6)**

Senior Vice President, Chief Accounting Officer and Treasurer       |       | 2007

2006       |       | 14,154

215,000           |       | —                   |       | —                 |       | —                 |       | —                 |       | —                 |       | 34,269  251,361        |       | 48,423  466,361           |       |

----

(1)          Each of Messrs. Ward and Lauckreceived a Phantom Unit Grant Agreement for 60,758 performance units and Mr. Berglundreceived 36,456 performance units under the Phantom Plan during fiscal year2006.  These grants are considered “stockrights” because they may be settled, upon certain triggering events, byissuance of MFC’s common stock.  However,since the triggering events may never occur and are currently not probablyunder SFAS 123(R) and the plan is subject to termination by the Board atany time, no expense is recorded until the triggering event is probable underSFAS 123(R).

 

(2)          The bonus payments to all named executiveofficers include accelerated bonus payments made on August 15, 2007 underthe officers’ existing bonus arrangements for fiscal year 2007 with Mrs. Fields.  The bonus payments also include the balanceof bonuses for the

 

57

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2007 fiscal yearunder such arrangements, which were paid on March 14, 2008.  Bonus payments to Messrs. Russo, Ward, Passeyand Barber include bonuses paid to them on August 10, 2007 to compensatethem for their contributions to our sale of our Pretzel businesses.

 

(3)          Includes the following elements ofcompensation over $10,000: (A) Mr. Russo: $20,000 car allowance and$17,115 cash received in lieu of accrued vacation (“vacation cashout”);  (B) Mr. Ward: $11,923 vacationcashout; (C) Mr. Lauck: $14,432 for vacation cashout; (D) Mr. Barber:$10,778 for the Company’s matching contribution to Mr. Barber’s 401(k) account;and (E) Mr. McBride:  $25,102vacation cashout paid upon Mr. McBride’s termination.

 

(4)          Mr. Passey joined the company in March 2007and became our Chief Accounting Officer and Treasurer in October 2007.

 

(5)          Mr. Barber was appointed Presidentof TCBY in October 2007 and resigned his position as Executive VicePresident, CFO and Treasurer as of the same date.

 

(6)          Mr. McBride’s employment was terminatedin January 2007.

 

**OUTSTANDING EQUITY AWARDS AT FISCALYEAR END**

 

                The following table sets forthinformation concerning equity incentive plan awards for each Named ExecutiveOfficer of the Company that was outstanding at the end of the Company’s last completedfiscal 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)**                                            |       | —          |       | —            |       | —            |       | —       |       | —         |       | —          |       | —          |       | 137,346            |       | (1)                |       |
| President and  Chief Executive Officer                           |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
|                                                             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
| **Steven K. Passey**                                             |       | —          |       | —            |       | —            |       | —       |       | —         |       | —          |       | —          |       | —             |       | (1)                |       |
| Vice President,  Chief Accounting Officer and Treasurer          |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
|                                                             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
| **Michael R. Ward**                                              |       | —          |       | —            |       | —            |       | —       |       | —         |       | —          |       | —          |       | 100,000            |       | (1)                |       |
| Executive Vice  President, Chief Legal Officer and Secretary     |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
|                                                             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
| **John Lauck (2)**                                               |       | —          |       | —            |       | —            |       | —       |       | —         |       | —          |       | —          |       | 100,000            |       | (1)                |       |
| President,  Mrs. Fields Division of the Company             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
|                                                             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
| **Greg Berglund (3)**                                            |       | —          |       | —            |       | —            |       | —       |       | —         |       | —          |       | —          |       | 60,000             |       | (1)                |       |
| President,  Mrs. Fields Gifts, Inc.                    |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
|                                                             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
| **Former Officers**                                              | ** ** | ** **      | ** ** | ** **        | ** ** | ** **        | ** ** | ** **   | ** ** | ** **     | ** ** | ** **      | ** ** | ** **      | ** ** | ** **         | ** ** | ** **         | ** ** |
|                                                             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
| **Gregory K. Barber**                                            |       | —          |       | —            |       | —            |       | —       |       | —         |       | —          |       | —          |       | 7,848              |       | (1)                |       |
| Executive Vice  President, Chief Financial Officer and Treasurer |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
|                                                             |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |
| **Mark C. Mcbride**                                              |       | —          |       | —            |       | —            |       | —       |       | —         |       | —          |       | —          |       | 7,848              |       | (1)                |       |
| Senior Vice  President, Chief Accounting Officer and Treasurer   |       |            |       |              |       |              |       |         |       |           |       |            |       |            |       |               |       |               |       |

----

(1)          The Phantom Plan and performance unitsissued there under, including the outstanding performance units disclosed inthe table above, are more fully described under “Long-term Compensation”elsewhere in this Item 11.  Since atriggering event that results in any payment to participants in the PhantomPlan may never occur, the units are included here as unvested even though theunits themselves can only be forfeited in the event of termination for cause orthe participants voluntary termination. Additionally, since the triggering events may never occur and arecurrently not probable under SFAS 123(R) and the plan is subject to terminationby the Board at any time, the Phantom Plan performance units cannot be valueduntil the triggering event occurs.

 

58

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**POTENTIALPAYMENTS UPON TERMINATION OR CHANGE IN CONTROL**

 

The following table describes potential payments to the Named ExecutiveOfficers at, following or in connection with any termination, including withoutlimitation resignation, severance, retirement or a change in control of theCompany or material changes in the Named Executive Officer’s responsibilitiesor 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**            |       | 24 months          |       | Yes                   |       | Yes                  |       | No              |       | No         |       | No             |       | Yes            |
| President  and Chief         |       | salary and         |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Executive  Officer           |       | discretionary      |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       | bonus              |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| **Steven K. Passey**         |       | 16 weeks salary    |       | Yes                   |       | Yes                  |       | No              |       | No         |       | No             |       | Yes            |
| Vice  President,             |       | plus an additional |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Chief  Accounting            |       | two weeks for      |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Officer  and                 |       | each year of       |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Treasurer                    |       | service            |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| **Michael R. Ward**          |       | 18 months          |       | Yes                   |       | Yes                  |       | No              |       | No         |       | No             |       | Yes            |
| Executive  Vice President,   |       | salary and         |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Chief  Legal Officer         |       | discretionary      |       |                  |       |                 |       |            |       |       |       |           |       |           |
| and  Secretary               |       | bonus              |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| **John Lauck**               |       | 18 months          |       | Yes                   |       | Yes                  |       | No              |       | No         |       | No             |       | Yes            |
| President,  Mrs. Fields |       | salary             |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Division  of the             |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Company                      |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| **Greg Berglund**            |       | 18 months          |       | Yes                   |       | Yes                  |       | No              |       | No         |       | No             |       | Yes            |
| President,  Mrs. Fields |       | salary and         |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Gifts, Inc.             |       | projected          |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       | bonus              |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| **Former Officers**          |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| **Gregory K. Barber**        |       | 12 months          |       | Yes                   |       | Yes                  |       | No              |       | No         |       | No             |       | Yes            |
| Executive  Vice President,   |       | salary             |       |                  |       |                 |       |            |       |       |       |           |       |           |
| Chief  Financial Officer     |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
| and  Treasurer               |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |
|                         |       |               |       |                  |       |                 |       |            |       |       |       |           |       |           |

 
| **Mark C. McBride**     |   | Accrued  in fiscal year 2006 and paid in fiscal year 2007 |   |   |   |   |   |   |   |   |
|-------------------------|--------|-----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Senior  Vice President, |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Chief  Accounting       |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Officer  and            |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Treasurer               |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |

 

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 $460,000 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 anequity-based plan or arrangement.  If theCompany terminates employment for cause or if Mr. Russo terminatesemployment without good reason, the Company has no further obligation to payhim.  If the Company terminates hisemployment without cause or he terminates employment with good reason, Mr. Russocan receive 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 equalmonthly installments.  The employmentagreement prohibits Mr. Russo, for a year from the date of termination ofemployment under the agreement, from becoming an employee, owner, officer,agent or director of a firm or person that directly competes with the Companyin a line or lines of business of the Company that accounts for10.0 percent or more of the Company’s gross sales, revenues or earningsbefore taxes.  An exception is made forinvestments of not more than 3.0 percent of the equity of a company listedor traded on a national securities exchange or an over-the-counter market.  The employment agreement has customaryprovisions for vacation, fringe benefits, payment of expenses and automobileallowances.

 

59

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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$322,000.  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.  Theseverance would be paid in 12 equal monthly installments.  The employment agreement prohibits theemployee, for a year from the date of termination of employment under theagreement, from becoming an employee, owner, officer, agent or director of afirm or person that directly competes with the Company in a line or lines of businessof the Company that accounts for 10.0 percent or more of the Company’sgross sales, revenues or earnings before taxes. An exception is made for investments of not more than 3.0 percentof the equity of a company listed or traded on a national securities exchangeor an over-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, at the option of the Board of Managers, thegrant of options to purchase common stock of MFC under MFC’s Director StockOption Plan, as more fully described immediately below.  Members of the Audit Committee andCompensation Committee of the Board of Managers of the Company also receive thefollowing 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 for each committee meeting that they attend.

 

**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 Directors of MFC is authorized toadminister the Plan and has the power, among other things, to grant awards ofoptions for common stock of MFC to outside directors of MFC and itssubsidiaries, including the Company.  MFC’sDirector Stock Option Plan provides for the issuance of time vested options,which vest 25 percent per year on the anniversaries of the dates on whichthey are granted and vest in full upon a change of control of MFC or theCompany.  A total of 100,000 shares ofcommon stock of MFC are reserved for issuance under MFC’s Director Stock OptionPlan and as of March 1, 2008 there were outstanding options providing forthe issuance of up to 60,672 of those shares. During fiscal year 2007, there were no additional stock option grantsawarded to non-executive managers. Common stock of MFC issued under the Director Stock Option Plan arerecognized over the vesting period of the grant.  The compensation costs for the fiscal yearended December 29, 2007 were insignificant.

 

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.

 

60

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**MANAGER COMPENSATION**

 

The followingtable describes the compensation received by each of the non-executive Managersof the Company for service provided for the Company’s last completed fiscalyear.

** **
| ** **               | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | **Change in**    | ** ** | ** **    | ** ** | ** ** | ** ** |
|--------------------------|------------|-------------|------------|------------|------------|------------|------------|--------------------|------------|------------------|------------|---------------|------------|------------|------------|
| ** **               | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | **Pension**      | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | **Value and**    | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Fees**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | **Nonqualified** | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Earned**  | ** ** | ** ** | ** ** | **(3)**    | ** ** | **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      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 18,330     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| Capricorn III (1)   |       | 11,670      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 11,670     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| Jon M. Biotti            |       | 18,000      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 18,000     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| John D. Collins          |       | 23,000      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 23,000     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| George N. Fugelsang      |       | 20,000      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 20,000     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| Peter W. Mullin          |       | 16,000      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 16,000     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| Don Rice                 |       | 22,250      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 22,250     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| John D. Shafer           |       | 16,000      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 16,000     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| Christopher Wright       |       | 18,500      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 18,500     |       |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| **Former Managers (2):** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** | ** **    | ** ** | ** ** | ** ** |
|                     |       |        |       |       |       |       |       |               |       |             |       |          |       |       |       |
| Alexander Coleman        |       | 15,000      |       | —     |       | —     |       | —             |       | —           |       | —        |       | 15,000     |       |

----

 

(1)          The board fees payable and optionsgranted to Herbert S. Winokur, Jr. as Chairman of the Board of MFC arepaid and issued to Capricorn II and Capricorn III.

 

(2)          Mr. Coleman resigned from the Boardeffective December 21, 2007.

 

(3)          The Compensation Committee of the Boardof Managers elected not to issue options as a component of Board compensationduring the Company’s 2007 fiscal year.

 

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

# ** **

As of December 29, 2007, the CompensationCommittee of the Board of Managers of the Company and the Board of Directors ofMFH and MFC, was comprised of George Fugelsang, Chairperson, Peter Mullin andJohn D. Shafer.  No disclosuresconcerning any member of the Compensation Committee is required to be includedin this annual report on Form 10K.

 

61

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**CompensationCommittee 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  Fugelsang |   |
|----------------------------|--------|
|                       |   |
| /s/ Peter Mullin      |   |
|                       |   |
| /s/ John D. Shafer    |   |

 

# **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, 2008, believed by usto be 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 theCompany as 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 or issuablewithin 60 days upon the exercise of options outstanding as of March 1,2008 and give effect to the exercise of warrants issued by MFC. See “ExecutiveCompensation” and “Compensation of Managers.”

 

As of March 1, 2008, there were 39 record holdersof MFC’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)                 |       | 3,237,482          |       | 50.74                        | %          | —                      |       | —         |       | — |   | — |   | 49.97 | % |
| Capricon  Investors III, L.P.(1)(8)                 |       | 2,089,118          |       | 32.74                        | %          | —                      |       | —         |       | 5,000 |   | 100 | % | 32.63 | % |
| Annex Holdings I  LP-Delaware(2)                         |       | 355,242            |       | 5.57                         | %          | 4,995                       |       | 33.93          | %          | — |   | — |   | 5.87 | % |
| Charlesbank Equity Fund II  LP(3)                        |       | 164,774            |       | 2.58                         | %          | 5,000                       |       | 33.96          | %          | — |   | — |   | 2.92 | % |
| Affilates of Stewart  Resnick(4)                    |       | 164,912            |       | 2.59                         | %          | 1,000                       |       | 6.79           | %          | — |   | — |   | 2.93 | % |
| John D.  Collins(5)(6)                              |       | 819                |       | —                       |       | 25                          |       | *              |       | — |   | — |   | * |   |
| George N.  Fugelsang(5)(6)                          |       | 1,274              |       | *                            |       | —                      |       | —         |       | — |   | — |   | * |   |
| Peter W.  Mullin(5)(6)(7)                           |       | 21,234             |       | *                            |       | 163                         |       | 1.00           | %          | — |   | — |   | * |   |
| John D. Shafer(5)(6)                                |       | 732                |       | —                       |       | —                      |       | —         |       | — |   | — |   | * |   |
| Christopher  Wright(5)(6)                           |       | 2,842              |       | *                            |       | —                      |       | —         |       | — |   | — |   | * |   |
| Herbert  Winokur, Jr.(5)(7)(8)                 |       | 6,729              |       | *                            |       | 949                         |       | 6.45           | %          | — |   | — |   | * |   |
| Stephen Russo(5)                                    |       | 152                |       | *                            |       | 45                          |       | *              |       | — |   | — |   | * |   |
| Michael Ward                                             |       | 451                |       | *                            |       | 60                          |       | *              |       | — |   | — |   | * |   |
| John Lauck                                               |       | 152                |       | *                            |       | 20                          |       | *              |       | — |   | — |   | * |   |
| All executive officers and directors as a group(6)  |       | 34,384             |       | *                            |       | 1,263                       |       | 8.58           | %          | — |   | — |   | * |   |

----

 

*                                         Less than 1%.

 

**                                  Common stock, par value $0.001 per share,of MFC.

 

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

 

62

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

 

(1)                                  The address of Capricorn is 30 East ElmStreet, Greenwich, CT 06830.

 

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

 

(3)                                  The address of Charlesbank Equity Fund IILP is c/o Charlesbank Capital Partners, LLC, 200 Clarendon Street, Floor 54,Boston, MA 02116.

 

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

 

(5)                                  Mr. Russo, Mr. Collins, Mr. Fugelsang,Mr. Mullin, Mr. Shafer and Mr. Wright are directors of MFC andManagers of the Company.  Mr. Winokuris managing 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)                                  The common share amounts and percentagesinclude common shares subject to options granted to Managers of the Companythat are currently exercisable or will be exercisable on or before May 1,2008, as follows:  Mr. Collins, 819shares; Mr. Fugelsang, 1,274 shares; Mr. Mullin, 4,715 shares; Mr. Shafer,732 shares; Mr. Wright, 2,842 shares; and all executive officers anddirectors as a group, 10,381 shares.

 

(7)                                  Includes common and preferred shares heldby Mr. Mullin and Mr. Winokur in individual retirement accounts,family trusts or family charitable foundations.

 

(8)                                  Options granted to Mr. Winokur underMFC’s Director Stock Option Plan are issued to Capricorn II andCapricorn III.  Capricorn II has7,258 options and Capricorn III has 2,172 options for shares currentlyexercisable or exercisable on or before May 1, 2007.

 

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

# ** **

**TheStockholders’ Agreement**

 

        MFC has entered into a stockholders’agreement, as of September 29, 2001, with its stockholders.  The stockholders’ agreement provides thatstockholders may not transfer their shares of MFC, except to certain permittedtransferees.  If at any time after sevenyears from the date of the stockholders’ agreement any stockholder other thanCapricorn II or Capricorn III receives an offer to purchase shares of commonstock, that stockholder must first offer the shares to MFC and otherstockholders at the same price and on substantially the same terms.  MFC has a right of first refusal with respectto such shares, with the stockholders having the right, if MFC does not buy allof the shares, to purchase such shares on a pro-rata basis.

 

        If both Capricorn II and Capricorn IIIapprove a sale or exchange of at least a majority of the outstanding commonstock to a third party that is not an affiliate of either Capricorn II orCapricorn III, then either Capricorn entity has the right to require the otherstockholders to (i) if the sale is structured as a sale of stock, sell allof such stockholders’ shares of common stock; or (ii) if the sale isstructured as a merger requiring the consent of stockholders, vote suchstockholders’ shares in favor of the sale. The stockholders’ agreement also gives certain rights to certainstockholders upon an initial public offering consummated by MFC and includesother provisions as set forth in the stockholders agreement.

 

**Controlby Capricorn**

 

        Capricorn II and Capricorn III, MFC’smajority stockholders, together hold an aggregate of approximately83.5 percent of MFC’s common stock. In addition to Capricorn’s rightsunder the stockholders’ agreement described above, Capricorn also has corporatelaw rights stemming from its majority ownership of MFC.  As a result of its direct control of MFC andindirect control of MFH and MFOC, Capricorn II and Capricorn III togethercontrol the power to elect our managers, to appoint members of management andto approve all actions requiring the approval of the holders of our commoninterests, including adopting amendments to our certificate of formation andlimited liability company operating agreement as well as approving mergers,acquisitions or sales of all or substantially all of our assets. In addition,Capricorn currently has one managing director, Herbert S. Winokur, Jr.,serving as a director of MFC.

 

63

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**InsuranceAllocation Agreement**

 

        On March 16, 2004, we entered intoan insurance allocation agreement under which we agreed to make certainpayments to MFC in respect of our share of certain insurance costs, allocatedbased on our estimation of the appropriate risk of loss of each of MFC’ssubsidiaries.  The insurance allocationagreement also provides for the allocation of workers’ compensation costs basedon the respective employee payroll and employment category risk factor of eachof MFC’s subsidiaries that generate payroll. For the year ended December 29, 2007, we paid MFC $1.2 million forour share of insurance costs.  Cashpayments made by us to MFC under the insurance allocation agreement arepermitted under the Indenture and do not decrease the dividends or payments thatmay be made to our parent entities under the Indenture’s available baskets.

 

**BenefitsAgreement**

 

        On March 16, 2004, we entered intoa benefits agreement with MFOC under which we agreed to make certain paymentsto MFOC in respect of our share of employee benefits costs based on the numberof our employees.  Costs associated withour employees providing services to MFOC under the management agreement will beallocated consistent with shared expenses under the management agreement.  For the year ended December 29, 2007, wepaid MFOC $3.1 million for our share of employee benefit costs.  Cash payments made by us to MFOC under thebenefits agreement are permitted under the Indenture and do not decrease thedividends or payments that may be made to our parent entities under theIndenture’s available baskets.

 

**TaxAllocation Agreement**

 

        On March 16, 2004 we entered into atax allocation agreement with MFC pursuant to which we agreed to make paymentsto MFC, after taking into account payments we make directly to tax authorities,based on our hypothetical stand-alone consolidated federal income taxliability, determined as if we and our subsidiaries constituted our ownconsolidated group for federal income tax purposes. We are not permitted tomake 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.

 

        In fiscal year 2007, we were required tomake a payment to MFC of $400,000 for the portion of MFC’s consolidated federalincome tax liability attributable to the Company.  Otherwise, we will accrue these amountsotherwise payable to MFC as a liability to MFC until we meet theseconditions.  As of December 29,2007, our ratio of Net Indebtedness to Consolidated EBITDA was 10.68:1.0.  Additionally, the tax allocation agreementwith MFC does not allow for the carry-back of net operating losses.  Under the tax allocation agreement, our netoperating losses must be carried forward when determining payment to MFC.  As a result of the taxable income generated forthe fiscal year ended December 29, 2007, we recorded a $2.4 millionnoncash contribution from MFC under the tax allocation agreement.

 

# **Managers’and Officers’ Indemnification**

# ** **

        The Company’s limited liabilityagreement includes customary provisions providing for indemnification of ourmanagers and officers in the performance of their duties to the fullest extentpermitted by law.

 

64

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

# ** **

        KPMG LLP served as our independentregistered public accounting firm for the fiscal years ended December 29,2007 and December 30, 2006.  Duringthese fiscal years, fees for services provided by KPMG LLP were as follows (inthousands):

 
| ** **         | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|--------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| Audit fees         |       | $                     | 425        |                  | $          | 360 |   |
| Audit-related fees |       | —                |       | 25                    |       |
| Tax fees           |       | 14                    |       | 136                   |       |
| All other fees     |       | 22                    |       | 178                   |       |
| Total              |       | $                     | 461        |                  | $          | 699 |   |

 

        The aggregate fees included in the auditfees category are fees for the respective fiscal years for the audit of ourannual consolidated 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.

 

**AuditFees**

 

**       **Audit fees consist offees billed for professional services rendered in connection with the audit ofour consolidated financial statements included in our Annual Report on Form 10-Kand for the review of our consolidated financial statements included in ourQuarterly Reports on Form 10-Q.

 

**AuditRelated Fees**

 

**       **Audit related fees consist of fees billed forprofessional services rendered in connection with our correspondence in January 2006with the SEC in response to their comments to us as a result of their review ofour Form 10-K for fiscal year 2004 filed on March 22, 2005.

 

**TaxFees**

 

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

 

**AllOther Fees**

 

        All other fees consist of fees billedfor audit services rendered in connection with a proposal to refinance aportion of our existing debt.

 

**AuditCommittee Pre-Approval Policies and Procedures**

 

        The Audit Committee pre-approves theservices provided to us by KPMG LLP in connection with the audit of our annualconsolidated financial statements, the review of our quarterly condensedconsolidated financial statements and tax review and planning services.  If management proposes to engage KPMG LLP forother audit or permitted non-audit services, the Audit Committee pre-approvesthese services on a case-by-case basis. The Audit Committee approved all the services provided to us by KPMG LLPdescribed above.

 

65

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** **

**PART IV**

 

# **Item 15. Exhibits and Financial StatementSchedules**

# ** **

(a) DocumentList

 

1. FinancialStatements

 

The following consolidated financial statements of Mrs. FieldsFamous 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 29, 2007 and December 30, 2006                                                                         |       | F-3      |
| Consolidated  Statements of Operations and Comprehensive Loss for the years ended  December 29, 2007, December 30, 2006 and December 31, 2005 |       | F-4      |
| Consolidated  Statements of Member’s Deficit for the years ended December 29, 2007,  December 30, 2006 and December 31, 2005             |       | F-5      |
| Consolidated  Statements of Cash Flows for the years ended December 29, 2007,  December 30, 2006 and December 31, 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.

 

66

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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 |

 

67

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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.                                                                                                                                                                                                                                                                                   |

 

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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.                                                                                                                                                                              |

 

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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.                                                                       |

 

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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 |

 

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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 quarterly 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 quarterly  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 quarterly 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 quarterly  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 quarterly 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 quarterly  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. filed as exhibit 10.75 to the  Company’s annual report on Form 10-K filed with the SEC on  March 20, 2007 and incorporated herein by reference                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                                          |
| 10.76     |   | Product  Supply Agreement dated effective as of December 5, 2006 between TCBY  Systems, LLC and Scott Brothers Dairy, Inc. filed as exhibit 10.76 to  the Company’s annual report on Form 10-K filed with the SEC on  March 20, 2007 and incorporated herein by reference                                                            |

 

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| 10.77  |   | Product  Supply Agreement dated effective as of December 5, 2006 between TCBY  Systems, LLC and Yarnell Ice Cream Company, Inc. filed as exhibit 10.77  to the Company’s annual report on Form 10-K filed with the SEC on  March 20, 2007 and incorporated herein by reference                                                                                                                                                                         |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.78  |   | Product  Supply Agreement dated as of December 22, 2006 between Mrs. Fields  Franchising, LLC and Countryside Baking, Inc. filed as exhibit 10.78 to  the Company’s annual report on Form 10-K filed with the SEC on  March 20, 2007 and incorporated herein by reference                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.79  |   | Distribution Service  Agreement dated as of January 15, 2007 between TCBY Systems, LLC and  Lincoln Poultry & Egg Company  filed as exhibit 10.79 to the Company’s annual report on Form 10-K filed  with the SEC on March 20, 2007 and incorporated herein by reference                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.80  |   | First  Amendment dated January 31, 2007 to Distribution Agreement dated  April 12, 2006 between TCBY Systems, LLC and Southwest  Traders, Inc. filed as exhibit 10.80 to the Company’s annual report on  Form 10-K filed with the SEC on March 20, 2007 and incorporated  herein by reference                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.81  |   | Asset  Purchase Agreement, dated August 7, 2007, by and among NexCen Asset  Acquisition, LLC, NexCen Brands, Inc., Pretzel Time Franchising, LLC,  Pretzelmaker Franchising, 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 August 9, 2007                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.82  |   | Escrow  Agreement, dated August 7, 2007, by and among NexCen Asset Acquisition,  LLC, NexCen Brands, Inc., Pretzel Time Franchising, LLC, Pretzelmaker  Franchising, LLC and Wilmington Trust Company, as escrow agent, filed as  exhibit 10.2 to the Company’s current report on Form 8-K filed with the  Securities and Exchange Commission on August 9, 2007                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.83  |   | Transition  Services Agreement, dated August 7, 2007, between Mrs. Fields  Famous Brands, LLC and NexCen Brands, Inc., filed as exhibit 10.3 to the  Company’s current report on Form 8-K filed with the Securities and  Exchange Commission on August 9, 2007                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.84  |   | Voting  Agreement, dated August 7, 2007, by and among NexCen Brands, Inc.,  Pretzelmaker Franchising, LLC and Pretzel Time Franchising, LLC, filed as  exhibit 10.4 to the Company’s current report on Form 8-K filed with the  Securities and Exchange Commission on August 9, 2007                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.85  |   | Registration  Rights Agreement, dated August 7, 2007, by and among NexCen  Brands, Inc., Pretzelmaker Franchising, LLC and Pretzel Time  Franchising, LLC, filed as exhibit 10.5 to the Company’s current report on  Form 8-K filed with the Securities and Exchange Commission on August 9,  2007                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.86  |   | Asset  Purchase Agreement, dated January 29, 2008, by and among NexCen Asset  Acquisition, LLC, NexCen Brands, Inc., Great American Cookie Company  Franchising, LLC, Great American Manufacturing, 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  January 30, 2008                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.87  |   | Escrow  Agreement, dated January 29, 2008, by and among NexCen Asset  Acquisition, LLC, NexCen Brands, Inc., Great American Cookie Company  Franchising, LLC, Great American Manufacturing, LLC and Wilmington Trust  Company, as escrow agent, filed as exhibit 10.2 to the Company’s current  report on Form 8-K filed with the Securities and Exchange Commission on  January 30, 2008                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.88  |   | Settlement  and Release Agreement dated as of January 29, 2008, by and among NexCen  Brands, Inc., Great American Cookie Company Franchising, LLC,  Mrs. Fields Famous Brands, LLC, Mrs. Fields’ Original  Cookies, Inc. and certain franchisees of GACCF that are signatories  thereto, filed as exhibit 10.3 to the Company’s current report on  Form 8-K filed with the Securities and Exchange Commission on  January 30, 2008 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.89  |   | Transition  Services Agreement dated January 29, 2008, between Mrs. Fields  Famous Brands, LLC and NexCen Brands, Inc., filed as exhibit 10.4 to the  Company’s current report on Form 8-K filed with the Securities and  Exchange Commission on January 30, 2008                                                                                                                                                                                 |

 

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| 10.90      |   | Voting  Agreement, dated January 29, 2008, by and among NexCen  Brands, Inc., Great American Cookie Company Franchising, LLC and Great  American Manufacturing, LLC, filed as exhibit 10.5 to the Company’s current  report on Form 8-K filed with the Securities and Exchange Commission on January 30,  2008              |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                 |
| 10.91      |   | Registration  Rights Agreement, dated January 29, 2008, by and among NexCen  Brands, Inc., Great American Cookie Company Franchising, LLC and Great  American Manufacturing, LLC, filed as exhibit 10.6 to the Company’s current  report on Form 8-K filed with the Securities and Exchange Commission on  January 30, 2008 |
|       |   |                                                                                                                                                                                                                                                                                                                                                 |
| 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                                                                                                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                                                                                                 |
| 32.1† |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                 |
| 32.2† |   | Certification  of Chief Accounting 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 exhibit number to the Company’s Registration  Statement on Form S-4 (No. 333-115046) filed with the Securities  and Exchange Commission on April 30, 2004 and incorporated herein by  reference.                         |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                    |
| **     |   | Included  as an exhibit, with corresponding exhibit number 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 exhibit number 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 exhibit number to the Company’s annual  report on Form 10-K filed with the Securities and Exchange Commission on  March 22, 2005 and incorporated herein by reference.                                                        |
|   |   |                                                                                                                                                                                                                                                                                    |
| † |   | Filed herewith.                                                                                                                                                                                                                                                                         |

 

74

----

 

# **SIGNATURES**

# ** **

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

 

 
|  /s/ Stephen  Russo                |     | March 28, 2008 |
|-----------------------------------------|----------|---------------------|
| *Stephen Russo, President and*          | * * | *Date*              |
| *Chief Executive Officer*               | * * | * *            |
| * *                                | * * | * *            |
|  /s/ Steven  K. Passey             |     | March 28, 2008 |
| *Steven K. Passey*                      | * * | *Date*              |
| Chief Accounting  Officer and Treasurer |     |                |

 

75

----

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated.

 
| **Signature**            | ** ** | **Title**                               | ** ** | **Date**             |
|--------------------------|------------|-----------------------------------------|------------|----------------------|
|                     |       |                                    |       |                 |
| /s/ Stephen  Russo       |       | President, Chief  Executive Officer     |       | March 28,  2008 |
| Stephen Russo            |       | and Manager                             |       |                 |
|                     |       |                                    |       |                 |
| /s/ Steven K.  Passey    |       | Chief Accounting  Officer and Treasurer |       | March 28,  2008 |
| Steven K. Passey         |       |                                    |       |                 |
|                     |       |                                    |       |                 |
| /s/ Jon M.  Biotti       |       | Manager                                 |       | March 28,  2008 |
| Jon M. Biotti            |       |                                    |       |                 |
|                     |       |                                    |       |                 |
| /s/ John D.  Collins     |       | Manager                                 |       | March 28,  2008 |
| John D. Collins          |       |                                    |       |                 |
|                     |       |                                    |       |                 |
| /s/ George N.  Fugelsang |       | Manager                                 |       | March 28,  2008 |
| George N.  Fugelsang     |       |                                    |       |                 |
|                     |       |                                    |       |                 |
| /s/ Peter W.  Mullin     |       | Manager                                 |       | March 28,  2008 |
| Peter W. Mullin          |       |                                    |       |                 |
|                     |       |                                    |       |                 |
| /s/ Don Rice             |       | Manager                                 |       | March 28,  2008 |
| Don Rice                 |       |                                    |       |                 |
|                     |       |                                    |       |                 |
| /s/ John D.  Shafer      |       | Manager                                 |       | March 28,  2008 |
| John D. Shafer           |       |                                    |       |                 |
|                     |       |                                    |       |                 |
| /s/ Christopher  Wright  |       | Manager                                 |       | March 28,  2008 |
| Christopher  Wright      |       |                                    |       |                 |

 

76

----

### **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 |

 

77

----

 
| 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.                                                                                                                                                                                                                                                                                   |

 

78

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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.                                                                                                                                                                               |

 

79

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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.                                                                       |

 

80

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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 |

 

81

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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.                                                                                                                                                                                                                          |

 

82

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| 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.                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.81  |   | Asset  Purchase Agreement, dated August 7, 2007, by and among NexCen Asset  Acquisition, LLC, NexCen Brands, Inc., Pretzel Time Franchising, LLC,  Pretzelmaker Franchising, 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 August 9, 2007                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.82  |   | Escrow  Agreement, dated August 7, 2007, by and among NexCen Asset Acquisition,  LLC, NexCen Brands, Inc., Pretzel Time Franchising, LLC, Pretzelmaker  Franchising, LLC and Wilmington Trust Company, as escrow agent, filed as  exhibit 10.2 to the Company’s current report on Form 8-K filed with the  Securities and Exchange Commission on August 9, 2007                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.83  |   | Transition  Services Agreement, dated August 7, 2007, between Mrs. Fields  Famous Brands, LLC and NexCen Brands, Inc., filed as exhibit 10.3 to the  Company’s current report on Form 8-K filed with the Securities and  Exchange Commission on August 9, 2007                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.84  |   | Voting  Agreement, dated August 7, 2007, by and among NexCen Brands, Inc.,  Pretzelmaker Franchising, LLC and Pretzel Time Franchising, LLC, filed as  exhibit 10.4 to the Company’s current report on Form 8-K filed with the  Securities and Exchange Commission on August 9, 2007                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.85  |   | Registration  Rights Agreement, dated August 7, 2007, by and among NexCen  Brands, Inc., Pretzelmaker Franchising, LLC and Pretzel Time  Franchising, LLC, filed as exhibit 10.5 to the Company’s current report on  Form 8-K filed with the Securities and Exchange Commission on  August 9, 2007                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.86  |   | Asset  Purchase Agreement, dated January 29, 2008, by and among NexCen Asset  Acquisition, LLC, NexCen Brands, Inc., Great American Cookie Company  Franchising, LLC, Great American Manufacturing, 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  January 30, 2008                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.87  |   | Escrow  Agreement, dated January 29, 2008, by and among NexCen Asset  Acquisition, LLC, NexCen Brands, Inc., Great American Cookie Company  Franchising, LLC, Great American Manufacturing, LLC and Wilmington Trust  Company, as escrow agent, filed as exhibit 10.2 to the Company’s current  report on Form 8-K filed with the Securities and Exchange Commission on  January 30, 2008                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.88  |   | Settlement  and Release Agreement dated as of January 29, 2008, by and among NexCen  Brands, Inc., Great American Cookie Company Franchising, LLC,  Mrs. Fields Famous Brands, LLC, Mrs. Fields’ Original  Cookies, Inc. and certain franchisees of GACCF that are signatories  thereto, filed as exhibit 10.3 to the Company’s current report on  Form 8-K filed with the Securities and Exchange Commission on  January 30, 2008 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.89  |   | Transition  Services Agreement dated January 29, 2008, between Mrs. Fields  Famous Brands, LLC and NexCen Brands, Inc., filed as exhibit 10.4 to the  Company’s current report on Form 8-K filed with the Securities and  Exchange Commission on January 30, 2008                                                                                                                                                                                 |

 

83

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| 10.90       |   | Voting  Agreement, dated January 29, 2008, by and among NexCen  Brands, Inc., Great American Cookie Company Franchising, LLC and Great  American Manufacturing, LLC, filed as exhibit 10.5 to the Company’s current  report on Form 8-K filed with the Securities and Exchange Commission on  January 30, 2008                    |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.91  |   | Registration  Rights Agreement, dated January 29, 2008, by and among NexCen  Brands, Inc., Great American Cookie Company Franchising, LLC and Great  American Manufacturing, LLC, filed as exhibit 10.6 to the Company’s current  report on Form 8-K filed with the Securities and Exchange Commission on  January 30, 2008  |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |
| 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                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |
| 32.1†  |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |
| 32.2†  |   | Certification  of Chief Accounting 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 exhibit number to the Company’s Registration  Statement on Form S-4 (No. 333-115046) filed with the Securities  and Exchange Commission on April 30, 2004 and incorporated herein by  reference.                         |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                    |   |   |
| **     |   | Included  as an exhibit, with corresponding exhibit number 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 exhibit number 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 exhibit number to the Company’s annual  report on Form 10-K filed with the Securities and Exchange Commission on  March 22, 2005 and incorporated herein by reference.                                                        |
|   |   |                                                                                                                                                                                                                                                                                    |   |   |
| † |   | Filed herewith.                                                                                                                                                                                                                                                                         |   |   |

 

84

----

 

**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 29, 2007 |       | $              | 692,000    |          | $          | (202,000       | )          | $              | 143,000    |   | $ | 347,000 |   |
|                              |       |           |       |          |       |           |       |           |       |
| 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 |   |

 

 

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 29, 2007 and December 30, 2006                                                                    | F-3      |
| Consolidated Statements of  Operations and Comprehensive Loss for the years ended December 29, 2007,  December 30, 2006 and December 31, 2005 | F-4      |
| Consolidated Statements of  Member's Deficit for the years ended December 29, 2007, December 30, 2006 and  December 31, 2005                  | F-5      |
| Consolidated Statements of  Cash Flows for the years ended December 29, 2007, December 30, 2006 and  December 31, 2005                        | F-6      |
| Notes to the  Consolidated Financial Statements                                                                                               | F-8      |

 

F-1

----

 

## **Report of Independent Registered PublicAccounting Firm**

## ** **

The Board of Managers and Members of

Mrs. Fields FamousBrands, LLC:

 

We have audited the accompanying consolidated balancesheets of Mrs. Fields Famous Brands, LLC and subsidiaries as of December29, 2007 and December 30, 2006, and the related consolidated statements ofoperations and comprehensive loss, member's deficit and cash flows for each ofthe fiscal years in the three-year period ended December 29, 2007.  In connection with our audits of theconsolidated 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.

 

 Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  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 financialstatements referred to above present fairly, in all material respects, thefinancial position of Mrs. Fields Famous Brands, LLC and subsidiaries as ofDecember 29, 2007 and December 30, 2006, and the results of their operationsand their cash flows for each of the fiscal years in the three-year periodended December 29, 2007 in conformity with U.S. generally accepted accountingprinciples.  Also in our opinion, therelated financial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly, in allmaterial respects, the information set forth therein.

 

The accompanying consolidated financialstatements and financial statement schedule have been prepared assuming thatthe Company will continue as a going concern. As discussed in note 2 tothe consolidated financial statements, the Company has suffered recurring netlosses and negative cash flows from operations and has a net member’s deficitat December 29, 2007. These matters raise substantial doubt about its abilityto continue as a going concern. Management’s plans in regard to these matters are also described in note 2.The consolidated financial statements and financial statement schedule do notinclude any adjustments that might result from the outcome of this uncertainty.

 

/s/ KPMG LLP

 

Salt Lake City, Utah

# **March 28, 2008**

 

F-2

----

 

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

# **Consolidated Balance Sheets**

# **(Dollars in thousands)**

 
| ** **                                                                                 | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                 | ** ** | **2007**         | ** ** | **2006**         | ** ** |
| ASSETS:                                                                                    |       |             |       |             |       |
| Cash and cash equivalents                                                                  |       | $                | 11,425     |             | $          | 15,963 |   |
| Restricted cash                                                                            |       | 19,965           |       | —           |       |
| Marketable securities available-for-sale                                                   |       | 2,489            |       | —           |       |
| Receivables, net of allowance for doubtful accounts of $347 and $692,  respectively        |       | 7,954            |       | 10,639           |       |
| Amounts due from affiliates                                                                |       | 56               |       | —           |       |
| Inventories                                                                                |       | 3,659            |       | 3,977            |       |
| Prepaid expenses and other                                                                 |       | 900              |       | 720              |       |
| Deferred tax asset                                                                         |       | 710              |       | 734              |       |
| Total current assets                                                                       |       | 47,158           |       | 32,033           |       |
|                                                                                       |       |             |       |             |       |
| Property and equipment, net                                                                |       | 6,339            |       | 8,169            |       |
| Goodwill                                                                                   |       | 50,274           |       | 64,115           |       |
| Trademarks and other intangible assets, net                                                |       | 8,347            |       | 10,745           |       |
| Deferred loan costs, net of accumulated amortization of $12,011 and  $10,810, respectively |       | 4,917            |       | 6,118            |       |
| Deferred tax asset                                                                         |       | 760              |       | 9                |       |
| Other assets                                                                               |       | 3,003            |       | 531              |       |
| Total assets                                                                               |       | $                | 120,798    |             | $          | 121,720 |   |
|                                                                                       |       |             |       |             |       |
| LIABILITIES  AND MEMBER'S DEFICIT:                                                         |       |             |       |             |       |
| Accounts payable                                                                           |       | $                | 5,989      |             | $          | 9,621 |   |
| Accrued liabilities                                                                        |       | 13,966           |       | 14,750           |       |
| Amounts due to affiliates                                                                  |       | 7,610            |       | 3,788            |       |
| Current portion of capital lease obligations                                               |       | 87               |       | 119              |       |
| Current portion of deferred revenues                                                       |       | 807              |       | 1,069            |       |
| Total current liabilities                                                                  |       | 28,459           |       | 29,347           |       |
| Long-term debt                                                                             |       | 195,747          |       | 195,747          |       |
| Capital lease obligations, net of current portion                                          |       | 324              |       | 385              |       |
| Deferred revenues, net of current portion                                                  |       | 433              |       | 751              |       |
| Other liabilities                                                                          |       | 1,066            |       | 1,254            |       |
| Total liabilities                                                                          |       | 226,029          |       | 227,484          |       |
|                                                                                       |       |             |       |             |       |
| Commitments and Contingencies                                                              |       |             |       |             |       |
|                                                                                       |       |             |       |             |       |
| Member's deficit                                                                           |       | (104,907         | )          | (105,614         | )          |
| Accumulated other comprehensive loss                                                       |       | (324             | )          | (150             | )          |
| Total member's deficit                                                                     |       | (105,231         | )          | (105,764         | )          |
| Total liabilities and member's deficit                                                     |       | $                | 120,798    |             | $          | 121,720 |   |

 

See accompanying notes tothe consolidated financial statements.

 

F-3

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Consolidated Statements ofOperations and Comprehensive Loss**

**(Dollars in thousands)**

 
| ** **                                                                                                                    | ** ** | **For The Fiscal Year Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                    | ** ** | **December 29,**              | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                    | ** ** | **2007**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| REVENUES:                                                                                                                     |       |                          |       |   |   |   |   |
| Mrs. Fields                                                                                                                   |       | $                             | 59,344     |   | $ | 52,029 |   | $ | 43,658 |   |
| GAC/Pretzels                                                                                                                  |       | 28,891                        |       | 31,832 |   | 29,711 |   |
| Dairy                                                                                                                         |       | 9,743                         |       | 12,727 |   | 14,583 |   |
| Other                                                                                                                         |       | 90                            |       | — |   | — |   |
| Total revenues                                                                                                                |       | 98,068                        |       | 96,588 |   | 87,952 |   |
|                                                                                                                          |       |                          |       |   |   |   |   |
| OPERATING COSTS AND  EXPENSES:                                                                                                |       |                          |       |   |   |   |   |
| Mrs. Fields                                                                                                                   |       | 48,737                        |       | 47,650 |   | 32,597 |   |
| GAC/Pretzels                                                                                                                  |       | 14,655                        |       | 15,006 |   | 14,283 |   |
| Dairy                                                                                                                         |       | 5,909                         |       | 6,429 |   | 4,577 |   |
|                                                                                                                          |       |                          |       |   |   |   |   |
| General and administrative                                                                                                    |       | 10,721                        |       | 11,803 |   | 8,585 |   |
| Depreciation                                                                                                                  |       | 2,166                         |       | 2,442 |   | 1,145 |   |
| Amortization                                                                                                                  |       | 2,499                         |       | 2,111 |   | 2,831 |   |
| Impairment of goodwill                                                                                                        |       | —                        |       | 14,568 |   | 43,707 |   |
| Gain on sale of intangible assets                                                                                             |       | (12,222                       | )          | — |   | — |   |
| Gain on sale of land held for sale                                                                                            |       | (128                          | )          | — |   | — |   |
| Other, net                                                                                                                    |       | (3                            | )          | — |   | — |   |
| Total operating costs and expenses                                                                                            |       | 72,334                        |       | 100,009 |   | 107,725 |   |
| Income (loss) from operations                                                                                                 |       | 25,734                        |       | (3,421 | ) | (19,773 | ) |
|                                                                                                                          |       |                          |       |   |   |   |   |
| Interest expense, net                                                                                                         |       | (21,047                       | )          | (20,892 | ) | (20,943 | ) |
| Other expense                                                                                                                 |       | —                        |       | (28 | ) | — |   |
| Income (loss) before income tax provision (benefit)                                                                           |       | 4,687                         |       | (24,341 | ) | (40,716 | ) |
| Income tax provision (benefit)                                                                                                |       | 6,393                         |       | (2,413 | ) | (2,808 | ) |
| Net loss                                                                                                                      |       | $                             | (1,706     | ) | $ | (21,928 | ) | $ | (37,908 | ) |
|                                                                                                                          |       |                          |       |   |   |   |   |
| COMPREHENSIVE LOSS:                                                                                                           |       |                          |       |   |   |   |   |
| Net loss                                                                                                                      |       | $                             | (1,706     | ) | $ | (21,928 | ) | $ | (37,908 | ) |
| Other comprehensive loss:                                                                                                     |       |                          |       |   |   |   |   |
| Unrealized loss on marketable securities available-for-sale, net of  income tax  of $99, $0 and $0,  respectively   |       | (160                          | )          | — |   | — |   |
| Foreign currency translation adjustment                                                                                       |       | (14                           | )          | (1 | ) | (13 | ) |
|                                                                                                                          |       |                          |       |   |   |   |   |
| Comprehensive loss                                                                                                            |       | $                             | (1,880     | ) | $ | (21,929 | ) | $ | (37,921 | ) |

 

See accompanying notes tothe consolidated financial statements.

 

F-4

----

 

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

# **Consolidated Statements of Member's Deficit**

# **(Dollars in thousands)**

 
| ** **                                                      | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------|------------|--------------|------------|-------------------|------------|------------|------------|
| ** **                                                      | ** ** | ** **   | ** ** | **Other**         | ** ** | ** ** | ** ** |
| ** **                                                      | ** ** | **Member's** | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                      | ** ** | **Deficit**  | ** ** | **Loss**          | ** ** | **Total**  | ** ** |
| Balance at January 1, 2005                                      |       | $            | (43,365    | )                 | $          | (136       | )          | $ | (43,501 | ) |
|                                                            |       |         |       |              |       |       |       |
| Net loss                                                        |       | (37,908      | )          | —            |       | (37,908    | )          |
| Foreign currency translation  adjustment                   |       | —       |       | (13               | )          | (13        | )          |
| Balance at December 31, 2005                                    |       | (81,273      | )          | (149              | )          | (81,422    | )          |
|                                                            |       |         |       |              |       |       |       |
| Net loss                                                        |       | (21,928      | )          | —            |       | (21,928    | )          |
| Foreign currency translation  adjustment                   |       | —       |       | (1                | )          | (1         | )          |
| Distribution to parent  under tax allocation agreement     |       | (2,413       | )          | —            |       | (2,413     | )          |
| Balance at December 30, 2006                                    |       | (105,614     | )          | (150              | )          | (105,764   | )          |
|                                                            |       |         |       |              |       |       |       |
| Net loss                                                        |       | (1,706       | )          | —            |       | (1,706     | )          |
| Unrealized loss on sale of  marketable securities, net     |       | —       |       | (160              | )          | (160       | )          |
| Foreign currency translation  adjustment                   |       | —       |       | (14               | )          | (14        | )          |
| Contribution from parent  under tax allocation agreement   |       | 2,413        |       | —            |       | 2,413      |       |
| Balance at December 29, 2007                                    |       | $            | (104,907   | )                 | $          | (324       | )          | $ | (105,231 | ) |

 

See accompanying notes tothe consolidated financial statements.

 

F-5

----

 

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

# **Consolidated Statements of Cash Flows**

# **(Dollars in thousands)**

 
| ** **                                                                                 | ** ** | **For Fiscal Year Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                                 | ** ** | **December 29,**          | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                 | ** ** | **2007**                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                     |       |                      |       |   |   |   |   |
| Net loss                                                                                   |       | $                         | (1,706     | ) | $ | (21,928 | ) | $ | (37,908 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by  operating activities: |       |                      |       |   |   |   |   |
| Depreciation and amortization                                                              |       | 4,665                     |       | 4,553 |   | 3,976 |   |
| Amortization of deferred loan costs                                                        |       | 1,201                     |       | 846 |   | 921 |   |
| Impairment of goodwill                                                                     |       | —                    |       | 14,568 |   | 43,707 |   |
| Loss on sale of non-marketable securities                                                  |       | —                    |       | 28 |   | — |   |
| Loss on disposal of assets                                                                 |       | —                    |       | — |   | 353 |   |
| Gain on sale of intangible assets                                                          |       | (12,222                   | )          | — |   | — |   |
| Gain on sale of land held for sale                                                         |       | (128                      | )          | — |   | — |   |
| Deferred income taxes                                                                      |       | (628                      | )          | 188 |   | (3,687 | ) |
| Changes in assets and liabilities:                                                         |       |                      |       |   |   |   |   |
| Receivables                                                                                |       | 2,685                     |       | (2,578 | ) | (22 | ) |
| Inventories                                                                                |       | 318                       |       | (1,108 | ) | (243 | ) |
| Prepaid expenses and other                                                                 |       | (180                      | )          | 212 |   | 268 |   |
| Other assets                                                                               |       | 26                        |       | (104 | ) | (111 | ) |
| Accounts payable                                                                           |       | (3,632                    | )          | 3,125 |   | 2,162 |   |
| Accrued liabilities                                                                        |       | (784                      | )          | 2,836 |   | (2,857 | ) |
| Amounts due to/from affiliates                                                             |       | 6,179                     |       | (2,574 | ) | 1,192 |   |
| Deferred revenues                                                                          |       | (580                      | )          | (429 | ) | (1,187 | ) |
| Other liabilities                                                                          |       | (188                      | )          | 129 |   | — |   |
| Net cash (used in) provided by operating activities                                        |       | (4,974                    | )          | (2,236 | ) | 6,564 |   |
|                                                                                       |       |                      |       |   |   |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                     |       |                      |       |   |   |   |   |
| Change in restricted cash                                                                  |       | (19,965                   | )          | — |   | — |   |
| Proceeds from sale of intangible assets, net                                               |       | 20,566                    |       | — |   | — |   |
| Proceeds from sale of land held for sale                                                   |       | 278                       |       | — |   | — |   |
| Proceeds from sale of non-marketable securities                                            |       | —                    |       | 122 |   | — |   |
| Purchases of property and equipment                                                        |       | (307                      | )          | (4,981 | ) | (2,174 | ) |
| Purchase of license repurchase option                                                      |       | —                    |       | (500 | ) | (500 | ) |
| Net cash provided by (used in) investing activities                                        |       | 572                       |       | (5,359 | ) | (2,674 | ) |
|                                                                                       |       |                      |       |   |   |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                     |       |                      |       |   |   |   |   |
| Principal payments on capital leases                                                       |       | (122                      | )          | (105 | ) | (72 | ) |
|                                                                                       |       |                      |       |   |   |   |   |
| Net cash used in financing activities                                                      |       | (122                      | )          | (105 | ) | (72 | ) |
|                                                                                       |       |                      |       |   |   |   |   |
| Effect of foreign exchange  rate changes on cash                                           |       | (14                       | )          | (1 | ) | (13 | ) |
|                                                                                       |       |                      |       |   |   |   |   |
| Net (decrease) increase in  cash and cash equivalents                                      |       | (4,538                    | )          | (7,701 | ) | 3,805 |   |
| Cash and cash equivalents  at beginning of period                                          |       | 15,963                    |       | 23,664 |   | 19,859 |   |
|                                                                                       |       |                      |       |   |   |   |   |
| Cash and cash equivalents  at end of period                                                |       | $                         | 11,425     |   | $ | 15,963 |   | $ | 23,664 |   |

 

See accompanying notes tothe consolidated financial statements.

 

F-6

----

 

# ** **

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

# **Consolidated Statements of Cash Flows *(continued*)**

# **(Dollars in thousands)**

 
| ** **                                                                   | ** ** | **For the Fiscal Year Ended** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                   | ** ** | **December 29,**              | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **                                                                   | ** ** | **2007**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Supplemental Disclosures of  Cash Flow Information:**                      | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash paid for interest                                                       |       | $                             | 20,596     |   | $ | 20,574 |   | $ | 20,562 |   |
| Cash paid for income taxes                                                   |       | 400                           |       | — |   | — |   |
|                                                                         |       |                          |       |   |   |   |   |
| **Supplemental Disclosures of Noncash Investing and  Financing Activities:** | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Securities received from sale of assets                                      |       | $                             | 5,497      |   | $ | — |   | $ | — |   |
| Unrealized loss on marketable securities available-for-sale             |       | 160                           |       | — |   | — |   |
| Contribution from parent under tax allocation agreement                 |       | 2,413                         |       | — |   | — |   |
| Distribution to parent under tax allocation agreement                   |       | —                        |       | 2,413 |   | — |   |
| Assets acquired under capital lease                                          |       | 29                            |       | 20 |   | 198 |   |
| Leasehold improvements acquired under lease incentives                  |       | —                        |       | 1,250 |   | — |   |
| Accrual for license repurchase option                                        |       | —                        |       | — |   | 500 |   |

 

See accompanying notes tothe consolidated financial statements.

 

F-7

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes tothe Consolidated Financial Statements**

 

**1.   Basis ofPresentation and Description of Business**

 

***Basisof Presentation***

The accompanyingconsolidated financial statements of Mrs. Fields Famous Brands, LLC (the “Company”)have been prepared in accordance with U.S. generally accepted accountingprinciples (“GAAP”).  Income per commoninterest information is not presented because the Company is wholly owned by Mrs. Fields’Original Cookies, Inc. (“MFOC”) and, therefore, its common interests arenot publicly traded.  All transactionsand balances between the consolidated entities and segments have beeneliminated.

 

In connection with the Company’s change in business segments, certainprior year amounts in the audited consolidated financial statements andsupporting note disclosures have been restated to conform to the current yearpresentation.  The Company reclassifiedprior year revenues and expenses as follows:

 

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

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

 

 Such restatement did not impactpreviously reported net loss or accumulated deficit.

 

***Descriptionof Business***

The Companydevelops and franchises retail stores which sell core products includingcookies, brownies and frozen yogurt through three specialty branded concepts: Mrs. Fields,Great American Cookie Company (see Note 13) and TCBY.

 

In connection withits franchising activities, the Company authorizes third-party licensees andfranchisees 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 of Mrs. Fieldsand TCBY branded products through non-bakery stores and cafés. The Company alsomarkets and distributes products through catalogs and the Internet as well asvarious retail channels.

 

***Revisionof 2007 Interim Financial Statements***

InJanuary 2008, the Company determined that during the quarter ended September 29,2007, the gain on sale of the certain assets, consisting primarily ofidentifiable intangible assets of PTF, LLC and PMC, LLC, formally Pretzel TimeFranchising, LLC and Pretzelmaker Franchising, LLC, respectively,(collectively, “Pretzels”), did not include theappropriate amount of goodwill in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 142 (“SFAS 142”), “Goodwill and OtherIntangible Assets.”

 

TheCompany determined the error to be immaterial under the guidance of SEC StaffAccounting Bulletin No. 108 and accordingly has revised the operatingresults for the quarter ended September 29, 2007, to appropriately reflectrecognition of the additional gain on sale and the recorded amount of goodwillas of September 29, 2007.  Theaggregate impact of the revision in the consolidated statement of operationsfor the 13 week and 39 week periods ended September 29, 2007 is anincrease in the gain on sale of Pretzels of $1.4 million and the impact in theconsolidated balance sheet as of September 29, 2007 is an increase of goodwilland member’s deficit of $1.4 million. This correction of error did not impact the consolidated statements ofcash flows for the 13 week and 39 week periods ended September 29, 2007.

 

 

F-8

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

**2.   Going Concern**

 

The accompanying consolidatedfinancial statements of the Company were prepared on a going concern basis,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. The realization of assets and thesatisfaction of liabilities in the normal course of business are dependent on,among other things, the Company’s ability to operate profitably and to generatepositive cash flows from operations.  TheCompany has suffered recurring net losses and negative cash flows fromoperations and has a net member’s deficit at December 29, 2007.  As a result, the Company may be unable to make its scheduled semi-annualinterest payments on its Senior Secured Notes commencing September 2008 in theamount of $10.2 million. Failure to make the scheduled semi-annual interestpayments would constitute an event of default under the Indenture which couldcause the Senior Secured Notes to become immediately due and payable.  The Company does not currently have theability to repay the Senior Secured Notes should they become due andpayable.  These matters raise substantialdoubt about the Company’s ability to continue as a going concern.  The Company is pursuing various actions toimprove its results of operations, cash flows and financial position. These actions include, but are not limited to, the following:

 

·                  staff reductions and other initiatives toreduce expenses and increase revenues;

·                  reinvestment of net proceeds from the saleof the Pretzel and GACCF, LLC  (“GACCF”)and GAMAN, LLC, formerly Great American Cookie Company Franchising, LLC andGreat American Manufacturing, LLC (collectively with GACCF, “GAC”) businesses intohigher yielding investments; 

·                  restructuring of the Company’s SeniorSecured Notes; and

·                  raising additional equity capital.

 

Management and its majorshareholder have engaged Blackstone Advisory Services (“Blackstone”) to assistin reviewing the Company’s strategic alternatives for raising additional equitycapital and restructuring its Senior Secured Notes.  Blackstone andmanagement are working with a committee of noteholders representingapproximately 70 percent of the outstanding Senior Secured Notes on a proposalto restructure the Senior Secured Notes.  Management expects to be able torenegotiate the terms to its Senior Secured Notes on terms that are favorableto the Company; however no assurances can be provided.  There can be noassurance that any of the strategic alternatives being considered by theCompany will be successful or that the Company’s results of operations, cashflows and financial position will improve, absent successful execution of someor all of the alternatives being considered.

 

**3.  Saleof Pretzel Brands**

** **

OnAugust 7, 2007 (the “Pretzel Closing Date”), the Company and its whollyowned subsidiaries, Pretzels, completed a sale of certain assets, consistingprimarily of identifiable intangible assets of Pretzels, to NexCen Brands, Inc.(“NexCen Brands”), through its wholly owned subsidiary, NexCen AssetAcquisition, LLC (collectively with NexCen Brands, “NexCen”) for $29.3 million,consisting of $22.0 million in cash and 997,671 shares of NexCen Brands commonstock valued at $7.35 per share on the date of the sale.  Under the terms of the asset purchaseagreement, $2.9 million (397,121 shares) and $1.0 million (136,054 shares) ofNexCen Brands common stock, valued at $7.35 per share, is held in escrow fornine and fifteen months, respectively, pending satisfaction of certain standardrepresentations and warranties.  Thecarrying amount of the identifiable intangible assets was $0 on the date of thesale as the intangible assets were either internally generated or fullyamortized.  Goodwill related to Pretzelstotaled $13.8 million on the date of sale.

 

 

F-9

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

TheCompany is restricted from trading the shares of NexCen Brands common stockuntil twelve months after the Pretzel Closing Date and then only 25 percent ofthe total number of shares every three months thereafter.  Due to the restrictions on the sale of theNexCen Brands common stock, the Company recorded the shares at a 25 percentdiscount from the fair value on the date of sale.  The shares that may be traded within 12months ($2.5 million) have been reported as of December 29, 2007 asavailable-for-sale securities in accordance with SFAS No. 115, “Accountingfor Certain Investments in Debt and Equity Securities.”  The remainder of the stock as of December 29,2007 that is not available for sale within 12 months ($2.7 million) isaccounted for using the cost method at the discounted basis and is included inother assets.

 

Thenet proceeds of the sale, taking into effect the 25 percent discount for therestricted stock, totaled $26.1 million (net of $1.4 million of direct costs ofthe sale) and resulted in a gain on sale totaling $12.2 million.

 

**4.   Summary ofSignificant Accounting Policies**

 

***AccountingPeriods***

The Companyoperates using a 52/53-week fiscal year ending on the Saturday closest to December 31.Fiscal year 2007, 2006 and 2005 are all 52-week periods ending December 29,2007, December 30, 2006 and December 31, 2005, respectively.

 

***ForeignCurrency Translation***

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

 

***Related-PartyTransactions***

The Company has contractual relationships with variousaffiliates, primarily MFOC, Mrs. Fields Holding Company (“MFH”), TCBYEnterprises, LLC and Mrs. Fields Companies, Inc. (“MFC”), which areintended to be fair to the parties involved in the transactions and on termssimilar to what could be negotiated with independent third parties.  Sometimes the Company is required tonegotiate the agreements for both sides of the transaction.  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 ofEstimates***

The preparation of financial statements in conformitywith GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

The Company’s significant accounting estimates includeestimates for reserves for doubtful accounts and obsolete and excessiveinventories, long-lived asset allowances, deferred tax asset valuationallowances and depreciation and amortization.

 

 

F-10

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

***CashEquivalents***

Cash equivalents includeall cash balances and highly liquid investments with an initial maturity ofthree months or less.  The Company placesits temporary cash investments with high credit quality financialinstitutions.  At times such investmentsmay be in excess of the Federal Deposit Insurance Corporation insurance limit.  As of December 29, 2007 and December 30,2006, the Company had cash equivalents of $9,000 and $8,000, respectively.

 

***RestrictedCash***

The Company’s indenture (“Indenture”)governing the Company’s 9 percent senior secured notes (the “ 9 percent SeniorSecured Notes”) and 111⁄2 percent senior secured notes (the “111⁄2 percent SeniorSecured Notes”, together the “Senior Secured Notes”) restricts its use of theproceeds from an asset sale, net of expenses of the transaction, to make aninvestment in similar assets, make investments in the Company or after 361 daysuse the net proceeds to make an offer to pay down long-term debt.  The total outstanding amount of net proceedsfrom the sale of Pretzels was $20.0 million at December 29, 2007 and isincluded in restricted cash.  Therestricted cash is currently held in an account controlled by the Trusteepursuant to the Indenture.

 

***MarketableSecurities Available-for-Sale***

Marketable securities at December 29, 2007consist of equity securities of NexCen Brands common stock. Available-for-salesecurities are recorded at fair value. The fair values of equity securities arebased on quoted market prices at the reporting date for those or similarinvestments.

 

Unrealized holding gains and losses, net of therelated tax effect, on available-for-sale securities are excluded from earningsand are reported as a separate component of accumulated other comprehensiveincome until realized. Realized gains and losses from the sale ofavailable-for-sale securities are determined on a specific-identificationbasis.

 

A decline in the market value of anyavailable-for-sale security below cost that is deemed to beother-than-temporary results in an impairment to reduce the carrying amount tofair value.  The impairment is charged toearnings and a new cost basis for the security is established. To determinewhether an impairment is other-than-temporary, the Company considers whether ithas the ability and intent to hold the investment until a market price recoveryand considers whether evidence indicating the cost of the investment isrecoverable outweighs evidence to the contrary. Evidence considered in thisassessment includes the reasons for the impairment, the severity and durationof the impairment, changes in value subsequent to year-end, forecastedperformance of the investee, and the general market condition in the geographicarea or industry the investee operates in.

 

**Thecost, gross unrealized gain and loss and fair value of available-for-salesecurities at December 29, 2007 were as follows (in thousands):**

 
| ** **        | ** ** | ** ** | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** **     | ** ** |
|-------------------|------------|------------|------------|----------------|------------|----------------|------------|----------------|------------|
| ** **        | ** ** | ** ** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | ** **     | ** ** |
| ** **        | ** ** | **Cost**   | ** ** | **Gain**       | ** ** | **(Loss)**     | ** ** | **Fair Value** | ** ** |
| Equity securities |       | $          | 2,748      |           | $          | —         |       | $              | (259       | ) | $ | 2,489 |   |
|              |       | $          | 2,748      |           | $          | —         |       | $              | (259       | ) | $ | 2,489 |   |

** **

 

F-11

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

***Receivables***

Most of the Company’s receivables are due from domestic andinternational franchisees, distributors, licensees and corporate customers of Mrs. FieldsGifts and Mrs. Fields Branded Retail. These receivables are composed of normal trade accounts receivable andlonger-term notes receivable.  Servicecharges may be assessed on past due invoices but any revenue associated withthe service charges is only recognized when collected.  The Company maintains an allowance for doubtfulaccounts to cover potential losses.  Thisallowance is the Company’s best estimate of the amount of probable collectionlosses in the Company’s existing trade accounts receivable.  The Company determines the allowance basedupon historical write-off experience and individual facts and circumstancesassociated with individual debtors.  Ifthe assumptions that are used to determine the allowance for doubtful accountschange, the Company may have to provide for a greater level of expense infuture periods or reverse amounts provided for in prior periods.

 

Prior to fiscal year 2001, TCBY Systems, LLC (“TCBY”), a wholly ownedsubsidiary of the Company, extended credit from time to time in the form ofnotes receivable to franchisees and certain of these notes receivable remainoutstanding.  Notes receivable fromfranchisees are primarily collateralized by equipment located at thefranchisees’ stores.  These notes bearinterest at market rates at the time the notes were issued and mature atvarious dates through April 2009. TCBY regularly reviews the notes for non-performance.  Notes that are considered non-performing areplaced on a non-accrual status when the collectability of principal or interestbecomes uncertain.  During the fiscalyear ended December 29, 2007 and December 30, 2006, TCBY recognizedno interest income pertaining to these notes receivable.  These notes are included in receivables inthe accompanying consolidated balance sheets.

 

Prior to fiscal year 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 $182,000 and$269,000 as of December 29, 2007 and December 30, 2006, respectively,which the Company has reserved 100 percent for this potential recourseliability.  This reserve is included inaccrued liabilities in the accompanying condensed consolidated balance sheets.

 

***Inventories***

Inventories, consisting of finished goods, rawmaterials, novelties and packaging, are stated at the lower of cost (first-in,first-out method) or market value.  Inassessing the realizability of inventories, the Company makes judgments as tofuture demand requirements and product expiration dates.  The inventory requirements change based onprojected customer demand, which changes due to fluctuations in market conditionsand product life cycles.  Inventories arecomprised of the following (in thousands):

 
| ** **     | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|----------------|------------|-----------------------|------------|-----------------------|------------|
| ** **     | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| Finished goods |       | $                     | 1,717      |                  | $          | 1,663 |   |
| Raw materials  |       | 973                   |       | 1,071                 |       |
| Novelties      |       | 598                   |       | 803                   |       |
| Packaging      |       | 371                   |       | 440                   |       |
|           |       | $                     | 3,659      |                  | $          | 3,977 |   |

 

 

F-12

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

***Propertyand Equipment***

Property and equipment are stated at cost, net ofaccumulated depreciation and amortization.

 

Depreciation and amortization is computed on astraight-line basis as follows:

 
| Equipment  and fixtures             |   | 3  -   7 years |
|-------------------------------------|--------|--------------------------|
| Leasehold  improvements             |   | 2  - 10 years*           |
| Building  and building improvements |   | 2  - 15 years            |

----

* Based on the lesser of the usefullife of the asset or the term of the applicable lease.

 

Property and equipment are comprised of the following(in thousands):

 
| ** **                          | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|-------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| Equipment and fixtures              |       | $                     | 11,983     |                  | $          | 11,271 |   |
| Leasehold improvements              |       | 5,017                 |       | 5,414                 |       |
| Building and building  improvements |       | 2,008                 |       | 1,994                 |       |
| Land                                |       | 240                   |       | 240                   |       |
|                                |       | 19,248                |       | 18,919                |       |
| Less accumulated  depreciation      |       | (12,909               | )          | (10,750               | )          |
|                                |       | $                     | 6,339      |                  | $          | 8,169 |   |

 

Property and equipment at December 29, 2007 and December 30,2006 includes gross assets acquired under capital leases of $747,000 and$718,000, respectively, and related accumulated depreciation of $385,000 and$259,000, respectively.

 

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

 

Included in leasehold improvements at December 29,2007 and December 30, 2006 is $1.3 million for tenant improvementsprovided as lease incentives by the lessor related to the lease for the Company’sgifting operations facility less accumulated depreciation of $208,000 and$83,000, respectively.  Deferred rent at December 29,2007 and December 30, 2006 of $125,000 is included in accrued liabilitiesand $900,000 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.

 

During fiscal year 2007, the company sold land heldfor sale for $278,000, resulting in a gain of $128,000.  Land held for sale at December 30, 2006was included in other assets.

 

F-13

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

The Company determined that a triggering event hadoccurred in fiscal year 2007 and 2006 under SFAS No. 144 (“SFAS 144”), “Accountingfor Impairment or Disposal of Long-Lived Assets,” for the Dairy Franchisingreporting unit as a result of the continued eroding dairy franchise operationsevidenced by fewer locations, consistent negative year-over-year same storesales by our dairy franchisees 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 the dairyfranchise system.  The Company performedthe impairment tests as required by SFAS 144 for the long-lived assets of theDairy Franchising reporting unit and determined that leasehold improvements andequipment associated with a Beriyo test store and a Yovana test store wereimpaired as of December 29, 2007 and December 30, 2006,respectively.  Therefore, an impairmentcharge of $54,000 and $400,000 for these long-lived assets was required as of December 29,2007 and December 30, 2006, respectively.

 

***Goodwill, Trademarks and OtherIntangible Assets***

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

 

On an annual basis (during the fourth quarter), ormore frequently if circumstances indicate potential impairment, the Companyperforms an assessment for impairment of its carrying value of goodwillassociated with each of its reporting units defined as GAC/Pretzels, Mrs. FieldsFranchising, Mrs. Fields Gifts, and Mrs. Fields Licensing, bycomparing each reporting unit’s fair value with its carrying value.  The estimated fair value of goodwill isaffected by, among other things, operating results, the Company’s business planfor the future, estimated results of future operations and the comparablecompanies and transactions that are used to estimate the fair value of thegoodwill.  If the estimated fair value ofthe reporting unit exceeds its carrying amount, the reporting unit’s goodwillis not considered to be impaired and the second step of the impairment test isunnecessary.  If the reporting unit’scarrying amount exceeds its estimated fair value, the second step test must beperformed to measure 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 year 2007 by comparing the fair value of each ofthe Company’s reporting units to the carrying amount of each reporting unit asof December 29, 2007.  Managementconcluded that the estimated fair value of each reporting unit exceeded itscarrying value and thus no impairment existed as of December 29, 2007.

 

During fiscal year 2006, the Company determined that atriggering event had occurred under SFAS 142 for the Dairy Franchisingreporting unit as a result of the continued eroding dairy franchise operationsevidenced by fewer locations, consistent negative year-over-year same storesales by our dairy franchisees and our inability to locate and open asignificant number of new or additional franchise locations.  As such, the Company tested the goodwillrelated to the Dairy Franchising reporting unit by comparing the reporting unit’sfair value with its carrying value. As a result of the impairment test, theCompany recorded an impairment charge of $14.6 million in fiscal year 2006relating to the Dairy Franchising reporting unit.

 

The Company performed its annual goodwill impairmentanalysis as of December 31, 2005 and concluded that the carrying amount ofthe Dairy Franchising reporting unit exceeded its fair value.  The Company compared the implied fair valueof the Dairy Franchising reporting unit’s goodwill with the carrying amount ofthe goodwill and recorded an impairment charge of $43.7 million in fiscal year2005.

 

 

F-14

----

 

The following outlinesthe Company’s goodwill by operating segment (in thousands):

 
| ** **                   | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| GAC/Pretzels                 |       | $                     | 41,072     |                  | $          | 54,913 |   |
| Mrs. Fields Franchising |       | 5,491                 |       | 5,491                 |       |
| Mrs. Fields Gifts       |       | 1,859                 |       | 1,859                 |       |
| Mrs. Fields Licensing   |       | 1,852                 |       | 1,852                 |       |
|                         |       | $                     | 50,274     |                  | $          | 64,115 |   |

 

The Mrs. Fields Branded Retail and Dairyoperating segments had no goodwill at December 29, 2007 and December 30,2006.  GAC/Pretzels goodwill decreased$13.8 million as a result of the sale of Pretzels (see Note 2).

 

Trademarks and other intangible assets are comprisedof definite-lived assets and are amortized over 5 to 15 years.  The following outlines the Company’strademarks and other intangibles (in thousands):

 
| ** **                              | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| Trademarks and trade names              |       | $                     | 15,305     |                  | $          | 15,305 |   |
| Recipes                                 |       | 4,150                 |       | 4,150                 |       |
| Franchise relationships                 |       | 2,600                 |       | 2,600                 |       |
| Reacquired franchise and license rights |       | 1,000                 |       | 1,000                 |       |
|                                    |       | 23,055                |       | 23,055                |       |
| Less accumulated amortization           |       | (14,708               | )          | (12,310               | )          |
|                                    |       | $                     | 8,347      |                  | $          | 10,745 |   |

 

The Company determined that a triggering event hadoccurred in fiscal year 2005 under SFAS 144 as a result of the eroding dairyfranchise operations evidenced by fewer locations, consistent negativeyear-over-year same store sales by our dairy franchisees and the Company’sinability to locate and open a significant number of new or additionalfranchise locations.  Therefore, theCompany recorded charges to write-down the TCBY trade names and franchiserelationships of $1.7 million and $7.2 million, respectively, for the yearended December 31, 2005.  Inaddition, the fair value becomes the new basis of the assets and they areamortized over the remaining useful life of the assets pursuant to SFAS 144.

 

F-15

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

During fiscal year 2005, the Company, through Mrs. FieldsFranchising, LLC (“MFF”), a wholly owned subsidiary of the Company, enteredinto an Option Agreement and Amendment to License Agreement (the “Option”) withMaxfield Candy Company (“Maxfield”), one of its licensees, who produces andsells Mrs. Fields branded premium candy products in certain distributionchannels under a trademark license agreement (the “License”).  The Optiongranted MFF an option to repurchase the License, exercisable during a periodfrom the second to the fifth anniversary of the Option date.  The Optionpurchase price was $1.0 million, one-half of which was paid by MFF when the Optionwas signed by the parties and one-half of which was paid to Maxfield on thefirst anniversary of that date (December 2006).  The repurchase pricefor the License is due only if MFF exercises the Option and ranges from $4.5million to $7.0 million, depending on when the Option is exercised. One-half of the Option purchase price will be credited to the Licenserepurchase price in a manner described in the Option if MFF exercises theOption.  The parties also agreed tocertain modifications of the License as part of the Option.  The Option purchase price is included inreacquired franchise and license rights. As of December 29, 2007, theCompany considered that a triggering event had occurred as a result of erodingsales of chocolates under the License. The Company performed the impairment testing as required under SFAS 144and determined that the Option was impaired and recorded an impairment chargeof $424,000 as of December 29, 2007.

 

Amortization expense ofthe intangible assets for the years ended December 29, 2007, December 30,2006 and December 31, 2005 was $2.4 million, $2.0 million and$2.7 million, respectively.  Futureamortization expense of the intangible assets as of December 29, 2007, isestimated to be as follows (in thousands):

 
| **Fiscal Year** | ** ** | ** ** | ** ** |
|-----------------|------------|------------|------------|
| 2008            |       | $          | 1,694      |   |
| 2009            |       | 1,694      |       |
| 2010            |       | 1,694      |       |
| 2011            |       | 1,326      |       |
| 2012            |       | 587        |       |
| Thereafter      |       | 1,352      |       |
|            |       | $          | 8,347      |   |

 

***DeferredLoan Costs***

Deferred loan costs are amortized overthe life of the related debt using the effective interest method. During theyears ended December 29, 2007, December 30, 2006 and December 31,2005, the Company amortized deferred loan costs of approximately $1.2 million,$846,000 and $921,000, respectively, to interest expense.

 

***Long-LivedAssets***

Long-lived assets are reviewed forimpairment when events or changes in circumstances indicate that the book valueof an asset may not be fully recovered. The Company uses an estimate of future undiscounted net cash flows ofthe related asset or group of assets over the remaining life in measuring whetherthe assets are recoverable.  Impairmentof long-lived assets is assessed at the lowest level for which there areidentifiable cash flows that are independent of other groups of assets.  Impairment to be recognized is measured bythe amount by which the carrying amount of the assets exceeds the fair value ofthe assets.  The impairment of long-livedassets requires judgments and estimates. If circumstances change, such estimates could also change.

 

F-16

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

***AccruedLiabilities***

Accrued liabilities arecomprised of the following (in thousands):

 
| ** **                         | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2007**              | ** ** | **2006**              | ** ** |
|                               |       |                  |       |                  |       |
| Accrued interest payable           |       | $                     | 6,034      |                  | $          | 6,034 |   |
| Accrued liabilities                |       | 5,211                 |       | 5,452                 |       |
| Accrued compensation and  benefits |       | 2,644                 |       | 1,408                 |       |
| Accrued severance                  |       | 77                    |       | 1,856                 |       |
|                               |       | $                     | 13,966     |                  | $          | 14,750 |   |

 

The accrued compensationand benefits at December 29, 2007 relates primarily to $1.5 million foraccrued bonuses for fiscal year 2007.  Nosuch accrual was included in fiscal year 2006.

 

The accrued severance at December 30,2006 relates primarily to severance accrued as a result of the managementreorganization in January 2007 resulting in a reduction of personnel.  In accordance with SFAS No. 112, “Employers’Accounting for Postemployment Benefits — An Amendment to FASB Statements No. 5and 43,” the Company accrued approximately $1.7 million of severance costs infiscal year 2006 related to this management reorganization as it was bothprobable and estimable at December 30, 2006.

 

The activity in accrued severance is asfollows (in thousands):

 
| ** **        | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|-------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2007**              | ** ** | **2006**              | ** ** |
|              |       |                  |       |                  |       |
| Beginning balance |       | $                     | 1,856      |                  | $          | 60 |   |
| Additions         |       | 29                    |       | 2,302                 |       |
| Payments          |       | (1,808                | )          | (506                  | )          |
|              |       | $                     | 77         |                  | $          | 1,856 |   |

 

***RevenueRecognition***

The Company recognizes revenues from its initialfranchising 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 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-17

----

 

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

The Company receives cash payments for productformulation fees and allowances from suppliers based on the amount of productpurchased directly by its distributors and franchisees.  These product formulation fees include cashpayments to the Company for the right to use the Company’s proprietaryformulations and recipes to manufacture the frozen dough, dough mixes and TCBYproducts these suppliers sell to the Company’s franchisees.  Formulation fees and allowances are recordedas revenues within the Mrs. Fields Franchising, GAC/Pretzels and Dairyoperating segments upon shipment of product to the Company’s distributors orfranchisees.  For the years ended December 29,2007, December 30, 2006 and December 31, 2005, included in revenueswas $8.5 million, $11.4 million and $12.8 million, respectively, for suchproduct formulation fees and allowances.

 

In March 2003, the Company received $2.0 millionfrom a supplier as an advance to maintain and expand beverage concepts at theCompany’s franchised store locations. This advance is being recognized as franchising revenues on a ratablebasis over the six-year term of the agreement.

 

***OperatingExpenses***

Operating expenses of the franchising segments,including Mrs. Fields, GAC/Pretzels, and Dairy are comprised of costsincurred to generate franchising revenues which include operation andsupervision expenses wherein we provide support, direction and supervision tothe franchisees; development and support expenses including product developmentcosts, expenses relating to new franchise development, marketing andadvertising, bad debt expense and other direct franchising expenses; and costof product sales associated with the GAC manufacturing facility, including rawingredients, labor and other manufacturing costs.

 

Gifts operating expenses are comprised of costsincurred to generate gift revenues which include cost of sales for productssold, selling and promotional expenses and direct operating expenses of thegifts segment.  Cost of sales includesinbound freight charges, purchasing and receiving costs, inspection costs,warehousing costs and other costs of our distribution network.

 

Branded retail operating expenses are comprised ofcost of sales for products sold, selling and promotional expenses and otherdirect operating expenses of the branded retail segment.

 

Licensing operating expenses are comprised of costsincurred to generate licensing revenues, which primarily are selling andpromotional expenses, bad debt and other direct operating expenses of thelicensing segment.  Selling expensesinclude payroll and payroll-related costs, outside commissions and professionalfees.

 

General and administrative expenses are comprised ofpayroll and payroll-related costs of corporate employees such as executive,accounting, legal, human resources and information systems personnel; traveland travel-related expenses of corporate employees; professional and legalfees, bank charges, insurance costs and facility costs not related to thegeneration of revenues.  These costs areassociated with providing management support for all of our business segments*.*

 

***Shippingand Handling Costs***

The Company charges its gifts and manufacturingfacility customers for shipping and handling costs and records the revenues in Mrs.Fields Gifts revenues and GAC/Pretzel revenues, respectively.  The costs for shipping and handling areincluded in Mrs. Fields Gifts expense and GAC/Pretzel expense, respectively.

 

F-18

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

***Income Taxes***

The Company is organized as a single-member limitedliability company and will not elect to be taxed as a corporation for federalincome tax purposes.  As such, forfederal income tax purposes, the Company will be “disregarded” and will betreated as a division of MFOC, its sole member. Although the Company is not expected to be a tax-paying entity, theassets of the Company could be subject to income tax claims against any memberof its parent’s consolidated group.

 

TheCompany will be included in the consolidated federal income tax return of MFC,the Company’s ultimate parent.  Forhistorical financial reporting purposes, the Company recognizes income taxexpense (benefit) and deferred tax assets and liabilities as if it were filinga separate tax return.

 

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

 

The adoption of FIN 48did not have an impact on the Company’s consolidated financial statements.  For fiscal year 2007, the Company had nounrecognized tax benefits.  As of thedate of adoption, there were no tax positions for which it is reasonablypossible that the total amounts of unrecognized tax benefits will significantlyincrease or decrease within twelve months from the date of adoption of FIN 48or from December 29, 2007.

 

The Company recognizesinterest and penalties related to unrecognized tax benefits in interestexpense.  There have been no interest orpenalties recognized in the financial statements of the Company.

 

The Company is includedin the consolidated income tax returns of MFC in the U.S. federal jurisdictionand in various state jurisdictions.  MFCis currently not under examination by any federal or state tax authority, butremains subject to income tax examinations for each of its open tax years,which extend back to 2003 for federal income tax purposes and 2002 for stateincome tax purposes.

 

On December 31,2006, the Company adopted Emerging Issues Task Force (“EITF”) issued EITF IssueNo. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and Remittedto Government Authorities Should Be Presented in the Income Statement (That Is,Gross Versus Net Presentation).”  EITF06-3 addresses which taxes assessed by a government authority should beconsidered and how these taxes should be presented in the income statement(i.e., gross versus net).  The Companyrecords revenues net of state and local sales taxes.

 

***Deferred Income Tax Assets***

Deferredincome tax 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 periodwhen such determination is made.  TheCompany records an income tax provision or benefit at a rate that is based onexpected results for the fiscal year.  Iffuture changes in market conditions cause actual results to be more or lessfavorable, adjustments to the effective income tax rate on a quarterly basiscould be required.

 

F-19

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

***Fair Value of Financial Instruments***

TheCompany estimates that the total fair market value of its Senior Secured Noteswas approximately $58.9 million and $95.5 million, respectively, as of December 29,2007 (see Note 5).  These estimates arebased on quoted market prices.  The bookvalues of the Company’s other financial instruments, including accountsreceivable and accounts payable, approximate fair values at the respectivebalance sheet dates because of the relatively short maturity of theseinstruments.  The carrying amount ofother long-term debt obligations approximates its fair value because therelated interest rates are at market rates.

 

***Advertising***

TheCompany administers advertising funds collected from its franchisees.  The Company directs the expenditures of theadvertising funds in connection with advertising and marketing campaigns forthe benefit of the respective concepts. The advertising funds and their related activities are not included inthe accompanying consolidated financial statements.

 

Advertisingcosts are expensed as incurred.  Duringthe years ended December 29, 2007, December 30, 2006 and December 31,2005, the Company incurred advertising expenses excluding the expenditures ofthe advertising funds totaling approximately $6.3 million, $7.5 millionand $6.0 million, respectively, which is included in the operating costsof Mrs. Fields, GAC/Pretzels and Dairy.

 

***Legal and Regulatory***

TheCompany records liabilities for legal and regulatory matters when the contingencyis both probable and reasonably estimable. The Company is involved in several legal and regulatory matters.  After consultation with legal counsel, theCompany believes that the ultimate dispositions of these matters will not havea material negative impact on its financial position, liquidity or results ofoperations.  However, there can be noassurance that the Company will be successful in its efforts to satisfactorilyresolve these matters and the ultimate outcome could result in a material negativeimpact on its financial position, liquidity or results of operations.

 

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

InDecember 2007, the FASB issued SFAS No. 141 (revised 2007), BusinessCombinations (“SFAS 141R”). SFAS 141R establishes principles andrequirements for how an acquirer of a business recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any noncontrolling interest in the acquiree and the goodwill acquired.SFAS 141R also establishes disclosure requirements to enable theevaluation of the nature and financial effects of the business combination.SFAS 141R is effective for acquisitions in fiscal years beginning after December 15,2008 and will be adopted by the Company on December 30, 2008.

 

In February 2007, the FASB issued SFAS No. 159, “The FairValue Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 allows companies to measure manyfinancial assets and liabilities at fair value. It also establishespresentation and disclosure requirements designed to facilitate comparisonsbetween companies that choose different measurement attributes for similartypes of assets and liabilities.  SFAS159 is effective for financial statements issued for fiscal years beginningafter November 15, 2007 and interim periods within those fiscalyears.  The adoption of SFAS 159 is notexpected to have a material impact on the Company’s financial position, resultsof operations or cash flows.

 

F-20

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

InSeptember 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “FairValue Measurements.”  SFAS 157 definesfair value, establishes a framework for measuring fair value and requiresenhanced disclosures about fair value measurements.  SFAS 157 is effective for fiscal yearsbeginning after November 15, 2007. Subsequently, the FASB provided for a one-year deferral of theprovisions of SFAS 157 for non-financial assets and liabilities that arerecognized or disclosed at fair value in the consolidated financial statementson a non-recurring basis.  The Company iscurrently evaluating the impact of adopting the provisions of SFAS 157 fornon-financial assets and liabilities that are recognized or disclosed on anon-recurring basis.  The Company doesnot expect this guidance for financial assets and liabilities to have amaterial impact on the Company’s consolidated financial position and results ofoperations.

 

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

** **

***Long-Term Debt***

Long-term debt is comprised of the following (inthousands):

 
| ** **                                                                                                                                          | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                          | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| 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 |   |

 

The Senior Secured Notesrank senior in right of payment to all subordinated indebtedness of the Companyand rank equal in right of payment with all existing and future seniorindebtedness of the Company.  The Senior SecuredNotes are secured by all of the tangible and intangible assets of the Companyand its subsidiaries.

 

The Senior Secured Notesare redeemable at the option of the Company anytime on or after March 15,2008.  The Senior Secured Notes requirethe Company to offer to repurchase a portion of the notes at 100 percentof the principal amount, plus accrued and unpaid interest thereon to the dateof purchase, with 50 percent of the Company’s “excess cash flow,” asdefined in the indenture agreement, when the ratio of the Company’s NetIndebtedness to Consolidated EBITDA is above 3.75 to 1.0 and the cumulativeunpaid excess cash flow offer amount exceeds $10.0 million.  In the event of a change in control, theholders of the Senior Secured Notes will have the right to put the notes to theCompany at 101 percent of their principal amount, plus accrued and unpaidinterest, provided at least 65 percent of the aggregate principal amountof the Senior Secured Notes originally issued remain outstanding.

 

F-21

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

The Senior Secured Notescontain certain covenants that limit among other things, the ability of theCompany and its subsidiaries to (i) incur additional indebtedness; (ii) makecertain investments or enter into sale and leaseback transactions; (iii) paydividends, redeem subordinated debt, repurchase the Company’s or itssubsidiaries stock or make any other restricted payments as defined in theindenture; (iv) enter into certain transactions with affiliates; (v) createor incur liens; (vi) transfer or sell assets; (vii) make dividends,distributions or other payments from the Company’s subsidiaries; (viii) consummatea merger, consolidation or sale of all or substantially all of our assets; and (ix) engagein unrelated business.  The Company’sIndenture governing its Senior Secured Notes restricts the Company’s use of theproceeds from an asset sale to make an investment in similar assets, makeinvestments in the Company or after 361 days use the net proceeds to make anoffer to pay down long-term debt.

 

***Capital Lease Obligations***

The Company has acquiredequipment under various capital leases. Capital lease obligations are comprised of the following (in thousands):

 
| ** **                                        | ** ** | **Fiscal Year Ended** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
| ** **                                        | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Capital lease obligations                         |       | $                     | 411        |   | $ | 504 |   |
| Less current portion of capital lease obligations |       | (87                   | )          | (119 | ) |
| Long-term portion of capital lease obligations    |       | $                     | 324        |   | $ | 385 |   |

 

As of December 29,2007, the future minimum lease payments, including interest, for capital leaseobligations are as follows (in thousands):

 
| **Fiscal Year**                             | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008                                        |       | $          | 131        |   |
| 2009                                        |       | 98         |       |
| 2010                                        |       | 92         |       |
| 2011                                        |       | 91         |       |
| 2012                                        |       | 88         |       |
| Thereafter                                  |       | 28         |       |
| Total minimum lease payments                |       | 528        |       |
| Less amount representing  interest          |       | (117       | )          |
| Present value of net minimum lease payments |       | $          | 411        |   |

 

**6.  Income Taxes**

** **

***Provision for Income Taxes***

The components of theprovision (benefit) for income taxes are as follows (in thousands):

 
| ** **                                  | ** ** | **Fiscal Year Ended** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **December 29,** | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **                                  | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current                                     |       |                  |       |   |   |   |   |
| Federal                                     |       | $                     | 6,038      |   | $ | (2,648 | ) | $ | 693 |   |
| State                                       |       | 944                   |       | — |   | 150 |   |
| Foreign                                     |       | 39                    |       | 48 |   | 36 |   |
|                                        |       | 7,021                 |       | (2,600 | ) | 879 |   |
|                                        |       |                  |       |   |   |   |   |
| Deferred                                    |       |                  |       |   |   |   |   |
| Federal                                     |       | (521                  | )          | 156 |   | (3,061 | ) |
| State                                       |       | (107                  | )          | 31 |   | (626 | ) |
|                                        |       | (628                  | )          | 187 |   | (3,687 | ) |
| Total provision (benefit)  for income taxes |       | $                     | 6,393      |   | $ | (2,413 | ) | $ | (2,808 | ) |

 

F-22

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

The differences betweenincome taxes at the U.S. federal statutory income tax rate and income taxesreported in the consolidated statements of operations are as follows (inthousands):

 
| ** **                                       | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **December 29,** | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **                                       | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Income taxes computed at  federal statutory rate |       | $                     | 1,594      |   | $ | (8,276 | ) | $ | (13,843 | ) |
| State income taxes                               |       | 801                   |       | (21 | ) | (315 | ) |
| Goodwill and intangibles                         |       | 4,706                 |       | 4,984 |   | 11,301 |   |
| Foreign taxes                                    |       | —                |       | 48 |   | — |   |
| Valuation allowance -  Federal                   |       | (753                  | )          | 1,089 |   | — |   |
| Other                                            |       | 45                    |       | (237 | ) | 49 |   |
|                                             |       | $                     | 6,393      |   | $ | (2,413 | ) | $ | (2,808 | ) |

 

The significantcomponents of the Company’s deferred tax assets and liabilities are as follows(in thousands):

 
| ** **                                                      | ** ** | **December 29,** | ** ** | **December 30,** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|------------|------------|
| ** **                                                      | ** ** | **2007**              | ** ** | **2006**              | ** ** | ** ** | ** ** |
| Deferred tax assets -  current:                                 |       |                  |       |                  |       |       |       |
| Allowance for doubtful accounts                                 |       | $                     | 133        |                  | $          | 454        |       |   |   |
| Deferred revenues                                               |       | 3                     |       | 29                    |       |       |       |
| Accrued expenses                                                |       | 258                   |       | 330                   |       |       |       |
| Net unrealized loss on marketable securities available-for-sale |       | 99                    |       | —                |       |       |       |
| Other                                                           |       | 395                   |       | 347                   |       |       |       |
| Deferred tax assets - current                                   |       | 888                   |       | 1,160                 |       |       |       |
| Valuation allowance                                             |       | (178                  | )          | (426                  | )          |       |       |
| Net deferred tax assets - current                               |       | $                     | 710        |                  | $          | 734        |       |   |   |
|                                                            |       |                  |       |                  |       |       |       |
| Deferred tax liabilities -  long-term:                          |       |                  |       |                  |       |       |       |
| Intangibles                                                     |       | $                     | (1,422     | )                     | $          | (1,754     | )          |   |   |
| Other                                                           |       | (18                   | )          | (58                   | )          |       |       |
| Deferred tax liabilities - long-term                            |       | (1,440                | )          | (1,812                | )          |       |       |
|                                                            |       |                  |       |                  |       |       |       |
| Deferred tax assets -  long-term:                               |       |                  |       |                  |       |       |       |
| Loan costs                                                      |       | 949                   |       | 1,262                 |       |       |       |
| Reserves                                                        |       | 29                    |       | 372                   |       |       |       |
| Depreciation                                                    |       | 731                   |       | 452                   |       |       |       |
| Net operating loss and carryforwards                            |       | —                |       | 395                   |       |       |       |
| Investments                                                     |       | 703                   |       | —                |       |       |       |
| Other                                                           |       | 340                   |       | 397                   |       |       |       |
| Deferred tax assets - long-term                                 |       | 2,752                 |       | 2,878                 |       |       |       |
| Net deferred tax asset - long-term                              |       | 1,312                 |       | 1,066                 |       |       |       |
| Valuation allowance                                             |       | (552                  | )          | (1,057                | )          |       |       |
| Net deferred tax assets - long-term                             |       | $                     | 760        |                  | $          | 9          |       |   |   |

 

F-23

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

A valuationallowance is provided when it is more-likely-than-not that all or some of thedeferred income tax assets will not be realized.  Based upon the level of historical taxableincome and projections for future taxable income over the periods in which thetemporary differences are deductible, the Company has determined a valuationallowance is necessary of $730,000 and $1.5 million at December 29, 2007and December 30, 2006, respectively. The net change in valuation allowance for the years ended December 29,2007 and December 30, 2006 was a decrease of $753,000 and an increase of$1.5 million, respectively.

 

TheCompany recognizes deferred income tax assets or liabilities for expectedfuture tax consequences of events that have been recognized in the consolidatedfinancial statements or tax returns. Under this method, deferred income tax assets or liabilities aredetermined based upon the difference between the financial statement and incometax bases of assets and liabilities using enacted tax rates expected to applywhen differences are expected to be settled or realized.

 

On March 16, 2004the Company entered into a tax allocation agreement with MFC pursuant to whichit agreed to make payments to MFC, after taking into account payments theCompany makes directly to tax authorities, based on its hypotheticalstand-alone consolidated federal income tax liability, determined as if theCompany and its subsidiaries constituted its own consolidated group for federalincome tax purposes. The Company is not permitted to make payments under thetax allocation agreement in respect of its hypothetical consolidated federaltaxable income, to the extent that such payments exceed the consolidatedfederal income taxes (including estimated taxes) payable in respect of MFC’sconsolidated federal income tax group, until and only while our ratio of NetIndebtedness to Consolidated EBITDA (each as defined in the indenture governingthe Senior Secured Notes) is less than 3.75:1.0 and the Company is otherwise incompliance with the terms of the indenture governing the Senior Secured Notes.

 

In fiscal year 2007, theCompany was required to make a payment to MFC of $400,000 for the portion ofMFC’s consolidated federal income tax liability attributable to theCompany.  Additionally, the taxallocation agreement with MFC does not allow for the carry-back of netoperating losses.  Under the taxallocation agreement, the Company’s net operating losses must be carriedforward when determining payment to MFC. As a result, the current benefit of the federal net operating loss of$2.4 million was recorded as a contribution from parent.

 

**7.  Long-Term Incentive Plans**

** **

***Phantom Stock Plan***

The Board of Directors ofMFC (the “Board of Directors”) adopted the Phantom Stock Plan of Mrs. Fields’Companies, Inc. (the “Phantom Plan”). The purpose of the Phantom Plan is to provide long-term incentives tokey employees of MFC or its subsidiaries (the “Participants”) as determined bythe Compensation Committee of the Board of Directors (the “Committee”).  The Phantom Plan is unfunded and Participantsdo not receive any payment under the Phantom Plan until the completion of thefirst to occur of (i) a sale of substantially all of the assets of MFC; (ii) apublic offering of MFC’s Common Stock where MFC receives proceeds, net of anyunderwriter’s discounts and expenses, of not less than $50 million; or (iii) anystock 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 receiveperformance units in amounts recommended by the CEO and determined by theCommittee.  Once issued, performanceunits may only be forfeited upon certain events, such as a participant’svoluntary termination or termination for cause. Additionally, the Phantom Plan may be terminated by the Board of Directorsat anytime at its sole discretion.  Uponthe completion of a Triggering Event, Participants receive payments reflectingthe number and value of their performance units at the time of the completionof the Triggering Event.  Payments toParticipants may be made in cash or through

 

F-24

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

issuance of equitysecurities of MFC, as determined by the Committee, at which time compensationexpense will be recognized.  The value ofa performance unit at the completion of a Triggering Event is the value of oneshare of common stock of MFC as determined in good faith by the Board 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 orcombinations involving MFC’s Common Stock will proportionately affect thenumber of performance units that have been awarded under the Phantom Plan.  In May 2004, the Committee approved thegrant of up to 392,418 performance units allocated among Participants asdetermined by the Committee.  In March 2006,the Committee approved the grant of up to 182,274 additional units toParticipants identified by the Committee, resulting in total authorized grantsof up to 574,692 performance units. During the year ended December 29, 2007, no performance units weregranted to Participants.  Future grants,if any, shall also be determined by the Committee.  As of December 29, 2007, a total of460,130 performance units are issued and outstanding.

 

Effective January 1,2006, the Company adopted 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”)issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS123(R).  The Company has applied theprovisions of SAB 107 in its adoption of SFAS 123(R).

 

Prior to January 1,2006, the Company applied Accounting Principles Board Opinion No. 25 (“APB25”), “Accounting for Stock Issued to Employees,” and related interpretations,and adopted the disclosure-only provisions of SFAS No. 123 (“SFAS 123”), “Accountingfor Stock-Based Compensation.”  Under APB25, no compensation expense was recognized in net income for grants under thePhantom Plan prior to fiscal year 2006.

 

SFAS 123(R) appliesto all of the Company’s outstanding grants under the Phantom Plan.  There are no other share-based payment awardsoutstanding.

 

Compensation costs forthe grants under the Phantom Plan will be recognized upon the completion of aTriggering Event.  Accordingly, nocompensation costs have been recognized in the consolidated statement ofoperations and comprehensive loss for the year ended December 29, 2007.

 

Effective September 1,2004, MFC terminated its Employee Stock Option Plan pursuant to the provisionsof the plan.  No further options will begranted under the plan.  Valid andoutstanding options granted to plan participants prior to termination wereunaffected by the termination.  At December 30,2006 there were 10,000 stock options outstanding.  These options expired without exercise in March 2007.

 

***Director StockOption Plan***

Members of the Company’s Board ofManagers, other than officers of the Company, are qualified to participate inMFC’s Director Stock Option Plan.  UnderMFC’s Director Stock Option Plan, a committee of the Board of MFC is authorizedto administer the Plan and has the power, among other things, to grant awardsof options for common stock of MFC to outside directors of MFC and itssubsidiaries, including the Company.  MFC’sDirector Stock Option Plan provides for the issuance of time vested options,which vest 25.0 percent per year on the anniversaries of the dates onwhich they are granted and vest in full upon a change of control of MFC or theCompany.  A total of 100,000 shares ofcommon stock of MFC are reserved for issuance under MFC’s Director Stock OptionPlan and as of December 29, 2007 there were outstanding options providingfor the issuance of up to 60,672 of those shares.

 

F-25

----

 

**MRS. FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

During fiscal year 2006, thenon-executive Managers received 11,930 stock option grants.  During fiscal year 2007, there were noadditional stock option grants awarded to the non-executive managers***.*** Common stock of MFC issued under the Director Stock Option Plan issubject to customary restrictions on transfer. The adoption of SFAS 123(R) did not have a material impact on theCompany’s consolidated financial statements.

 

**8.   Commitments and Contingencies**

** **

***Legal Matters***

The Company and its products are subjectto regulation by numerous governmental authorities, including withoutlimitation, federal, state and local laws and regulations governingfranchising, health, sanitation, environmental protection, safety and hiringand employment practices.

 

In the ordinary course of business, theCompany is involved in routine litigation, including franchise disputes andtrademark disputes.  The Company is not aparty to any legal proceedings (including the matter described below), which,in the opinion of management, after consultation with legal counsel, ismaterial to its business, financial condition or results of operations.

 

Effective August 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, servicemarks and trade names in distribution channels designated in the LicenseAgreements.  In May 2006, the Courtof Chancery of the State of Delaware ruled in the Company’s favor on all issuesin the litigation filed by Shadewell in October 2005 against MFF.

 

***Operating Leases***

The Company leases officespace, facilities and equipment under long-term non-cancelable operating leaseagreements with remaining terms of one to ten years.  Rent expense, net of sublease payments, was$2.6 million, $2.1 million and $1.3 million for the years ended December 29,2007, December 30, 2006 and December 31, 2005, respectively.

 

As of December 29,2007, the future minimum lease payments due under operating leases are asfollows (in thousands):

 
| **Fiscal Year** | ** ** | ** ** | ** ** |
|-----------------|------------|------------|------------|
| 2008            |       | $          | 2,423      |   |
| 2009            |       | 2,496      |       |
| 2010            |       | 2,523      |       |
| 2011            |       | 1,624      |       |
| 2012            |       | 1,227      |       |
| Thereafter      |       | 3,966      |       |
|            |       | $          | 14,259     |   |

 

F-26

----

** **

**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes toConsolidated Financial Statements**

***(continued)***

 

As of December 29, 2007, the future minimum subleasepayments due to the Company under these operating leases are as follows (inthousands):

 
| **Fiscal Year** | ** ** | ** ** | ** ** |
|-----------------|------------|------------|------------|
| 2008            |       | $          | 236        |   |
| 2009            |       | 150        |       |
| 2010            |       | 115        |       |
| 2011            |       | 29         |       |
|            |       | $          | 530        |   |

 

***Contractual Arrangements***

The Company has enteredinto a supply agreement to purchase frozen dough products, which stipulatesminimum annual purchase commitments of not less than 12.5 million poundsof products, approximately $14.8 million based on weighted average prices ineffect December 29, 2007, each year through the end of the contract,December 2011.  These annualpurchase commitments are satisfied primarily through the direct purchase offrozen dough products by franchisees. Should the Company not meet the annual minimum commitment, thesupplier's sole remedy, at its option, is to negotiate with us in good faith onthe conversion cost based on market prices in the industry.

 

The supplier of thefrozen dough product manufactures its products in one location. A productiondisruption or the supplier's inability to secure the raw materials used in theproduction of its products could adversely affect the operating results of theCompany and its franchisees.  Althoughmanagement believes that other suppliers could provide similar products oncomparable terms, a change in suppliers could cause a delay in manufacturingand a possible loss of sales, which could adversely affect the financialposition, results of operations or liquidity of the Company and itsfranchisees.

 

During FY 2006,TCBY entered into two new Supply Agreements, both dated effective December 5,2006 to replace TCBY's former relationship with Americana Foods LP("Americana").  The first SupplyAgreement, between TCBY and Scott Brothers Dairy, Inc. ("ScottBrothers"), provides for manufacturing of TCBY's soft-serve frozen yogurtproducts.  The second Supply Agreement,between TCBY and Yarnell Ice Cream Company, Inc. ("Yarnell"),provides for manufacturing of TCBY's hand-scooped frozen yogurt products.  Under the Supply Agreements, Scott Brothersand Yarnell make the frozen yogurt products available to TCBY's designateddistributors, who purchase 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.

 

 

F-27

----

 

**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes toConsolidated Financial Statements**

***(continued)***

*** ***

**9.   Related-PartyTransactions**

** **

***Amounts Due To Affiliates***

The amounts due toaffiliates are comprised of amounts due to MFOC, MFH and MFC (in thousands):

 
| ** **                    | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|-------------------------------|------------|------------------|------------|------------------|------------|
| ** **                    | ** ** | **2007**         | ** ** | **2006**         | ** ** |
| Amounts due from  affiliates: |       |             |       |             |       |
| MFC                           |       | $                | 56         |             | $          | — |   |
| Amounts due to affiliates:    |       |             |       |             |       |
| MFC - tax sharing             |       | $                | 7,336      |             | $          | 3,166 |   |
| MFOC                          |       | —           |       | 349              |       |
| MFH                           |       | 274              |       | 273              |       |
|                          |       | $                | 7,610      |             | $          | 3,788 |   |

 

***Management Agreement with MFOC***

The Company operatesunder a management agreement with MFOC, pursuant to which the Company providesbusiness and organizational strategy, financial and investment management andother executive-level management services to MFOC and its subsidiaries (otherthan the Company) upon the terms and subject to the conditions set forth in themanagement agreement.  As compensationfor these services, MFOC reimbursed the Company on a monthly basis theallocated costs of the fixed general and administrative functions plus thevariable general and administrative functions dedicated to the providing ofthese services as determined 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.  Thereimbursement amounts decreased over time as MFOC reduced its store operations.  MFOC operates one retail store and as a result,the Company provided insignificant services to MFOC and did not collect areimbursement under this management agreement during fiscal year 2007.

 

The management agreementalso provides that any amounts received by a party to the management agreementthat, pursuant to its terms, is the property of the other party, promptly shallbe remitted to such other party.  It isintended that the management agreement will continue in effect until theexpiration of all store leases for which MFOC is the lessee.  For the years ended December 29, 2007,December 30, 2006 and December 31, 2005, MFOC reimbursed the Company $0,$512,000 and $2.4 million, respectively, for management services provided underthe management agreement.

 

***Franchise Agreements with MFOC***

During 2004, certain ofthe Company's brand franchisor subsidiaries entered into franchise agreementswith MFOC, which permit MFOC to sell and distribute the Company's products inMFOC's owned stores upon payment of franchise royalties and other amountsrequired under the franchise agreements. These franchise agreements are similar to the Company's standard form offranchise agreement, except that the Company did not charge MFOC an up-frontfranchising fee for stores open as of the date of the franchise agreements inrecognition of the fact that the stores owned and operated by MFOC wereoperated prior to giving effect to the reorganization.

 

 

F-28

----

 

**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes toConsolidated Financial Statements**

***(continued)***

 

The aggregate amount offranchise royalties paid to the Company by MFOC for the years ended December29, 2007, December 30, 2006 and December 31, 2005 was $16,000, $120,000 and$689,000, respectively.  As of December29, 2007, MFOC no longer operates stores under these franchise agreements.

 

***MFOC Sublease***

During 2004, the Companyentered into an assignment agreement whereby the lease for the corporateheadquarters was assigned from MFOC to the Company.  MFOC then entered into a sublease with theCompany and will pay the Company, over the term of the sublease, agreed rentalpayments that have been established based on estimated usage of theheadquarters by their personnel.  For theyears ended December 29, 2007, December 30, 2006 and December 31, 2005, MFOCpaid rent of $0, $93,000 and $289,000, respectively, to the Company.  Since MFOC has largely ceased its operations,no rental payments are expected to be received from MFOC under this agreementin fiscal year 2008.

 

***MFOC Collection Agency Agreement***

During 2004, the Companyentered into a collection agency agreement with MFOC under which the Companyagreed to act as MFOC's collection agent for subtenant rental payments made bythe Company's franchisees who operate stores previously owned by MFOC on whichMFOC remains as the tenant.  The Companydoes not separately charge MFOC for this service, rather, the performance ofthis service is considered part of the management agreement with MFOC.

 

***Insurance Allocation Agreement with MFC***

During 2004, 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 ofMFC's subsidiaries that generates payroll. For the years ended December 29, 2007, December 30, 2006 and December31, 2005, the Company paid MFC $1.2 million, $1.1 million and $1.3 million,respectively, for the Company's share of insurance costs.  Cash payments made by the Company to MFCunder the insurance allocation agreement are permitted under the Indenture anddo not decrease dividends or payments that may be made to parent entities ofthe Company under the Indenture's available baskets.

 

***Benefits Agreement with MFOC***

During 2004, the Companyentered into a benefits agreement with MFOC under which the Company agreed tomake certain payments to MFOC in respect to the Company's share of employeebenefits costs based on the number of the Company's employees.  Costs associated with the Company's employeesproviding services to MFOC under the management agreement are allocatedconsistent with the shared expenses under the management agreement.  For the years ended December 29, 2007,December 30, 2006 and December 31, 2005, the Company paid MFOC $3.1million,$3.3 million and $2.9 million, respectively, for the Company's share ofemployee benefits costs.  Cash paymentsmade by the Company to MFOC under the benefits agreement are permitted under theIndenture and do not decrease dividends or payments that may be made to parententities of the Company under the Indenture's available baskets.

 

 

F-29

----

 

**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

*** ***

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

Prior to 2004, theCompany had entered into various trademark license agreements and exclusivelylicensed certain recipes to Nonni's Food Company, Inc.("Nonni's"), a manufacturer and distributor of soft bakedcookies.  In addition, the Company ownedwarrants to purchase 111,111 shares of Nonni's common stock at an exerciseprice of $10.775.   In March 2004,Nonni's was acquired by a third party investor in a stock purchase (the"Nonni's Purchase").  As partof the Nonni's Purchase, in consideration for the sale of the warrants topurchase 111,111 shares of Nonni's common stock, the Company was to receive anaggregate of $1.3 million, of which approximately $200,000 was being held in anescrow account pending post-closing adjustments related to the Nonni'sPurchase.   As a result, the Companyrecorded a gain on the sale of these warrants of $1.1 million in other incomein the consolidated statement of operations during the year ended January 1,2005.  The Company received $122,000 inJanuary 2006 from Nonni's as final settlement related to the amount previouslyheld in escrow and recorded a gain on the sale of the warrants in other incomein the consolidated statement of operations and comprehensive income (loss)during fiscal year 2006.

 

Immediately prior to theNonni's Purchase, the Mrs. Fields product division of Nonni's and itsrelated assets were contributed to a newly-formed entity, Shadewell GroveHoldings, LLC ("Shadewell Holdings"). The Company received from Shadewell Holdings its pro-rata share ofpreferred units in Shadewell Holdings, approximately 4.1 percent, as if thewarrants in Nonni's common stock had been exercised immediately prior theNonni's purchase.

 

During March 2005, theCompany paid Shadewell Holdings approximately $48,000 for additional preferredunits of Shadewell Holdings to maintain its pro-rata ownership of ShadewellHoldings.  This investment was writtenoff to loss on sale of non-marketable securities during the year ended December30, 2006.  The Company has appointed oneof its executive officers, to represent the Company as a director of ShadewellHoldings.

 

Shadewell, a wholly ownedsubsidiary of Shadewell Holdings, had licenses to develop, manufacture anddistribute ready-to-eat shelf stable cookie products utilizing the Mrs. Fieldstrademarks, service marks and trade names through retail distribution channelsand designated food service distribution channels.  Shadewell also has a license to market anddistribute high quality, pre-packaged chocolate chips utilizing the Mrs. Fieldstrademarks, service marks and trade names through designated retaildistribution channels.  For the yearsended December 29, 2007, December 30, 2006 and December 31, 2005, the Companyearned royalty and licensing revenues associated with the licensing and recipesales agreements of $58,000, $420,000 and $2.3 million, respectively.

 

In December 2004, theCompany terminated the license agreement with Shadewell to market anddistribute high quality, frozen cookie dough products utilizing the Mrs. Fieldstrademarks, service marks and trade names to the food away from home industrythrough designated food service distribution channels.  Among other reasons, the Company pursued thetermination of this license to better align the Company's interests with thoseof the Company's franchisees.  TheCompany paid Shadewell a termination fee of $1.1 million and in return receivedfrom Shadewell an indemnification and release of any and all claims arisingfrom the license agreement.  Thetermination fee was recorded in licensing expenses in the consolidatedstatement of operations for the year ended January 1, 2005.

 

F-30

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

*** ***

Until June 2006,Shadewell continued to operate under the terminated License Agreements.  During June 2006, MFF and Shadewell enteredinto a consulting agreement (the "Shadewell Consulting Agreement")whereby Shadewell employees would provide consulting and training services toMFF employees through August 2006 to assist MFF in establishing its ownbusiness selling products through designated retail distribution channels.  The Shadewell Consulting Agreement wasextended through October 2006.  Shadewellreceived for its services a fee of $395,000, which was paid during the thirdquarter of fiscal year 2006.

 

In July 2006, MFF beganoperating its branded retail business, including selling products to retailcustomers directly or through brokers, purchasing inventory from contractmanufacturers and arranging for distribution of products to thesecustomers.  As a result, managementanticipates the use of significant cash to operate the business.

 

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

Americana was owned by anentity in which a limited partner of the entity is a subsidiary of asignificant shareholder of MFC. Americana manufactured yogurt-based products, ice cream and noveltyitems for sale and distribution to TCBY's franchisees and distributors underthe TCBY Supply Agreement dated November 19, 2002 (the "ExclusiveSupply Agreement").  During fiscalyear 2006, TCBY was notified that CB Americana, LLC, the general partner ofAmericana, 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.  Americana was the principal supplier ofTCBY's frozen yogurt products under the Exclusive Supply Agreement.  Production of TCBY products at Americana hasceased in connection with the Involuntary Petition.

 

 In addition, Americana owed TCBY approximately $585,000 for amountscollected by Americana on behalf of TCBY for product sold and for decreases inthe price of commodities that TCBY was entitled to receive from Americana underthe Supply Agreement.  During thethird quarter of fiscal year 2006, TCBY recorded bad debt expense ofapproximately $585,000 and has written off this receivable.

 

Under the TCBY SupplyAgreement, the Company recognized revenues related to the product manufacturedby Americana of $0, $8.6 million and $9.6 million for the years endedDecember 29, 2007, December 30, 2006 and December 31, 2005, respectively.In addition, Americana sold TCBYbranded frozen specialty products and private label products through retailchannels and paid TCBY a portion of the sales price under the TCBY SupplyAgreement.  TCBY invoiced Americana $0,$606,000 and $711,000 for the years ended December 29, 2007, December 30, 2006and December 31, 2005, respectively, relating to TCBY's portion of thesesales.  As a result of these sales, TCBYreimbursed Americana for certain costs. Americana invoiced TCBY $0, $45,000 and$180,000 for the fiscal years ended December 29, 2007, December 30, 2006 andDecember 31, 2005, respectively, relating to the reimbursement of these costs.

 

**10.  Employee Benefit Plans**

** **

MFOC sponsors theMrs. Fields' Original Cookies, Inc. 401(k) Retirement Savings Plan(the "Plan") for all eligible employees of MFOC and itssubsidiaries.  Under the terms of thePlan, employees may make contributions to the Plan.  For the years ended December 29, 2007,December 30, 2006 and December 31, 2005, a portion of the employeecontributions to the Plan were matched by contributions from the Company at therate of 100 percent of the first three percent of employee contributionsplus 50 percent of the next two percent of employee contributions.  The total matching contributions made by theCompany to the Plan for the years ended December 29, 2007, December 30, 2006and December 31, 2005 were approximately $350,000, $405,000 and $349,000,respectively.

** **

 

F-31

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

 

**11.  Reportable Segments**

** **

Operating segments arecomponents of the Company for which separate financial information is availablethat is evaluated regularly by management in deciding how to allocate resourcesand assess performance.  This informationis reported on the basis that it is used internally for evaluating segmentperformance.  As discussed in Note 1, theCompany changed its reporting segments as a result of the reorganization of theCompany’s business units.

 

 The Company has the following six operating segments:

 
| Mrs. Fields Gifts  Mrs. Fields Branded Retail  Mrs. Fields Franchising  Mrs. Fields Licensing |        | (collectively “Mrs. Fields”) |
|-------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|
| GAC/Pretzels  Dairy                                                                                               |   |                                        |

 

 The accounting policies for the segments are the same as thosediscussed in the summary of significant accounting policies (see Note 3).  Sales and transfers between segments areeliminated in consolidation.

 

The Mrs. Fields Giftsoperating segment includes sales generated from the Company's gift catalog andwebsite.

 

The Mrs. Fields BrandedRetail operating segment includes sales generated directly from the sale ofMrs. Fields products through various retail channels.  As previously discussed, the Companycommenced selling shelf stable cookies in July 2006 directly through retailchannels following the termination of certain license agreements.  Prior to this time, our branded retailactivities consisted only of sales of Mrs. Fields branded cookie dough directlythrough retail channels.

 

The Mrs. FieldsLicensing operating segment includes licensing activity with third parties forthe sale of products bearing the Company's brand names.

 

The Mrs. FieldsFranchising, GAC/Pretzels and Dairy operating segments include 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 Companyevaluates performance of each operating segment based on contribution.  Contribution is computed as the differencebetween the revenues generated by a reportable segment and the selling andoccupancy expenses, cost of sales and direct operating expenses related to thatreportable operating segment. Contribution is used as a measure of the operating performance of anoperating segment.  The Company does notallocate any general and administrative expenses, interest expense, ordepreciation and amortization to its reportable operating segments.

 

 

F-32

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

*** ***

Segment revenues andcontribution are presented in the following table (in thousands):

 
| ** **                 | ** ** | **Fiscal Year Ended** | ** ** |
|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **December 29,**      | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| **Total Company**          | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues:                  |       |                  |       |   |   |   |   |
| Mrs. Fields Gifts          |       | $                     | 31,046     |   | $ | 30,708 |   | $ | 30,136 |   |
| Mrs. Fields Branded Retail |       | 19,625                |       | 10,989 |   | 272 |   |
| Mrs. Fields Franchising    |       | 7,754                 |       | 8,494 |   | 9,234 |   |
| Mrs. Fields Licensing      |       | 919                   |       | 1,838 |   | 4,016 |   |
| Total Mrs. Fields          |       | 59,344                |       | 52,029 |   | 43,658 |   |
|                       |       |                  |       |   |   |   |   |
| GAC/Pretzels               |       | 28,891                |       | 31,832 |   | 29,711 |   |
| Dairy                      |       | 9,743                 |       | 12,727 |   | 14,583 |   |
|                       |       |                  |       |   |   |   |   |
|                       |       | $                     | 97,978     |   | $ | 96,588 |   | $ | 87,952 |   |
| Contribution:              |       |                  |       |   |   |   |   |
| Mrs. Fields Gifts          |       | $                     | 3,778      |   | $ | (1,671 | ) | $ | 1,718 |   |
| Mrs. Fields Branded Retail |       | 1,086                 |       | (408 | ) | 53 |   |
| Mrs. Fields Franchising    |       | 4,815                 |       | 6,031 |   | 6,406 |   |
| Mrs. Fields Licensing      |       | 928                   |       | 427 |   | 2,884 |   |
| Total Mrs. Fields          |       | 10,607                |       | 4,379 |   | 11,061 |   |
| GAC/Pretzels               |       | 14,236                |       | 16,826 |   | 15,428 |   |
| Dairy                      |       | 3,834                 |       | 6,298 |   | 10,006 |   |
|                       |       |                  |       |   |   |   |   |
|                       |       | $                     | 28,677     |   | $ | 27,503 |   | $ | 36,495 |   |

 

The reconciliation ofcontribution to net income (loss) before income tax provision (benefit) isas follows (in thousands):

 
| ** **                                               | ** ** | **For the Fiscal Year Ended** | ** ** |
|----------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                               | ** ** | **December 29,**              | ** ** | **December 30,** | ** ** | **December 31,** | ** ** |
| ** **                                               | ** ** | **2007**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Contribution                                             |       | $                             | 28,677     |   | $ | 27,503 |   | $ | 36,495 |   |
| Other revenues                                           |       | 90                            |       | — |   | — |   |
| General and administrative  expenses                     |       | (10,721                       | )          | (11,803 | ) | (8,585 | ) |
| Depreciation and  amortization                           |       | (4,665                        | )          | (4,553 | ) | (3,976 | ) |
| Impairment of goodwill                                   |       | —                        |       | (14,568 | ) | (43,707 | ) |
| Gain on sale of land held  for sale                      |       | 128                           |       | — |   | — |   |
| Gain on sale of intangible  assets                       |       | 12,222                        |       | — |   | — |   |
| Interest expense, net                                    |       | (21,047                       | )          | (20,892 | ) | (20,943 | ) |
| Other expense                                            |       | —                        |       | (28 | ) | — |   |
| Other, net                                               |       | 3                             |       | — |   | — |   |
| Income (loss) before income tax provision (benefit) |       | $                             | 4,687      |   | $ | (24,341 | ) | $ | (40,716 | ) |

 

 

F-33

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

Segment assets are asfollows (in thousands):

 
| ** **                      | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                      | ** ** | **2007**         | ** ** | **2006**         | ** ** |
| Mrs. Fields Gifts               |       | $                | 8,777      |             | $          | 11,703 |   |
| Mrs. Fields Branded Retail      |       | 2,925            |       | 3,157            |       |
| Mrs. Fields Franchising         |       | 9,960            |       | 10,538           |       |
| Mrs. Fields Licensing           |       | 2,261            |       | 3,476            |       |
| Total Mrs. Fields               |       | 23,923           |       | 28,874           |       |
| GAC/Pretzels                    |       | 45,799           |       | 59,829           |       |
| Dairy                           |       | 5,388            |       | 7,359            |       |
| Total Segment Identified Assets |       | 75,110           |       | 96,062           |       |
| Non-Segment Identified Assets   |       | 45,688           |       | 25,658           |       |
| Total Assets                    |       | $                | 120,798    |             | $          | 121,720 |   |

 

The fixed assets andinventories of the Company primarily relate to the Company's GAC manufacturingfacility, branded retail segment, gifts business segment and relatedactivities.  Assets relating tofranchising and licensing activity are primarily amounts due from franchiseesand licensees and intangible assets, such as trademarks, trade names, recipes,franchise relationships and goodwill relating to franchising concepts.

 

Revenues fromfranchisees, customers and licensees within the United States were $93.4million, $93.0 million and $86.5 million or 95.2 percent, 96.3 percent and 98.3percent of total revenues for the years ended December 29, 2007, December 30,2006 and December 31, 2005, respectively.

 

Revenues frominternational franchisees, customers and licensees were $4.7 million, $3.6million and $1.5 million or 4.8 percent, 3.7 percent and 1.7 percent of totalrevenues for the years ended December 29, 2007, December 30, 2006 and December31, 2005, respectively.  Revenues fromany single foreign country were not material. Providing geographical information regarding long-lived assets isimpracticable.

 

The Mrs. Fields Gifts operatingsegment has one customer that accounted for approximately $4.2 million, $4.0million and $3.6 million, or 13.4 percent, 13.0 percent and 11.8 percentof revenues for the years ended December 29, 2007, December 30, 2006 andDecember 31, 2005, respectively.  Noother customers accounted for more than five percent of Mrs. Fields Giftsoperating segment revenues.

 

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

 

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

 

Our licensing segment, for fiscal year 2007, 2006 and2005, respectively, has:

 

·                   a licensee thataccounted for approximately $543,000, $565,000 and $684,000 or 59.1 percent,30.7 percent and 17.0 percent of the revenues of the licensing segment;

·                   a licensee thataccounted for approximately $127,000, $0 and $0 or 13.8 percent, 0 percent and 0 percent of the revenues of thelicensing segment ;and

·                   a licensee thataccounted for approximately $120,000, $120,000 and $97,000 or13.1 percent,6.5 percent and 2.4 percent of the revenuesof the licensing segment.

 

F-34

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**MRS.FIELDS FAMOUS BRANDS, LLC**

**Notes to the Consolidated Financial Statements**

***(continued)***

*** ***

**12.   SupplementalCondensed Consolidating Financial Information**

 

The Senior Secured Noteswere issued by the Company and Mrs. Fields Financing Company, Inc.("MFFI"), as co-issuers.  MFFIis a wholly 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.

 

**13.   Subsequent Event**

* *

On January 29, 2008 (the "GAC Closing Date"), theCompany and its wholly owned subsidiaries, GAC, completed the sale of substantially all of the assets of GAC to NexCenpursuant to an asset purchase agreement (the "GAC Agreement").  The total purchase price, subject tocustomary closing adjustments, is $93.6 million (the "GACTransaction"), which consists of $89.0 million in cash and 1,099,290shares of NexCen Brands common stock valued at $4.23 per share, and we expect torecord a gain on this transaction in the first quarter of fiscal year2008.  The net proceeds from the sale ofGAC is considered restricted cash and will be reflected as restricted cash inthe Company’s consolidated financial statements.  Under the terms of the GAC Agreement, theNexCen Brands common stock is to be held in escrow for six months, pendingsatisfaction of certain conditions as described in the GAC Agreement.  Additionally, the Company was required to pay$6.7 million of the GAC Transaction proceeds to certain of GACCF’s franchiseesat the GAC Closing Date, in satisfaction of rights they held in connection withthe sale of the GAC franchise system, as described in a Settlement and ReleaseAgreement (the "Release") signed as of the Closing Date, by and amongsuch franchisees, NexCen Brands, GACCF, Mrs. Fields andMFOC.  As of December 29, 2007, GACs’ assets and liabilitiesconsisted of:

 

·                   accountsreceivables of $2.7 million:

·                  Inventoriesof $1.1 million;

·                  property andequipment of $700,000;

·                  Goodwill of$41.1 million;

·                  Prepaid and otherassets of $379,000;

·                  $1.3 millionof accounts payable and accrued liabilities; and

·                  capital leaseobligations of $22,000

 

 

F-35

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