As filed with the Securities and Exchange Commission on September 8, 1999 Registration No. 333-67389 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Amendment No. 2 to Form S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Mrs. Fields' Great American The Mrs. Pretzelmaker Pretzel Time, Original Cookie Company, Fields' Brand, Holdings, Inc. Inc. Cookies, Inc. Inc. Inc. (Exact name of (Exact name (Exact name of (Exact name of (Exact name of Registrant as of Registrant Registrant as Registrant as Registrant as specified in as specified in specified in specified in its charter) specified in its charter) its charter) its charter) its charter) DELAWARE DELAWARE DELAWARE DELAWARE (State or other DELAWARE (State or other (State or other (State or other jurisdiction of (State or jurisdiction of jurisdiction of jurisdiction of incorporation other incorporation incorporation incorporation or jurisdiction or or or organization) of organization) organization) organization) incorporation or organization) 6749 6749 6749 6749 (Primary Standard Industrial (Primary (Primary (Primary Standard Standard Standard 6749 Industrial Industrial Industrial Classification (Primary Classification Classification Classification Code Number) Standard Code Number) Code Number) Code Number) Industrial Classification Code Number) 84-1298591 87-0552899 58-1295221 87-0563472 (I.R.S. Employer (I.R.S. (I.R.S. (I.R.S. Employer Employer Employer Identification 87-0499982 Identification Identification Identification No.) (I.R.S. No.) No.) No.) Employer Identification No.) 2855 East 2855 East 2855 East 2855 East Cottonwood Cottonwood Cottonwood Cottonwood Parkway, Parkway, Parkway, Parkway, Suite 400, Salt 2855 East Suite 400, Salt Suite 400, Salt Suite 400, Salt Lake City, Cottonwood Lake City, Lake City, Lake City, Utah 84121 Parkway, Utah 84121 Utah 84121 Utah 84121 (801) 736-5600 Suite 400, (801) 736-5600 (801) 736-5600 (801) 736-5600 (Address, Salt Lake (Address, (Address, (Address, including zip City, including zip including zip including zip code and Utah 84121 code and code and code and telephone (801) 736- telephone telephone telephone number, 5600 number, number, number, including area (Address, including area including including area code, of including zip code, area code, of code, of Registrant's code and of Registrant's Registrant's Registrant's principal telephone principal principal principal executive number, executive executive executive offices) including offices) offices) offices) area code, of Registrant's principal executive offices) Michael Ward, Michael Ward, Michael Ward, Michael Ward, Esq. Esq. Esq. Esq. Pretzelmaker Great American The Mrs. Holdings, Inc. Vice President, Cookie Company, Fields' Brand, General Counsel Inc. Inc. 2855 East Cottonwood Michael Ward, Mrs. Fields' 2855 East 2855 East Parkway, Esq. Original Cottonwood Cottonwood Suite 400, Salt Pretzel Time, Cookies, Inc. Parkway, Parkway, Lake City, Inc. 2855 East Suite 400, Salt Suite 400, Salt Utah 84121 2855 East Cottonwood Lake City, Lake City, (801) 736-5600 Cottonwood Parkway, Utah 84121 Utah 84121 (Name, address, Parkway, Suite 400, Salt (801) 736-5600 (801) 736-5600 including zip Suite 400, Lake City, (Name, address, (Name, address, code, and Salt Lake Utah 84121 including zip including zip telephone City, (801) 736-5600 code, and code, and number, Utah 84121 (Name, address, telephone telephone including area (801) 736- including zip number, number, code, of 5600 code, and including area including area agents for (Name, telephone code, code, of service) address, number, of agents for agents for including zip including area service) service) code, and code, of agents telephone for service) number, including area code, of agents for service) copies to: Randall H. Doud, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 (212) 735-3000 -------------- Approximate Date of Commencement of Proposed Sale to the Public: -------------- As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- <TABLE> <CAPTION> Proposed Proposed Amount maximum maximum Amount of Title of each class of to be offering price aggregate registration securities to be registered registered per unit offering price fee ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> The Mrs. Fields' Brand, Inc. Guarantee with respect to 10 1/8% Series B Senior Notes due 2004 ----------------------------------------------------------------------------------------------------------- Great American Cookie Company, Inc. Guarantee with respect to 10 1/8% Series B Senior Notes due 2004 ----------------------------------------------------------------------------------------------------------- Pretzelmaker Holdings, Inc. Guarantee with re- spect to 10 1/8% Series B Senior Notes due 2004 ----------------------------------------------------------------------------------------------------------- Pretzel Time, Inc. Guarantee with respect to 10 1/8% Series B Senior Notes due 2004 </TABLE> ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- -------------- The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ------------------------------------------------------------------------------- -------------------------------------------------------------------------------

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and is not soliciting an offer to buy these + +securities in any state where the offer or sale is prohibited. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ MRS. FIELDS' ORIGINAL COOKIES, INC. PROSPECTUS (Subject to completion) , 1999 Exchange Offer for $53,725,000 10 1/8% Series B Senior Notes due 2004 Guaranteed by The Mrs. Fields' Brand, Inc. Great American Cookie Company, Inc. Pretzelmaker Holdings, Inc. and Pretzel Time, Inc. Terms of the Exchange Offer <TABLE> <S> <C> . Expires 12:00 midnight, . The notes mature on New York City time, December 1, 2004, and pay , 1999, unless interest on June 1 and extended. December 1 of each year, beginning on June 1, . Not subject to any 1999. condition other than that the exchange offer not . We will not receive any violate applicable law or proceeds from the any interpretation of the exchange offer. staff of the Securities and Exchange Commission. . The exchange of notes will not be a taxable . We can amend or terminate exchange for U.S. income the exchange offer. tax purposes. . We will exchange all . The terms of the notes to outstanding notes that be issued are identical are validly tendered and to those of the not validly withdrawn. outstanding notes, except for transfer restrictions . You may withdraw tendered and registration rights. outstanding notes any time before the expiration of the exchange offer. . The notes are senior unsecured debt and are guaranteed. The guarantees are senior general unsecured obligations of the guarantors. </TABLE> For a discussion of specific risks that you should consider before tendering your outstanding notes in the exchange offer, see "Risk Factors" beginning on page 13. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. , 1999

TABLE OF CONTENTS <TABLE> <CAPTION> Page ---- <S> <C> Prospectus Summary....................................................... 4 Summary Historical and Pro Forma Financial and Store Data................ 10 Risk Factors............................................................. 13 Forward-Looking Information.............................................. 23 The Transactions......................................................... 24 Recent Developments...................................................... 26 Use of Proceeds.......................................................... 26 Capitalization........................................................... 27 The Exchange Offer....................................................... 28 Selected Historical Financial Data....................................... 35 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 38 Where You Can Find More Information...................................... 61 Business................................................................. 62 Management............................................................... 76 Beneficial Ownership of Capital Stock.................................... 81 Certain Relationships and Related Transactions........................... 82 Description of Notes..................................................... 85 Description of Certain Indebtedness...................................... 117 Plan of Distribution..................................................... 117 United States Federal Income Tax Considerations.......................... 119 Legal Matters............................................................ 119 Experts.................................................................. 119 Unaudited Pro Forma Condensed Combined Financial Statements.............. P-1 Index to Historical Financial Statements................................. F-1 </TABLE> ---------------- The registrant's principal executive offices are located at 2855 East Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, and their telephone number is (801) 736-5600. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or incorporated by reference in this prospectus. We are not making offers to exchange notes in the exchange offer or soliciting offers to exchange outstanding notes in any jurisdiction in which an offer or solicitation is not authorized or in which the person making an offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make an offer or solicitation. 3

PROSPECTUS SUMMARY The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus contains specific terms of the notes we are offering, as well as information regarding our business and detailed financial data. We encourage you to read this prospectus in its entirety. The Exchange Offer Registration Rights Holders of 10 1/8% Series C Senior Notes due 2004 are Agreement.............. entitled to exchange their notes for Series B registered notes with substantially identical terms. The exchange offer is intended to satisfy these rights. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your notes. We are also making the exchange offer available to holders of Series A 10 1/8% Senior Notes due 2004. The Exchange Offer...... We are offering to exchange $1,000 principal amount of 10 1/8% Series B Senior Notes due 2004 of Mrs. Fields' Original Cookies, Inc. which have been registered under the Securities Act, for each $1,000 principal amount of our 10 1/8% Series A Senior Notes due 2004 issued in November 1997 and 10 1/8% Series C Senior Notes due 2004 issued in August 1998. The outstanding notes were issued in private offerings. The registered notes will have guarantees that are identical in all material respects to the guarantees on the unregistered notes. All outstanding notes that are validly tendered and not validly withdrawn will be exchanged. As of this date there are $53,725,000 of outstanding notes that are eligible to be exchanged in the exchange offer. We will issue notes registered under the Securities Act on or promptly after the expiration of the exchange offer. Resales................. We believe that you can offer for resale, resell and otherwise transfer the notes issued in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act if: . you acquire the notes in the ordinary course of your business; . you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the notes; . you are not an "affiliate" of ours, as defined in Rule 405 of the Securities Act. If any of these conditions is not satisfied and you transfer any new notes without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We do not assume or indemnify you against this liability. 4

Each broker-dealer acquiring notes issued in the exchange offer for its own account in exchange for outstanding notes, which it acquired through market- making or other trading activities, must acknowledge that it will deliver a proper prospectus when any notes issued in the exchange offer are transferred. A broker-dealer may use this prospectus for an offer to resell, a resale or other retransfer of the notes issued in the exchange offer. Expiration Date.... The exchange offer will expire at 12:00 midnight, New York City time, on , 1999, unless we decide to extend the expiration date. Conditions to the Exchange Offer.... The exchange offer is subject to customary conditions, some of which we may waive. Procedures for Tendering Notes Held in the Form of Book-Entry Interests... Most of the outstanding notes were issued as global securities and were deposited upon issuance with The Bank of New York. The Bank of New York issued certificateless depositary interests in those outstanding notes, which represents a 100% interest in those notes, to The Depository Trust Company. Beneficial interests in the outstanding notes, which are held by direct or indirect participants in The Depository Trust Company through the certificateless depositary interests, are shown on, and transfers of the notes can be made only through, records maintained in book-entry form by The Depository Trust Company. You may tender your outstanding notes: . through a computer-generated message transmitted by The Depository Trust Company's Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book- entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal; or . by sending a properly completed and signed letter of transmittal, which accompanies this prospectus, and other documents required by the letter of transmittal, or a facsimile of the letter of transmittal and other required documents, to the exchange agent at the address on the cover page of the letter of transmittal; and either: . a timely confirmation of book-entry transfer of your outstanding notes into the exchange agent's account at The Depository Trust Company, under the procedure for book-entry transfers described in this prospectus under the heading "The Exchange Offer--Book Entry Transfers" must be received by the exchange agent on or before the expiration date; or . the documents necessary for compliance with the guaranteed delivery described in "The Exchange Offer--Guaranteed Delivery Procedures" must be received by the exchange agent. 5

Procedures for Tendering Notes Held in the Form of Registered Notes....... If you hold registered notes, you must tender your registered notes by sending a properly completed and signed letter of transmittal, together with other documents required by it, and your certificates, to the exchange agent, in accordance with the procedures described in this prospectus under the heading "The Exchange Offer--Procedures for Tendering Notes." Withdrawal Rights....... You may withdraw your tender of outstanding notes at any time prior to 12:00 midnight, , 1999. United States Federal Income Tax Considerations......... The exchange offer should not result in any income, gain or loss to the holders or Mrs. Fields for United States federal income tax purposes. See "United States Federal Income Tax Considerations." Use of Proceeds......... We will not receive any proceeds from the issuance of notes in the exchange offer. The proceeds from the offering of notes in August 1998 were used to finance the acquisition of Great American Cookie Company, Inc., other acquisitions, and a tender offer for outstanding Great American notes. Exchange Agent.......... The Bank of New York is serving as the exchange agent for the exchange offer. Shelf Registration Statement.............. In limited circumstances, holders of notes may require us to register their notes under a shelf registration statement. 6

The Company Overview Mrs. Fields is one of the largest retailers in the premium snack-food industry, with cookies and pretzels as its major product lines. Based on numbers of retail units, Mrs. Fields is the largest retailer of baked on- premises cookies and the second largest retailer of baked on-premises pretzels in the United States. Mrs. Fields is one of the most widely recognized and respected brand names in the premium cookie industry. Mrs. Fields has recently developed a significant presence in the rapidly growing, health-oriented pretzel market. Mrs. Fields operates and franchises stores located predominantly in shopping malls, and also licenses kiosks and carts at airports, universities, stadiums, hospitals and office building lobbies. How We Have Done For the 52 weeks ended January 2, 1999, Mrs. Fields generated pro forma net revenue and EBITDA of $191.2 million and $20.7 million, respectively. Actual net revenue and EBITDA for the 53 weeks ended January 3, 1998 was $134 million and $18.8 million, respectively. Mrs. Fields generated pro forma net revenue and EBITDA of $92,640 and $10,334, respectively, during the 26 weeks ended July 4, 1998 and actual net revenue and EBITDA of $84,165 and $10,318, respectively, during the 26 weeks ended July 3, 1999. EBITDA consists of earnings before depreciation, amortization, interest, income taxes, minority interest, preferred stock accretion and dividends of subsidiaries and other income or expense. Pro Forma Information Pro forma information is not indicative of actual results and may not be indicative of future results. We have presented pro forma information throughout this prospectus, however, because we believe that the changes to our business since 1996 make the pro forma information more meaningful to you. Our condensed pro forma combined statements of operations data in this prospectus give effect to: 1. our offering of notes in August 1998 2. the acquisitions of Great American and the capital stock and stores of some Great American franchisees, 3. an offering of units consisting of notes and warrants to purchase common stock by Mrs. Fields' Holding Company, Inc., the parent company of Mrs. Fields, and a capital contribution from Mrs. Fields' Holding to Mrs. Fields and 4. the acquisitions of the capital stock of Pretzelmaker Holdings Inc., and Cookie Conglomerate Inc. as if all of these transactions had occurred on January 4, 1998. Our Strategy Our objective is to increase sales and profitability by focusing on continuing company-owned stores. An additional objective is to increase sales and profitability at both our continuing company-owned and franchised stores in prime locations by implementing the key elements of our long-term business strategy. The key elements of our business strategy are as follows: . Enhance Quality of Company-Owned Store Base. . Improve Productivity of Continuing Company-Owned Stores. . Capitalize on the Strong Mrs. Fields Brand Name. . Develop the Great American Brand Name. . Capitalize on the Strong Pretzel Time Brand Name. . Develop New Company-Owned and Franchised Stores, including Internationally. . Realize Purchasing and Overhead Cost Savings As a Result of Recent Acquisitions. . Pursue Further Strategic Acquisitions of Related Businesses. 7

SUMMARY DESCRIPTION OF NOTES The form and terms of the notes to be issued in the exchange offer are the same as the form and terms of the outstanding notes except that the notes to be issued in the exchange offer have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain the registration rights and liquidated damages provisions contained in the outstanding notes. The notes issued in the exchange offer will evidence the same debt as the outstanding notes and both the outstanding notes and the notes to be issued in the exchange offer are governed by the same indenture. Aggregate Amount ....... $53,725,000 in principal amount of 10 1/8% Series B Senior Notes due 2004 of Mrs. Fields' Original Cookies, Inc. Maturity Date........... December 1, 2004. Interest Payment June 1 and December 1 of each year, commencing June Dates.................. 1, 1999. Guarantee............... The notes issued in the exchange offer will be guaranteed by our wholly owned subsidiaries, The Mrs. Fields' Brand, Inc., Great American Cookie Company, Inc., Pretzelmaker Holdings, Inc. and Pretzel Time, Inc. The guarantees: . will be identical in all material respects to the guarantees on the outstanding notes . are general unsecured obligations of the guarantors . rank senior in right of payment to all subordinated indebtedness of the guarantors . rank equal in right of payment with all existing and future senior indebtedness of the guarantors Our existing and future subsidiaries may also become guarantors in the future. You should read "Description of Notes--the Guarantees." Ranking................. The notes being issued in the exchange offer: . are general unsecured obligations of Mrs. Fields . rank senior in right of payment to all subordinated indebtedness of Mrs. Fields . rank equal in right of payment with all existing and future senior indebtedness of Mrs. Fields As of July 3, 1999, we had no indebtedness that ranked equal in right of payment with the notes that we will issue in the exchange offer. The notes that we will issue will be effectively subordinated to: . all secured debt of Mrs. Fields, . all secured debt of the guarantors, and . all debt of our subsidiaries that are not guarantors of the notes 8

We and our guarantors together currently have $11.6 million of debt that effectively ranks senior to the notes. Optional Redemption..... At our option, we may redeem the notes at any time on or after December 1, 2001. In addition, at any time before November 20, 2001, we may redeem up to 35% of the total principal amount of notes ever issued under the indenture with the net cash proceeds of one or more equity offerings to the public. Our optional redemption prices for the notes are contained in this prospectus under the heading "Description of Notes-- Optional Redemption." Change of Control....... Upon the occurrence of a change of control of ownership of the stock or assets of Mrs. Fields, the holders of notes have the right to require us to repurchase their notes at a purchase price equal to 101% of their total principal amount on the date of purchase, plus accrued interest to the date of repurchase. For more information, see "Description of Notes--Repurchase at the Option of Holders--Change of Control." Certain Covenants....... The indenture under which the outstanding notes have been and the new notes will be issued contains certain covenants that, among other things and subject to exceptions, restrict our ability to: . pay dividends . redeem capital stock . make restricted payments or investments . incur additional indebtedness . issue preferred equity interests . merge, consolidate or sell all or substantially all of our assets . create liens on assets . sell assets . enter into transactions with affiliates or related persons. All of these limitations and prohibitions are subject to a number of important qualifications and exceptions. For more information, see "Description of Notes--Certain Covenants." Form of Notes Issued in the Exchange Offer .... The notes issued in the exchange offer with respect to notes currently represented by global securities will be represented by one or more permanent global securities in bearer form deposited with The Bank of New York, as book-entry depositary, for the benefit of The Depository Trust Company. Notes that are issued in the exchange offer that have been exchanged for notes in the form of registered definitive certificates will be issued in the form of registered definitive certificates until holders direct otherwise. For more information, see "Description of Notes--Book-Entry, Delivery and Form." 9

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND STORE DATA The following table presents: (1) summary historical financial and store data for Mrs. Fields and its predecessors; namely, Mrs. Fields Inc. and subsidiaries, The Original Cookie Company, Incorporated and the pretzel business of Hot Sam Company, Inc., as of December 28, 1996 and for the 52-weeks then ended; (2) summary consolidated historical financial and store data for Mrs. Fields as of January 3, 1998 and January 2, 1999 and for the 53 weeks ended January 3, 1998, the 52 weeks ended January 2, 1999 and the 26 weeks ended July 4, 1998 and July 3, 1999; and (3) summary combined pro forma financial and store data for Mrs. Fields, Great American, Deblan, Chocolate Chip, the eight Great American stores purchased from a Great American franchisee, Cookie Conglomerate and Pretzelmaker for the 52 weeks ended January 2, 1999 as if each of the following had occurred as of January 4, 1998: . the Mrs. Fields' offering in August 1998, . the acquisition of Great American, . the acquisition of the stock of two Great American franchisees, . the acquisition of eight Great American stores, . the tender offer for outstanding Great American notes, . the offering of units consisting of notes and warrants of Mrs. Fields' Holding and the capital contribution of the net proceeds from the units offering to Mrs. Fields in August 1998, . and the acquisitions of Cookie Conglomerate and Pretzelmaker The summary combined pro forma data do not purport to represent what Mrs. Fields' results actually would have been had the above mentioned transactions occurred as of January 4, 1998 nor do these data purport to project the results of Mrs. Fields for any future period. The summary historical and pro forma financial and store data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the "Unaudited Pro Forma Condensed Combined Financial Statements," "Selected Historical Financial Data," and the historical financial statements and related notes, contained elsewhere in this Registration Statement. The following information will also assist you in understanding the Mrs. Fields and predecessors historical combined financial and store data: . On September 17, 1996, Mrs. Fields completed the acquisitions of substantially all of the assets and assumed certain liabilities of the predecessors. . The historical combined data for the 52 weeks ended December 28, 1996 reflects the combined results of the predecessors (for the period December 31, 1995 through September 17, 1996) and Mrs. Fields (for the period September 18, 1996 through December 28, 1996). Information for these periods for the predecessors and Mrs. Fields are set out separately in the "Selected Historical Financial Data" but are combined here. This presentation is not in conformity with generally accepted accounting principles. . In order for the data to be comparable for the periods presented, some of the statements of operations data for the predecessors has been reclassified to be consistent with the Mrs. Fields historical financial statement presentation. 10

<TABLE> <CAPTION> Mrs. Fields and Predecessors Mrs. Fields ---------------- -------------------------------------------------------------- Historical Historical Historical Pro Forma Historical Historical Combined Consolidated Consolidated Combined Consolidated Consolidated ---------------- ------------ ------------ --------- ------------ ------------ 52 Weeks 53 Weeks Ended Ended 52 Weeks Ended 26 Weeks Ended December January January January July 4, July 3, 28, 1996 3, 1998 2, 1999 2, 1999 1998 1999 ---------------- ------------ ------------ --------- ------------ ------------ (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Statement of Operations Data: Net store and food sales.................. $126,330 $127,845 $140,235 $171,689 $ 58,687 $ 71,915 Net store and food contribution(1)........ 19,308 25,044 20,166 21,015 6,915 8,686 Franchising and licensing, net......... 5,103 6,563 14,001 19,557 2,971 11,562 General and administrative expenses............... 20,557 16,192 19,017 26,488 8,587 10,873 Store closure provision.............. -- 538 7,303 7,303 -- -- Income (loss) from operations............. 1,135 8,415 (5,389) (4,909) (1,536) (945) Net loss................ (5,988) (974) (19,143) (22,471) (7,301) (10,099) Other Data: Cash flows from operating activities... 6,784 919 9,429 8,967 (3,306) 2,708 Cash flows from investing activities... (22,716) (15,505) (40,894) (41,260) (4,270) (2,704) Cash flows from financing activities... 18,793 24,164 19,929 18,853 (445) (110) Interest expense........ 4,842 7,830 13,197 17,123 5,626 8,686 Total depreciation and amortization........... 9,192 10,403 19,820 25,582 6,197 11,263 Capital expenditures.... 3,892 4,678 8,235 N/A 3,342 2,604 EBITDA(2)............... 10,327 18,818 14,431 20,673 4,661 10,318 Negative store contribution for stores in the process of being closed or franchised(1).......... $ (1,933) $ (1,798) $ (2,054) $ (2,284) $ (1,605) $ (863) Ratio of earnings to fixed charges(3)....... -- -- -- -- -- -- Store Data: Percentage change in comparable store sales(4)............... (1.2)% 0.6% (1.6)% NA (1.5)% (0.4)% Total company-owned stores open at end of period................. 482 481 566 566 470 492 Total franchised or licensed stores open at end of period.......... 418 553 972 972 554 1,001 </TABLE> <TABLE> <CAPTION> Mrs. Fields Historical Consolidated July 3, 1999 ---------------------- (Dollars in thousands) <S> <C> Balance Sheet Data: Cash and cash equivalents.............................. $ 4,645 Total assets........................................... 219,313 Mandatorily redeemable cumulative preferred stock of subsidiary............................................ 1,440 Total line of credit, debt and capital lease obligations, including current portion................ 151,026 Total stockholder's equity............................. 32,579 </TABLE> See footnotes on following page 11

<TABLE> <CAPTION> Mrs. Fields and Predecessors Mrs. Fields ---------------- ------------------------------------------------------------- Historical Historical Historical Pro Forma Historical Historical Combined Consolidated Consolidated Combined Consolidated Consolidated ---------------- ------------ ------------ --------- ------------ ------------ 52 Weeks 53 Weeks Ended Ended 52 Weeks Ended 26 Weeks Ended December January January January July 4, July 3, 28, 1996 3, 1998 2, 1999 2, 1999 1998 1999 EBITDA Data: ---------------- ------------ ------------ --------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> (Dollars in thousands) Income (loss) from operations............. $ 1,135 $ 8,415 $(5,389) $(4,909) $(1,536) $ (945) ADD: Depreciation and amortization.......... 9,192 10,403 19,820 25,582 6,197 11,263 ------- ------- ------- ------- ------- ------- EBITDA................. $10,327 $18,818 $14,431 $20,673 $ 4,661 $10,318 ======= ======= ======= ======= ======= ======= </TABLE> -------- (1) Store contribution is determined by subtracting all store operating expenses including depreciation from net store sales. Management uses store contribution information to measure operating performance at the store level. Store contribution for stores in the process of being closed or franchised as a separate caption is not in accordance with generally accepted accounting principles. Store contribution may not be comparable to other similarly titled measures. (2) EBITDA consists of earnings before depreciation, amortization, interest, income taxes, minority interest, preferred stock accretion and dividends of subsidiaries and other income or expense. EBITDA is not intended to represent cash flows from operations as defined by generally accepted accounting principles and should not be considered as an alternative to net income (loss) as an indicator of operating performance or to cash flows as a measure of liquidity. EBITDA has been included in this prospectus because it is one of the indicators by which Mrs. Fields assesses its financial performance and its capacity to service its debt. (3) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense on all indebtedness (whether paid or accrued and net of debt premium amortization), including the amortization of debt issuance costs and original issue discount, noncash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with capital lease obligations, letter of credit commissions, fees or discounts and the product of all dividends and accretion on mandatorily redeemable cumulative preferred stock multiplied by a fraction, the numerator of which is one and the denominator of which is one minus the current combined federal, state and local statutory tax rate. For fiscal year 1996, earnings were insufficient to cover fixed charges by $3,985,000. For the 53 weeks ended January 3, 1998 and the 52 weeks ended January 2, 1999, Mrs. Fields' earnings were insufficient to cover fixed charges by $319,000 and $18,827,000, respectively. For the 26 weeks ended July 4, 1998 and July 3, 1999 earnings were insufficient to cover fixed charges by $7,287,000 and $9,889,000, respectively. For the 52 weeks ended January 2, 1999, pro forma combined earnings were insufficient to cover pro forma combined fixed charges by $22,565,000. (4) Mrs. Fields includes in comparable store sales only those stores that have been in operation for a minimum of 24 consecutive months. The percentage change in comparable store sales is calculated from the previous period. 12

RISK FACTORS You should consider carefully all of the information in this prospectus, including the following risk factors and warnings, before deciding whether to exchange your outstanding notes for the notes to be issued in the exchange offer. Except for the first three risk factors described below, the risks factors generally apply to the outstanding notes as well as to the notes to be issued. You may have difficulty selling the notes which you do not exchange, since outstanding notes will continue to have restrictions on transfer and cannot be sold without registration under securities laws or exemptions from registration If a large number of outstanding notes are exchanged for notes issued in the exchange offer, it may be difficult for holders of outstanding notes that are not exchanged in the exchange offer to sell the notes, since those notes may not be offered or sold unless they are registered or there are exemptions from registration requirements under the Securities Act or state laws that apply to them. In addition, if there are only a small number of notes outstanding, there may not be a very liquid market in those old notes. There may be few investors that will purchase unregistered securities in which there is not a liquid market. See "The Exchange Offer--Consequences of Failure to Exchange Notes." In addition, if you do not tender your outstanding notes or if we do not accept some outstanding notes, those notes will continue to be subject to the transfer and exchange provisions of the indenture and the existing transfer restrictions of the outstanding notes that are described in the legend on such notes and in the offering circulars relating to the outstanding notes. If you do not exchange your outstanding notes in the exchange offer, you will no longer be entitled to an increase in interest payments on outstanding notes that the indenture provides for if we fail to complete the exchange offer Once the exchange offer has been completed, holders of outstanding 10 1/8% Series C Senior Notes due 2004 will not be entitled to any increase in the interest rate on their notes, which the indenture provides for if we fail to complete the exchange offer. Holders of outstanding notes will not have any further rights to have their outstanding notes registered, except in limited circumstances, once the exchange offer is completed. Holders of other outstanding notes are not entitled to any increase in the interest rate on their notes, regardless of whether the exchange offer is completed. If you exchange your outstanding notes, you may not be able to resell the notes you receive in the exchange offer without registering them and delivering a prospectus You may not be able to resell notes you receive in the exchange offer without registering those notes or delivering a prospectus. Based on interpretations by the Commission in no-action letters, we believe, with respect to notes issued in the exchange offer, that: . holders who are not "affiliates" of Mrs. Fields within the meaning of Rule 405 of the Securities Act, . holders who acquire their notes in the ordinary course of business, and . holders who do not engage in, intend to engage in, or have arrangements to participate in a distribution (within the meaning of the Securities Act) of the notes do not have to comply with the registration and prospectus delivery requirements of the Securities Act. Holders described in the preceding sentence must tell us in writing at our request that they meet these criteria. Holders that do not meet these criteria could not rely on interpretations of the Commission in no-action letters, and would have to register the notes they receive in the exchange offer and deliver a prospectus for them. In addition, holders that are broker-dealers may be deemed "underwriters" within the meaning of the Securities Act in connection with any resale of notes acquired in the exchange offer. Holders that are broker-dealers must acknowledge that they acquired their outstanding notes in market-making activities or other 13

trading activities and must deliver a prospectus when they resell the notes they acquire in the exchange offer in order not to be deemed an underwriter. You should review the more detailed discussion in "The Exchange Offer-- Procedures for Tendering Notes and Consequences of Exchanging Outstanding Notes." We have substantial debt, which could adversely affect our financial results and prevent us from fulfilling our debt obligations, including those under the notes We incurred a substantial amount of debt to finance the purchase of Great American and the other companies and assets we acquired. We continue to have a substantial amount of debt. Our substantial indebtedness could have important consequences to you. For example: . we may not be able to satisfy our obligations with respect to the notes; . a substantial portion of our cash flows from operations will be required to be dedicated to debt service and will not be available for other purposes; . our ability to obtain additional financing in the future could be limited; . the indenture contains financial and restrictive covenants that limit our ability to, among other things, borrow additional funds, dispose of assets or pay cash dividends. If we do not comply with these covenants, there could be an event of default, which, if not cured or waived, could have a material adverse effect on us; and . the amount of debt that we have could prevent us from repurchasing all the notes tendered to us upon the occurrence of a change of control of our stock or assets. See "Description of Notes--Repurchase at the Option of Holders--Change of Control." The following chart shows important credit statistics: <TABLE> <CAPTION> At July 3, 1999 ------------ <S> <C> Total indebtedness of Mrs. Fields and subsidiaries............. $151 million </TABLE> Of this indebtedness, $11.6 million was senior to the notes. The number includes liabilities for leases of $1.7 million and preferred stock required to be repurchased at a future date of $1.4 million outstanding, together representing 1.4% of our total liabilities and equity. Substantially all of our subsidiaries' debt is effectively senior to the notes. <TABLE> <S> <C> Stockholders' equity.......................................... $ 32.6 million Debt to equity ratio.......................................... 4.6 to 1 </TABLE> Moreover, in recent periods our earnings have not been sufficient to cover our fixed charges. <TABLE> <CAPTION> 26 weeks ended July 3, 1999 -------------- <S> <C> Approximate deficiency in earnings to fixed charges presented on a combined basis............................. $ 9.9 million </TABLE> Additional borrowings available--despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt; this could further exacerbate the risks described above Although the indenture and our existing credit agreement with LaSalle National Bank limits our ability and that of our subsidiaries to incur additional indebtedness and issue preferred stock, including secured 14

indebtedness, we can incur additional indebtedness and issue preferred stock. This can include secured indebtedness, which effectively ranks senior to the notes with respect to the assets securing indebtedness. See "Unaudited Pro Forma Condensed Combined Financial Statements," and "Description of Notes-- Certain Covenants." We currently plan to incur additional debt for working capital purposes, which will be effectively senior to the notes. Ability to service debt--to service our debt, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control Our ability to make scheduled payments of principal, or to pay interest on, or to refinance our indebtedness, including the notes, depends on our future performance. In turn, our future performance depends partly on general economic, financial, competitive, legislative, regulatory and other factors beyond our control. These include possible legislation and regulations affecting franchise businesses or retail food businesses and minimum wage legislation that affects businesses like ours that rely heavily on minimum-wage employees, demographic or economic trends that could affect mall traffic that our business depends on, and food retailing trends, which could include declining interest in products that are perceived as less healthful. We cannot be sure that our business will generate enough cash flows from operations or that future borrowings will be available in an amount that will allow us to pay principal and interest on our indebtedness, including the notes, or to make necessary capital expenditures, or to allow us to obtain refinancing on commercially reasonable terms or at all. In particular, the fact that we have incurred substantial debt in recent years, coupled with the highly seasonal nature of our business, creates a particular risk that large interest payments will come due at a time when the cash flow from our business will not cover them. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The notes are effectively subordinated to the debt of our credit agreement We entered into an Amended and Restated Loan Agreement, as amended, dated as of February 28, 1998, with LaSalle National Bank for $15.0 million under which we pledged substantially all of our assets as security for amounts that we may borrow under the agreement, including all of the capital stock of Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel Time. As a result of the pledge, the notes are effectively subordinated to our obligations under the agreement with respect to our assets, including proceeds from those assets. If there is a default on the notes, or we go into bankruptcy, liquidation or reorganization, we would have to use our assets to make payments under the agreement (or any successor or additional financing) before we could use the assets to make payments on the notes. If there is not enough collateral granted under the agreement with LaSalle National Bank (or any successor or additional financing) to pay amounts owing under the agreement, LaSalle National Bank would be entitled to share any amount available for payment with you and other of our creditors. Currently our agreement with LaSalle National Bank would permit borrowing of up to $15.0 million, subject to certain debt incurrence limitation ratios, and all of those borrowings, since they are secured, would be effectively senior to the notes and the guarantees. See "Description of Certain Indebtedness." A default under our credit agreement could cause a default under the notes The agreement with LaSalle National Bank contains restrictive covenants similar to those in the indenture, requiring us to comply with financial ratios. If we are not able to comply with these and other provisions of the agreement because of events beyond our control, there could be a default under the agreement, as a result of which LaSalle National Bank could elect to declare all amounts borrowed under the agreement, together with accrued interest, to be due and payable. If we are unable to repay those borrowings, LaSalle National Bank could proceed against the assets that we have pledged. The acceleration of indebtedness under the agreement with LaSalle National Bank may constitute an event of default under the notes which could also give rise to an acceleration under the notes. If the indebtedness under the agreement is accelerated as a result of a breach of a covenant, we cannot be sure that we would have enough assets to repay in full that indebtedness and our other 15

indebtedness, including the notes, or that we could continue to operate our business as a result of the acceleration. Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel Time have guaranteed amounts under the agreement with LaSalle National Bank as well as the notes, and we cannot be sure that their guarantees would be sufficient for both sets of obligations. We may not be able to extend or renew the credit agreement or obtain alternative financing; because our business and cash flow are highly seasonal, if we do not have a working capital facility, we may not have enough cash to meet our working capital needs at all times during our fiscal year The agreement with LaSalle National Bank, which is designed to provide us seasonal working capital, will expire on March 31, 2001. We cannot be sure that we will be able to extend or renew the agreement or obtain alternative financing to meet our seasonal working capital needs when the agreement expires. If we do not have a revolving credit facility in place, we may not be able to satisfy our seasonal working capital needs, which would have a material adverse effect on us and our results of operations. Our stock has been pledged by Mrs. Fields' Holding; a default on the Mrs. Fields' Holding notes could trigger a change of control of Mrs. Fields; we may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture Mrs. Fields' Holding, our parent company, has pledged all of our outstanding common stock to secure its obligations under its notes. If Mrs. Fields' Holding defaults on its notes, there could be a foreclosure on our common stock, and the foreclosure would constitute a change of control which would result in an event of default permitting acceleration under the agreement with LaSalle National Bank and the indenture. The change of control would also permit you to require us to repurchase any or all of the notes held by you. We may not have enough resources to repay in full borrowings under the agreement with LaSalle National Bank and to repurchase all of the notes required to be repurchased. We have incurred net losses during the past several years; we may continue to have losses if our business strategies do not succeed We and our predecessors have incurred net losses during the past several years. Although we have put into place new business strategies aimed at enhancing revenues and operating results and we have recorded positive EBITDA since our formation in September 1996, economic, financial, competitive, legal and other factors, many of which are beyond our control, can affect our operations. We cannot be sure that we will be able to put into place our planned strategies without delay or that these strategies will result in future profitability. See "Selected Historical Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our growth strategy is based on acquisitions, which may not provide the desired economic benefits if we are unable to integrate our businesses so as to achieve efficiencies from increased volumes of production We have achieved growth through acquisitions such as the acquisition of Great American and some of its franchisees and their stores, the acquisitions of Pretzel Time and Pretzelmaker, and the business of H&M and Cookie Conglomerate and intend to continue doing so. While we believe there are significant opportunities for cost savings and volume efficiencies as a result of acquisitions, we cannot be sure that these acquisitions will provide the expected opportunities and economic benefits. Many factors beyond our control, such as general economic conditions, increased operating costs, our response to customers or competitors, and regulatory developments, can affect our ability to realize economic benefits from prior acquisitions and/or any future acquisitions as well as our ability to integrate successfully our businesses with any acquired businesses. Consequently, we cannot be sure that these acquisitions will result in the economic benefits that management expects on a timely basis or at all. See "Business--Business Strategy." 16

We may not be able to obtain leases in the future; our success depends in part on our ability to obtain leases in high quality shopping malls at reasonable rents Our success depends in part on our ability to secure leases in high quality shopping malls at rents we believe to be reasonable. Approximately half of the leases for such stores expire during the next 5 years and generally do not provide for renewal options in our favor. In addition, we currently plan to open approximately 375 new-company owned and franchise stores over the next 5 years. We believe that the market for the type of locations historically leased by us is highly competitive and, as a result, we cannot be sure that we will succeed in obtaining such leases in the future at rents that we believe to be reasonable or at all. See "Business--Properties." We have continuing obligations under real estate leases; if we close an unprofitable store but must still make lease payments on it, we will lose money We lease locations for all the stores we own and, for most of our franchised stores, have leased locations and sublet these locations to our franchisees. Accordingly, we are the primary obligor for payments under these leases. If locations should prove to be unprofitable, we would remain obligated for lease payments if we determined to withdraw from these locations. Although we cannot know how many stores we may close but on which we will continue to have to make lease payments, we will lose money on those leases. If we have a large number of stores like this, there will be an adverse effect on our results of operations. See "Business--Properties." A decline in mall traffic could adversely affect our business, which depends to a large extent on purchases by pedestrians in malls We believe that the amount and proximity of pedestrian traffic near our stores strongly influence sales of our products, which we believe are frequently impulse purchases. In recent years, visits to major shopping malls, where a large percentage of our stores are located, have declined from 3.7 visits per month in 1989 to 3.0 visits per month in 1996. This trend has had a negative impact on our revenues. We cannot be sure that this trend will not continue or that this trend can be offset by increased sales per customer. A continued decline in mall traffic could adversely affect our financial condition and results of operations. Volatility in cost of ingredients we use may adversely affect our results The cost of butter, eggs, sugar, flour, chocolate and other ingredients can fluctuate due to changes in economic conditions, weather, demand and other factors, many of which are beyond our control. Although we believe that there are alternative suppliers of these ingredients, we have no control over fluctuations in the price of commodities and cannot be sure that we will be able to pass on any price increases in our product ingredients to our customers. Failure to integrate our information systems, which is currently underway, could adversely affect us We have made a substantial investment in developing a customized, sophisticated point-of-sale management information system. We are upgrading our back-office system to a Windows NT environment and are currently upgrading all Mrs. Fields stores to Pentium computers, and we plan to install our upgraded back-office system, along with the POS registers and Pentium computers, in our core Original Cookie stores, Hot Sam stores, Pretzelmaker stores, Pretzel Time stores and many of our Great American stores by September 1999. We cannot be sure that we will successfully integrate this system or that we will achieve a fully integrated system within budget. Therefore, we cannot be sure that our attempts to integrate the point-of-sale system will not adversely affect our financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Failures in Year 2000 compliance by companies with which we do business could disrupt our operations We have assessed Year 2000 issues with respect to our significant vendors and financial institutions as to their compliance plans and whether any Year 2000 issues will impede the ability of those vendors to continue 17

providing goods and services to us. Failure of our key suppliers to remedy their own Year 2000 issues could delay shipments of essential products, disrupting our operations as a result. Furthermore, we rely on various service providers, such as utility and telecommunication service companies, which are beyond our control. Based on the results of the assessment, management is not aware of any Year 2000 issues relating to our significant vendors, financial institutions or our non-information technology systems. We do not have a contingency plan in place to address untimely or incomplete remediation of Year 2000 issues. We are currently developing contingency plans. These contingency plans are expected to address issues related to significant vendors and financial institutions. The minimum wage increase may adversely impact our financial condition and results of operations As of July 3, 1999, 851 of our 4,086 employees that work at stores owned by us earned the federal hourly minimum wage. As a result of an increase in the minimum wage from $4.75 to $5.15 on September 1, 1997, we have experienced an increase of wages of approximately $354,000 annually. These increased labor costs could adversely affect our financial condition and results of operations. We cannot be sure that we can fully absorb the increased labor costs through our efforts to increase efficiencies in other areas of our operations. We depend upon key franchisees and licensees for revenue; there is no assurance that franchise and license agreements will not be terminated We depended upon 11 franchisees for 19.7% of our franchise revenues for the 52 weeks ended January 2, 1999. For the same period, franchise revenues made up 8.1% of our total net revenues. We cannot be sure that these franchise agreements will not be terminated or that our relations with franchisees will not change, or that our franchisees will continue to perform as they have in the past. The termination of these key franchise agreements or poor performance by our franchisees may have an adverse affect on our financial condition and results of operations. In addition, we depend on three licensees for 68% of our licensing revenue. We cannot be sure that our licenses will not be terminated or that our relations with licensees will not change, or that our licensees will continue to perform as they have in the past. The termination of key license agreements or poor performance by our licensees may have an adverse affect on our financial condition and results of operations. There may be a negative effect on our financial condition if our trademarks are challenged We believe that our trademarks have significant value and are important to the marketing of our retail outlets and products. Although our trademarks are registered in all 50 states and registered or pending in many foreign countries, we cannot be sure that our trademarks cannot be circumvented, or that our trademarks do not or will not violate the proprietary rights of others, or would be upheld if challenged or that we would not be prevented from using our trademarks. Any challenge against us for our use of our trademarks could have an adverse effect on our financial condition and results of operations, through either a negative ruling with regards to our use, validity or enforceability of our trademarks, or through the time consumed and the legal costs of defending against a claim. In addition, we cannot be sure that we will have the financial resources necessary to enforce or defend our trademarks. The loss of key management personnel could adversely affect our operations Our success depends on the continued services of our senior management, particularly Larry A. Hodges, our President and Chief Executive Officer. In addition, our continued growth depends, in part, on attracting and retaining skilled managers and employees as well as management's ability to effectively utilize our key personnel in light of recent and future acquisitions. If Mr. Hodges or other senior management left us, there could be an adverse effect on our operations. We cannot be sure that management's efforts to integrate, utilize, 18

attract and retain personnel will be successful. See "Management." We have entered into employment agreements with all of our senior managers. We may suffer adverse effects from competition with other specialty food retailers, changes in demographic trends and consumer preferences We compete with other cookie and pretzel retailers, as well as other confectionery, sweet snack and specialty food retailers, many of which have greater resources than us. The specialty retail food and snack industry is highly competitive with respect to price, service, location and food quality. Consequently, we cannot be sure that we will compete successfully with these other specialty food retailers. In addition to the risks from current competitors, we cannot be sure that we can successfully compete with any new entrants into the specialty foods or snack foods industry who may have new and successful products or marketing. Inability to compete adequately would result in price reductions, reduced margins and losses of market share for us. Changes in consumer preferences, tastes and eating habits, local, regional and national economic conditions, demographic trends and mall traffic patterns also affect the specialty or snack foods industry. Factors including increased food, labor and benefits costs, the availability of experienced management and hourly employees and difficulties or delays in developing and introducing new products to suit consumer preferences may adversely affect the specialty retail industry in general and our outlets in particular. Consequently, our success will depend on our ability to recognize and react to these trends adequately. Any changes in these factors could adversely affect our profitability. In addition, the failure of customers to respond favorably to our marketing or new products, could have an adverse effect on our profitability. See "Business-- Competition." Our financial condition and results may be affected by adverse publicity, particularly about health concerns Our ability to compete depends in part on maintaining our reputation with the consumer. Publicity resulting from food quality, illness, injury, or other health concerns, including food-borne illness claims, or operating issues stemming from one store, a limited number of stores, or even a competitor's store can adversely affect multi-unit specialty retail food and snack chains such as us. In addition, Mrs. Fields' uses ingredients, such as nuts, to which some people may have allergies, and butter, which is high in fat, and there may be adverse publicity about the health risks relating to these ingredients. We cannot be sure that adverse publicity about these factors will not adversely affect our financial condition and results of operations. Our financial condition and results of operations may be adversely affected by government regulation of our business Numerous governmental authorities have issued regulations that apply to us and our stores, including, without limitation, federal, state and local laws and regulations governing health, sanitation, environmental protection, safety and hiring and employment practices, including laws, such as the Fair Labor Standards Act, governing such matters as minimum wages, overtime and other working conditions. The Food and Drug Administration administers regulations that apply to our products. If we fail to obtain or retain the required food licenses or to comply with applicable governmental regulations, or if there is any increase in the minimum wage rate, employee benefit costs or other costs associated with employees, there could be an adverse effect on our business, financial condition or results of operations. Even if we obtain regulatory approval, a marketed product, its manufacturer and its manufacturing facilities are subject to periodic inspection, and discovery of problems may adversely affect our business. In addition, the sale of franchises is regulated by various state laws as well as by the Federal Trade Commission. The Federal Trade Commission requires that franchisors make extensive disclosure in a Uniform Franchise Offering Circular to prospective franchisees but does not require registration. However, a number of states require registration of the Uniform Franchise Offering Circular with state authorities or other disclosure in connection with franchise offers and sales. In addition, several states have franchise relationship laws or 19

business opportunity laws that limit the ability of the franchisors to terminate agreements or to withhold consent to renewal or transfer of these agreements. While we believe that we are in compliance with existing regulations, we cannot predict the effect of any future legislation or regulation on our business operations or financial condition. Additionally, bills have occasionally been introduced in Congress which would provide for federal regulation of certain aspects of franchisor-franchisee relationships. All full-time store managers and assistant managers are able to enroll in a group health insurance plan. However, there have been a number of proposals before Congress which would require employers to provide health insurance for all of their full-time and part-time employees. The approval of similar proposals could have a material adverse impact on our results of operations and financial condition in particular and the specialty retail industry as a whole. Litigation, including product liability litigation, against us could have an adverse effect on our business, and we may not be able to continue to obtain adequate insurance We are involved in routine litigation in the ordinary course of business, including franchise disputes. Although we have not been adversely affected in the past by litigation, there can be no assurance as to the effect of any future disputes. Although we are not currently subject to any product liability litigation, there can be no assurance that product liability litigation will not occur in the future involving our products. Our quality control program is designed to maintain high standards for food preparation procedures used by stores owned or franchised by us. Products are periodically inspected by our personnel at both the point-of-sale locations and the manufacturing facilities to ensure that they conform to our standards. In addition to insurance held by our suppliers, we maintain insurance relating to personal injury and product liability in amounts that we consider adequate for the retail food industry. While we have been able to obtain insurance in the past, there can be no assurance that we will be able to maintain these insurance policies in the future. Consequently, any successful claim against us, in an amount materially exceeding our coverage, could have a material adverse effect on our business, financial condition and results of operations. Our controlling stockholder may take certain actions that may be contrary to your interests Capricorn Investors II, L.P. is the controlling stockholder of Mrs. Fields' Holding, which controls all of our capital stock. As a result, Capricorn is in a position to elect all of our directors who, in turn, elect all of our executive officers. In addition, Capricorn, through Mrs. Fields' Holding, is in a position to amend our certificate of incorporation and by-laws, effect corporate transactions such as mergers and asset sales and otherwise control our management and policies without the approval of any other security holder, subject to the provisions of the indenture. Accordingly, Capricorn will be able to, directly or indirectly, control all of our affairs in a manner that may be contrary to your interests. See "Beneficial Ownership of Capital Stock." We may not continue to have increased sales in the fourth quarter; without these sales we may experience an adverse effect on our business Our operating results are subject to seasonal fluctuations. Historically, we have realized our highest level of sales in the fourth quarter due to increased mall traffic during the Christmas holiday season. However, we cannot be sure that this seasonal trend will continue or that we can continue to rely on increased sales during the fourth quarter. If this seasonal trend changes, there may be an adverse effect on our financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality." We may be unable to repurchase the notes from you upon a change of control due to insufficiency of funds Upon the occurrence of a change of control of ownership of our stock or assets, you may require us to repurchase all or a portion of your notes at 101% of their total principal amount, together with the accrued and 20

unpaid interest, if any, and liquidated damages, if any, to the date of repurchase. If a change of control of ownership of our stock or assets were to occur, we may not have the financial resources to repay all of our obligations under the notes and the other indebtedness that would become payable upon that event. See "Description of Notes--Repurchase at the Option of Holders--Change of Control." Fraudulent conveyance risks; federal and state statutes allow courts, under specific circumstances, to void payments under the notes and guarantees and require noteholders to return payments received Fraudulent transfer laws of both the federal bankruptcy law and state laws permit creditors or a trustee in bankruptcy to set aside or recover a "fraudulent transfer." Because Mrs. Fields has incurred a substantial amount of debt in connection with the acquisition of Great American and the other assets and capital stock of companies it has recently acquired and because Mrs. Fields and the existing guarantors cannot be sure that their businesses will generate enough cash flows from operations or that future borrowings will be available in an amount that will allow Mrs. Fields and the existing guarantors to pay principal and interest on their indebtedness including the notes and the guarantees, we cannot be sure that a court would not set aside payments made to holders of the notes as a fraudulent transfer. A fraudulent transfer is a payment or obligation that a borrower makes in exchange for less than reasonably equivalent value, if the borrower, when it makes the payment or incurs the obligation: . is insolvent or is rendered insolvent by the payment or the incurring of the obligation, or . is engaged or is about to engage in a business or transaction for which its assets constitute unreasonably small capital, or . intends to incur, or believes that it will incur, debts beyond its ability to repay as they mature. For these purposes, a borrower is generally considered insolvent: . if the sum of its debts, including contingent liabilities, were greater than all of its assets at a fair valuation, . if it had unreasonably small capital to conduct its business, or . if the present fair saleable value of its assets were less than the amount that would be required to pay the probable liability on its existing debts, including contingent liabilities, as they become due. A payment or obligation that the borrower made with actual intent to hinder, delay, or defraud any of its creditors is also a fraudulent transfer. A court may hold any obligation incurred by the borrower in these situations void or unenforceable, may subordinate the obligation to the claims of other creditors, or may require the holders of the obligations or the recipients of any of these payments to return any payments received. If Mrs. Fields or the existing guarantors met any of the fraudulent transfer law's financial condition tests described above when they issued the notes or the guarantees, or when they were called upon to make a payment on the notes or the guarantees, and did not receive reasonably equivalent value in exchange, a court could conclude that the issuance of the notes, the making of the guarantees or the payment under the notes or the guarantees should be set aside or returned. Mrs. Fields and the existing guarantors believe: .they were not insolvent when, or as a result of, the issuance of the notes or the guarantees, . that they will not engage in a business or transaction for which their remaining assets would constitute unreasonably small capital, and . that Mrs. Fields and the existing guarantors did not and do not intend to incur or believe that they will incur debts beyond their ability to pay these debts as they mature. 21

Mrs. Fields has incurred, however, a substantial amount of debt in connection with the purchase of Great American and the other assets and capital stock of companies it acquired. Mrs. Fields' and its subsidiaries' total indebtedness, represents 68.8% of its total liabilities and equity. The debt of our guarantor subsidiaries represents 0.5% of their total liabilities and equity. In addition, Mrs. Fields' cash flow, and consequently its ability to pay dividends and service debt, including its obligations under the notes, depends upon its future performance. In addition, Mrs. Fields and its predecessors have incurred net losses during the past several years and in recent periods we have not had earnings sufficient to cover our fixed charges. In any future fraudulent transfer litigation concerning the notes and the payments made to the holders of the notes, a court may rely on these facts in determining our solvency, the adequacy of our capital and our ability to pay our debts as they become due. The guarantees are limited by their terms so as to not constitute a fraudulent transfer under applicable law. If the guarantees were challenged under this provision, the court would have to, among other things, analyze the direct and indirect benefits obtained by the guarantors in comparison to the probability that the guarantors would be called upon to pay the guarantees. It is possible that a court would limit the guarantees under this provision to an amount that is significantly below the amount of the notes. Management cannot accurately predict what a court would do in this case. If Mrs. Fields or a guarantor caused a subsidiary to pay a dividend when the subsidiary met any of the fraudulent transfer law's financial condition tests described above, in order to enable Mrs. Fields or the guarantor to make a payment in respect of the notes or the guarantees, a court could conclude that the dividend as well as the payment is a fraudulent transfer and that the holders should be required to return the payment, because in the absence of other facts, courts generally conclude that a subsidiary that pays a dividend does not receive reasonably equivalent value in exchange. In addition, subject to defenses, the holders may have to return payments made by Mrs. Fields on the notes or the guarantors on the guarantees within 90 days before the commencement of a bankruptcy case by or against them, if, among other things, Mrs. Fields or the guarantors were insolvent at the time the payments were made. Mrs. Fields or the guarantor would be presumed insolvent on and during the 90 days immediately preceding the date of the filing of its bankruptcy petition. In any of the preceding cases, there could be no assurance that the holders would ultimately recover the amounts owing under the notes and the guarantees. There is no public market for the notes to be issued; transfers of the outstanding notes are restricted The notes to be issued are being offered only to the holders of the outstanding notes. There is no public market for the notes to be issued. If a public market were to develop, the notes could trade at prices that may be higher or lower than the initial offering price of the outstanding notes. The placement agents for the outstanding notes currently make a market in the outstanding notes. The placement agents have informed us that they currently intend to make a market in the notes to be issued. However, the placement agents may cease their market-making at any time. The liquidity of the trading market in these notes, and the market price quoted for these notes, may be adversely affected by changes in the overall market for similar securities, existing interest rates, and by our operating results. As a result, you cannot be sure that an active market will develop for these notes. The outstanding 10 1/8% Series A Senior Notes due 2004 were issued on November 26, 1997 and the outstanding 10 1/8% Series C Senior Notes due 2004 were issued on August 24, 1998, to institutional investors and accredited investors, and are eligible for trading in the Private Offering, Resale and Trading Through Automated Linkages ("PORTAL") Market of the National Association of Securities Dealers, Inc., a screen-based automated market for trading of securities eligible for resale under Rule 144A. To the extent that the outstanding notes are tendered and accepted in the exchange offer, the trading market for the remaining untendered outstanding notes could be adversely affected. 22

FORWARD-LOOKING INFORMATION This prospectus contains forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events, based on the information currently available to us. These forward-looking statements relate to future events or our future performance, including financial performance, growth in net sales and earnings, cash flows from operations, capital expenditures, the ability to refinance indebtedness, and the sale of assets. The forward-looking statements also include, among other things, our expectations and estimates about our business operations following the acquisitions of Great American and certain of its franchisees and their stores, the offering by Mrs. Fields' Holding and its capital contribution to us, other recent transactions discussed in this prospectus and the offering of notes in August 1998, including the integration of the businesses of Great American with Mrs. Fields and our ability to achieve cost savings and other synergies related to those transactions. The forward-looking statements are principally contained in the sections "Summary," "The Transactions," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "contemplates," "anticipates," "believes," "estimates," "projected," "predicts," "potential," or "continue" or the negative of these terms or similar terms. In evaluating these statements, you should specifically consider various factors, including the risks outlined in the "Risk Factors" section above. These factors may cause our actual results to differ materially from any forward-looking statement. Other factors, such as the general state of the economy, could also cause actual results to differ materially from the future results covered in the forward-looking statements. These statements are only predictions, the forward-looking events discussed in this prospectus may not occur and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 23

THE TRANSACTIONS On August 24, 1998, we completed the offering of notes, the acquisition of Great American and the acquisition of the stock of two Great American franchisees. We also received as a capital contribution from Mrs. Fields' Holding the net proceeds of $29.1 million from a simultaneous offering of units consisting of notes and warrants to purchase common stock by Mrs. Fields' Holding. In addition, we purchased approximately $38.9 million of Great American notes that had been tendered in our tender offer for them at that time. We used the net proceeds of our offering, the capital contribution from Mrs. Fields' Holding, and available cash of Mrs. Fields and Great American, to complete these transactions, to pay for the remaining Great American notes that were tendered after this date, and to pay related expenses. We used the remaining proceeds to finance other acquisitions that had not yet been completed as of the date of the offering, including the purchase of eight stores from a Great American franchisee. The Great American Transactions The Great American Acquisition and the Great American Tender Offer Under a securities purchase agreement, dated as of August 13, 1998, among Cookies USA, the sellers of Cookies USA securities and Mrs. Fields, we acquired all of the outstanding capital stock and subordinated indebtedness of Cookies USA for a total purchase price of approximately $18.4 million. Concurrently, we completed the merger of Cookies USA into Mrs. Fields and the mergers of Deblan and Chocolate Chip into Great American. Great American became a wholly owned subsidiary of Mrs. Fields. As of the expiration of our tender offer for Great American notes at midnight on September 14, 1998, all of the notes had been tendered. We accepted and paid the entire $40.0 million in principal amount of those notes, and none remain outstanding. The Acquisition of Great American Franchisees When we agreed to purchase Cookies USA, we also entered into agreements with the stockholders of Deblan and Chocolate Chip, two of Great American's franchisees, to purchase a total of 29 Great American franchises for total consideration of approximately $15.0 million. The price included the repayment of approximately $0.6 million of debt. We acquired the franchises by acquiring 100% of the capital stock of the two corporations through which the 29 franchises were held. In connection with these transactions, debt on the balance sheet of one corporation was retired with cash on hand, and debt on the balance sheet of the second corporation was retired with funds from the franchisee that controlled the corporation. Agreements with Franchisees of Great American We entered into settlement agreements and waivers with the two franchisees that sold us 29 Great American franchises and with several other Great American franchisees. In addition to these franchisees, at least 80% in total of the Great American franchisees have executed settlement agreements and waivers. These agreements provided that the Great American franchisees that are parties to them released, subject to exceptions, all of their claims against us, Great American, Capricorn and other parties, including claims that Great American franchisees brought in 1997 to prevent a sale of Great American to Mrs. Fields. On August 24, 1998, a motion was filed dismissing with prejudice the claims brought in the 1997 litigation. The settlement agreements and waivers give "tag-along" rights to the Great American franchisees that hold at least five Great American franchises. The tag-along rights provide that, in the event that: (1) either Mrs. Fields or Mrs. Fields' Holding proposes to sell to an unaffiliated party substantially all of its rights as owner of the Great American brand or as the franchisor of Great American, (2) either Mrs. Fields or Mrs. Fields' Holding proposes to make an initial public offering of its common stock, or (3) either Mrs. Fields or Mrs. Fields' Holding sells a controlling interest to an unaffiliated party, 24

we will purchase all of the franchises of those Great American franchisees, provided that their franchises have had positive cash flow in the most recent 12-month fiscal period and sales not more than 20% below the 12- month fiscal period immediately preceding such period, or the number of months it has been operating, if fewer than 12. The purchase price for the franchises will be 5 times their most recent 12- month EBITDA or, if the franchises have operated for fewer than 12 months, the greater of 5 times their most recent EBITDA and documented development cost for the stores. Great American franchisees that hold fewer than 5 Great American franchises do not have tag-along rights but will have the right, upon completion of Mrs. Fields' sale of its rights as owner of the Great American brand or as the franchisor of Great American, the initial public offering or the change of control, and provided they are in compliance with their franchise agreements, to receive in cash the greater of $3,500 or $2,000 per store owned by the franchisee. In the case of an initial public offering, the franchisees could receive shares of common stock with an equivalent value. The form of payment will be at our election. Under the settlement agreements and waivers, we have also undertaken, among other things, (1) to maintain the profit margin over our cost on batter sold to Great American franchisees, (2) to extend franchise agreements, and (3) to permit the Great American franchisees to convert their stores to Mrs. Fields brand stores at their sole expense in areas where there is no overlap with existing Mrs. Fields brand franchise stores. The Mrs. Fields' Holding Units Mrs. Fields' Holding completed its offering of units consisting of notes and warrants to purchase common stock of Mrs. Fields' Holding on August 24, 1998 and received net proceeds of $29.1 million. The notes which are part of the units are senior obligations of Mrs. Fields' Holding and are secured by all of Mrs. Fields' issued and outstanding capital stock. The Prior Transactions Mrs. Fields' Holding acquired substantially all of the assets of H & M on July 25, 1997 for a total purchase price of $13.8 million, excluding the assumption of liabilities. Mrs. Fields' Holding acquired 56.0% of the shares of common stock of Pretzel Time on September 2, 1997 for a total purchase price of $4.2 million and extended a $500,000 loan to the founder and minority stockholder of Pretzel Time. At the time of our previous offering of notes on November 26, 1997: (1) we received the business of H&M and 56.0% of the shares of common stock of Pretzel Time from Mrs. Fields' Holding, (2) we received all of the common stock of Mrs. Fields' Brand from Mrs. Fields' Holding, (3) various debt of Mrs. Fields, Mrs. Fields' Brand and Mrs. Fields' Holding was refinanced, and (4) we paid a dividend of $1,065,000 and repaid an advance of $1,500,000 to Mrs. Fields' Holding. On January 2, 1998, we purchased an additional 4.0% of the shares of the common stock of Pretzel Time. Increase in Pretzel Time Ownership On June 12, 1998, we purchased an additional 10.0% of the common stock of Pretzel Time for a purchase price of $875,000, increasing our equity interest in Pretzel Time to 70.0% at that time. Other Recent Transactions In June 1998, we acquired 5 additional Pretzel Time stores from a franchisee for a purchase price of $657,000. We acquired one additional Pretzel Time store from a franchisee and two cookie stores operating 25

under other brand names, which we converted into Mrs. Fields brand stores at purchase prices aggregating $750,000. We have remodeled the two cookie stores, at a total cost of $156,600. We purchased eight Great American stores from a Great American franchisee for a total purchase price of $1.75 million on September 9, 1998. The franchisee was a holder of some of the securities of Cookies USA that were sold under the agreement to purchase Great American and was a party to that agreement. RECENT DEVELOPMENTS On October 5, 1998, Mrs. Fields purchased all of the retail cookie and related business and operations of eleven Great American stores for a total purchase price of $2,800,000 under an asset purchase agreement dated as of October 5, 1998, among The Cookie Conglomerate, Inc., The Cookie Conglomerate, LLP and two individuals who were the partners of Cookie Conglomerate, LLP and the shareholders of Cookie Conglomerate, Inc. The sellers were franchisees of Great American. The sellers' rights under franchise agreements and subleases with Great American were terminated upon closing of the transaction. The acquisition was funded with financing provided by T&W Financial Services Company, L.L.C. On November 19, 1998, Mrs. Fields purchased all of the outstanding capital stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields, Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding company for a pretzel retail company. The purchase price was approximately $5.7 million and Mrs. Fields assumed indebtedness, including severance payments, totaling approximately $1.6 million. On December 9, 1998, Mrs. Fields purchased three shares of Pretzel Time, Inc. common stock for $500,000 in cash. On December 30, 1998, Mrs. Fields completed the acquisition of the remaining outstanding common stock of Pretzel Time, Inc. under a stock purchase agreement dated December 30, 1998, for a purchase price of approximately $4.7 million, $2.5 million of which was paid in cash on January 5, 1999, $2 million was assumed by Mrs. Fields' Holding, Mrs. Fields sole shareholder as discussed below, and the remaining $200,000 is payable on or before December 30, 1999. USE OF PROCEEDS Neither Mrs. Fields nor the guarantors will receive any cash proceeds in the exchange offer. In consideration for issuing the notes as contemplated in this prospectus, Mrs. Fields will receive an equal principal amount of outstanding notes. The net proceeds received by Mrs. Fields from the offering in August 1998, after deducting the underwriting discounts and commissions and estimated expenses of the offering of notes in August 1998, along with cash from other sources, including the capital contribution of Mrs Fields' Holding and existing company cash, were approximately $85.1 million. Of this amount, Mrs. Fields used approximately $18.4 million for the acquisition of Great American, $41.6 million to pay for the Great American notes tendered, including the tender offer premium of $1.6 million, $15.0 million to pay for the acquisitions of Deblan and Chocolate Chip, including the repayment of approximately $0.6 million of debt, $0.9 million to pay accrued interest on debt being retired, $1.4 million for severance and related expenses, approximately $2.8 million to pay for other recent acquisitions and approximately $5.0 million of fees and expenses related to the offering in August 1998 and some of the other acquisitions described in this prospectus. 26

CAPITALIZATION The following table shows the cash and cash equivalents and capitalization of Mrs. Fields' Original Cookies, Inc. and subsidiaries at July 3, 1999. This table should be read in conjunction with the historical financial statements and related notes included elsewhere in this Registration Statement. See "Selected Historical Financial Data" and "Unaudited Pro Forma Condensed Combined Statement of Operations." <TABLE> <CAPTION> Mrs. Fields' Original Cookies, Inc. and Subsidiaries at July 3, 1999 ---------------------- (Dollars in thousands) <S> <C> Cash and Cash Equivalents............................... $ 4,645 ======== Debt and Capital Lease Obligations, including current portions: Credit Facility(1).................................... $ 7,000 10 1/8% Series A, B and C Senior Notes due 2004(2).... 140,000 Original issue discount on 10 1/8% Series C Senior Notes due 2004....................................... (558) Pretzel Time Debt..................................... 206 Mrs. Fields' Original Cookies, Inc. Other Debt and Capital Lease Obligations............................ 4,202 Pretzelmaker Debt and Capital Lease Obligations....... 176 -------- Total Debt and Capital Lease Obligations, including current portion........................................ 151,026 -------- Mandatorily Redeemable Preferred Stock of Pretzel Time(3)................................................ 1,440 -------- Stockholder's Equity: Common Stock (pledged as collateral for parent company debt)(4)............................................. -- Additional Paid-in Capital(5)......................... 61,899 Accumulated Deficit................................... (29,320) -------- Total Stockholder's Equity............................ 32,579 -------- Total Capitalization.................................... $185,045 ======== </TABLE> -------- (1) Under the indenture, Mrs. Fields is permitted to have one or more credit facilities under which it will be able to borrow up to a maximum total principal amount of $15.0 million on a secured basis. Mrs. Fields' Amended and Restated Loan Agreement, dated as of February 28, 1998, with LaSalle National Bank provides for a maximum commitment of up to $15.0 million secured by essentially all of the assets of Mrs. Fields. As of July 3, 1999, Mrs. Fields had approximately $276,000 of allowable borrowings under its credit facility. See "Description of Certain Indebtedness--Credit Agreement." (2) Includes $100.0 million of 10 1/8% Series A and Series B Senior Notes of Mrs. Fields and $40.0 million of 10 1/8% Series C Senior Notes. (3) Liquidation preference as of July 3, 1999 was approximately $1.5 million. Date of redemption is January 15, 2000. (4) Less than $1,000. (5) Gives effect to the capital contribution of Mrs. Fields' Holding of $29.1 million on August 24, 1998 and $2 million on May 27, 1999. 27

THE EXCHANGE OFFER Terms of the Exchange Offer; Period for Tendering Outstanding Notes On August 24, 1998, Mrs. Fields sold notes to Jefferies & Company, Inc. and BT Alex. Brown. When we sold the notes, we entered into a registration rights agreement with Jefferies and BT Alex. Brown. The registration rights agreement requires that we register the notes sold on August 24, 1998 with the Commission and offer to exchange the new registered notes for the outstanding notes sold on August 24, 1998. We are also making the exchange offer available to holders of notes issued in a private placement on November 26, 1997. We will accept any validly tendered notes that you do not withdraw before 12:00 midnight, New York City time, on the expiration date. We will issue $1,000 of principal amount of new notes in exchange for each $1,000 principal amount of your outstanding notes. You may tender some or all of your notes in the exchange offer. The form and terms of the new notes are the same as the form and terms of the outstanding notes except that: (1) the notes being issued in the exchange offer will be registered under the Securities Act and will not have legends restricting their transfer, (2) the notes being issued in the exchange offer will not contain the registration rights and liquidated damages provisions contained in the outstanding notes issued in August 1998, and (3) interest on the new notes will accrue from the last interest date on which interest was paid on your notes. Outstanding notes that we accept for exchange will not accrue interest after we complete the exchange offer. The exchange offer will expire at 12:00 midnight, New York City time, on , 1999, unless we extend it. If we extend the exchange offer, we will issue a notice by press release or other public announcement before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We reserve the right, in our sole discretion: (1) to extend the exchange offer, (2) to delay accepting your notes, (3) to terminate the exchange offer and not accept any notes for exchange if any of the conditions have not been satisfied, or (4) to amend the exchange offer in any manner. We will promptly give oral or written notice of any extension, delay, non- acceptance, termination or amendment. We will also file a post-effective amendment with the Commission if we amend the terms of the exchange offer. If we extend the exchange offer, notes that you have previously tendered will still be subject to the exchange offer and we may accept them. We will promptly return your notes if we do not accept them for exchange for any reason without expense to you after the exchange offer expires or terminates. Procedures for Tendering Notes Only you may tender your notes in the exchange offer. 28

To tender in the exchange offer, you must: (1) complete, sign and date the enclosed letter of transmittal, or a copy of it, (2) have the signature on the letter of transmittal guaranteed if required by the letter of transmittal, and (3) mail, fax or otherwise deliver the letter of transmittal or copy to the exchange agent OR if you tender your notes under The Depository Trust Company's book- entry transfer procedures, transmit an agent's message to the exchange agent on or before the expiration date. In addition, either: (1) the exchange agent must receive certificates for outstanding notes and the letter of transmittal, or (2) the exchange agent must receive a timely confirmation of a book- entry transfer of your notes into the exchange agent's account at The Depository Trust Company, along with the agent's message, or (3) you must comply with the guaranteed delivery procedures described below. An agent's message is a computer-generated message transmitted by The Depository Trust Company through its Automated Tender Offer Program to the exchange agent. To tender your notes effectively, you must make sure that the exchange agent receives a letter of transmittal and other required documents before the expiration date. When you tender your outstanding notes and we accept them, the tender will be a binding agreement between you and us in accordance with the terms and conditions in this prospectus and in the letter of transmittal. The method of delivery of outstanding notes, letters of transmittal and all other required documents to the exchange agent is at your election and risk. We recommend that you use an overnight or hand delivery service instead of mail. If you do deliver by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In all cases, you should allow enough time to make sure your documents reach the exchange agent before the expiration date. Do not send a letter of transmittal or notes directly to us. You may request your brokers, dealers, commercial banks, trust companies, or nominees to make the exchange on your behalf. Unless you are a registered holder who requests that the new notes to be mailed to you and issued in your name, or unless you are an eligible institution, you must have your signature guaranteed on a letter of transmittal or a notice of withdrawal by an eligible institution. An eligible institution is a firm which is a financial institution that is a member of a registered national securities exchange or a member of the participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program. If the person who signs the letter of transmittal and tenders the notes is not the registered holder of the notes, the registered holders must endorse the notes or sign a written instrument of transfer or exchange that is included with the notes, with the registered holder's signature guaranteed by an eligible institution. We will decide whether the endorsement or transfer instrument is satisfactory. We will decide all questions about the validity, form, eligibility, acceptance and withdrawal of tendered notes, and our determination will be final and binding on you. We reserve the absolute right to: (1) reject any and all tenders of any particular note not properly tendered, 29

(2) refuse to accept any note if, in our judgment or the judgment of our counsel, the acceptance would be unlawful, and (3) waive any defects or irregularities or conditions of the exchange offer as to any particular note either before or after the expiration date. This includes the right to waive the ineligibility of any holder who seeks to tender notes in the exchange offer. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. You must cure any defects or irregularities in connection with tenders of notes as we will determine. Neither we, the exchange agent nor any other person will incur any liability for failure to notify you of any defect or irregularity with respect to your tender of notes. If the letter of transmittal is signed by a person or persons other than the registered holder or holders of outstanding notes, the outstanding notes must be endorsed or accompanied by powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the outstanding notes. If trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity sign the letter of transmittal or any notes or power of attorney on your behalf, those persons must indicate their capacity when signing, and submit satisfactory evidence to us with the letter of transmittal demonstrating their authority to act on your behalf. To participate in the exchange offer, we require that you represent to us that: (1) you or any other person acquiring notes for your outstanding notes in the exchange offer is acquiring them in the ordinary course of business, (2) neither you nor any other person acquiring notes in exchange for your outstanding notes is engaging in or intends to engage in a distribution of the notes issued in the exchange offer, (3) neither you nor any other person acquiring notes in exchange for your outstanding notes has an arrangement or understanding with any person to participate in the distribution of notes issued in the exchange offer, (4) neither you nor any other person acquiring notes in exchange for your outstanding notes is our "affiliate" as defined under Rule 405 of the Securities Act, and (5) if you or another person acquiring notes for your outstanding notes is a broker-dealer, you will receive new notes for your own account, you acquired new notes as a result of market-making activities or other trading activities, and you acknowledge that you will deliver a prospectus in connection with any resale of your notes If you are our "affiliate," as defined under Rule 405 of the Securities Act, you are a broker-dealer who acquired your outstanding notes in the initial offering and not as a result of market-making or trading activities, or if you are engaged in or intend to engage in or have an arrangement or understanding with any person to participate in a distribution of notes acquired in the exchange offer, you or that person: (1) may not rely on the applicable interpretations of the staff of the Commission, and (2) must comply with the registration and prospectus delivery requirements of the Securities Act when reselling the notes. Broker-dealers who cannot make the representations in item (5) of the paragraph above cannot use this exchange offer prospectus in connection with resales of the notes issued in the exchange offer. Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the Exchange Offer We will accept validly tendered notes when the conditions to the exchange offer have been satisfied or we have waived them. We will have accepted your validly tendered notes when we have given oral or written 30

notice to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the new notes from us. If we do not accept any tendered notes for exchange because of an invalid tender or other valid reason, the exchange agent will return the certificates, without expense, to the tendering holder. If a holder has tendered notes by book-entry transfer, we will credit the notes to an account maintained with The Depository Trust Company. We will return certificates or credit the account at The Depository Trust Company as promptly as practicable after the exchange offer terminates or expires. Book-Entry Transfers The exchange agent will make a request to establish an account at The Depository Trust Company for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in The Depository Trust Company's systems must make book-entry delivery of outstanding notes by causing The Depository Trust Company to transfer those outstanding notes into the exchange agent's account at The Depository Trust Company in accordance with The Depository Trust Company's Automated Tender Offer Procedures. The participant should transmit its acceptance to The Depository Trust Company on or before the expiration date or comply with the guaranteed delivery procedures described below. The Depository Trust Company will verify acceptance, execute a book-entry transfer of the tendered outstanding notes into the exchange agent's account at The Depository Trust Company and then send to the exchange agent confirmation of the book- entry transfer. The confirmation of the book-entry transfer will include an agent's message confirming that The Depository Trust Company has received an express acknowledgment from the participant that the participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against the participant. Delivery of notes issued in the exchange offer may be effected through book-entry transfer at The Depository Trust Company. However, the letter of transmittal or facsimile of it or an agent's message, with any required signature guarantees and any other required documents, must: (1) be transmitted to and received by the exchange agent at the address listed below under "Exchange Agent" on or before the expiration date, or (2) the guaranteed delivery procedures described below must be complied with. Guaranteed Delivery Procedures If you are a registered holder of outstanding notes who desires to tender notes but your notes are not immediately available, or time will not permit your notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you may effect a tender if: (1) you tender the notes through an eligible institution, (2) before the expiration date, the exchange agent received from the eligible institution a notice of guaranteed delivery in the form we have provided. The notice of guaranteed delivery will state the name and address of the holder of the notes being tendered and the amount of notes being tendered, that the tender is being made and guarantee that within five New York Stock Exchange trading days after the notice of guaranteed delivery is signed, the certificates for all physically tendered notes, in proper form for transfer, or a book-entry confirmation, together with a properly completed and signed letter of transmittal with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent, and (3) the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, together with a properly completed and signed letter of transmittal with any required signature guarantees and all other documents required by the letter of transmittal, are received by the exchange agent within five New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. 31

Withdrawal Rights You may withdraw your tender of outstanding notes at any time before 12:00 midnight, New York City time, on the expiration date. For a withdrawal to be effective, you must make sure that, before 12:00 midnight on the expiration date, the exchange agent receives a written notice of withdrawal at one of the addresses below or, if you are a participant of The Depository Trust Company, an electronic message using The Depository Trust Company's Automated Tender Offer Program. A notice of withdrawal must: (1) specify the name of the person that tendered the notes to be withdrawn, (2) identify the notes to be withdrawn, including the principal amount of the notes, (3) be signed by the holder in the same manner as the original signature on the letter of transmittal by which the notes were tendered or be accompanied by documents of transfer, and (4) if you have transmitted certificates for outstanding notes, specify the name in which the notes are registered, if different from that of the withdrawing holder, and identify the serial numbers of the certificates. If you have tendered notes under the book-entry transfer procedure, your notice of withdrawal must also specify the name and number of an account at The Depository Trust Company to which your withdrawn notes can be credited. We will decide all questions as to the validity, form and eligibility of the notices and our determination will be final and binding on all parties. Any tendered notes that you withdraw will be not be considered to have been validly tendered. We will return any outstanding notes that have been tendered but not exchanged, or credit them to The Depository Trust Company account, as soon as practicable after withdrawal, rejection of tender, or termination of the exchange offer. You may retender properly withdrawn notes by following one of the procedures described above before the expiration date. Certain Conditions to the Exchange Offer We are not required to accept for exchange, or to issue notes in exchange for, any outstanding notes. We may terminate or amend the exchange offer, if at any time before the acceptance of outstanding notes: (1) any federal law, statute, rule or regulation has been adopted or enacted which, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer, (2) if any stop order is threatened or in effect with respect to this registration statement or the qualification of the indenture under the Trust Indenture Act of 1939, or (3) there is a change in the current interpretation by the staff of the Commission which permits holders who have made the required representations to us to resell, offer for resale, or otherwise transfer notes issued in the exchange offer without registration of the notes and delivery of a prospectus, as discussed above. These conditions are for our sole benefit and we may assert or waive them at any time and for any reason. However, the exchange offer will remain open for at least five business days following any waiver of the preceding conditions. Our failure to exercise any of the foregoing rights will not be a waiver of our rights. 32

Exchange Agent You should direct all signed letters of transmittal to the exchange agent, The Bank of New York. You should direct questions, requests for assistance, and requests for additional copies of this prospectus, the letter of transmittal and the notice of guaranteed delivery to the exchange agent addressed as follows: Main Delivery to: The Bank of New York, <TABLE> <CAPTION> As Exchange Agent <S> <C> By Mail, By Hand and Overnight By Facsimile: Courier: (For Eligible Institutions Only) The Bank of New York (212) 815-6339 101 Barclay Street 7 East Confirm by telephone: New York, New York 10286 (212) 815-6337 Attention: Odell Romeo </TABLE> Delivery or fax of the letter of transmittal to an address or number other than those above is not a valid delivery of the letter of transmittal. Fees and Expenses We will not make any payment to brokers, dealers, or others soliciting acceptances of the exchange offer except for reimbursement of mailing expenses. We will pay the estimated cash expenses connected with the exchange offer. We estimate that these expenses will be approximately $500,000. Transfer Taxes If you tender outstanding notes for exchange you will not be obligated to pay any transfer taxes. However, if you instruct us to register new notes in the name of, or request that your notes not tendered or not accepted in the exchange offer be returned to, a person other than you, you will be responsible for paying any transfer tax owed. You May Suffer Adverse Consequences if You Fail to Exchange Outstanding Notes If you do not tender your outstanding notes, you will not have any further registration rights, except for the rights described in the registration rights agreements and described above, and your notes will continue to be subject to restrictions on transfer when we complete the exchange offer. Accordingly, if you do not tender your notes in the exchange offer, your ability to sell your notes could be adversely affected. Once we have completed the exchange offer, holders who have not tendered notes will not continue to be entitled to any increase in interest rate that the indenture provides for if we do not complete the exchange offer. Holders of the notes issued in the exchange offer and notes that are not tendered in the exchange offer will vote together as a single class under the indenture. Consequences of Exchanging Outstanding Notes If you make the representations that we discuss above, we believe that you may offer, sell or otherwise transfer the new notes to another party without registration of your notes or delivery of a prospectus. We base our belief on interpretations by the staff of the Commission in no- action letters issued to third parties. If you cannot make these representations, you cannot rely on this interpretation by the Commission's staff and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the notes. A broker-dealer that receives new notes for its own account in exchange 33

for its outstanding notes must acknowledge that it acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of the new notes. Broker-dealers who can make these representations may use this exchange offer prospectus, as supplemented or amended, in connection with resales of notes issued in the exchange offer. However, because the Commission has not issued a no-action letter in connection with this exchange offer, we cannot be sure that the staff of the Commission would make a similar determination regarding the exchange offer as it has made in similar circumstances. Shelf Registration The registration rights agreement also requires that we file a shelf registration statement if: (1) we cannot file a registration statement for the exchange offer because the exchange offer is not permitted by law, (2) law or Commission policy prohibits a holder from participating in the exchange offer, (3) a holder cannot resell the notes it acquires in the exchange offer without delivering a prospectus and this prospectus is not appropriate or available for resales by the holder, or (4) a holder is a broker-dealer and holds notes acquired directly from us or one of our affiliates. We will also register the notes under the securities laws of jurisdictions that holders may request before offering or selling notes in a public offering. We do not intend to register notes in any jurisdiction unless a holder requests that we do so. Notes will be subject to restrictions on transfer until: (1) a person other than a broker-dealer has exchanged notes in the exchange offer, (2) a broker-dealer has exchanged notes in the exchange offer and sells them to a purchaser that receives a prospectus from the broker- dealer on or before the sale, (3) the notes are sold under an effective shelf registration statement that we have filed, or (4) the notes are sold to the public under Rule 144 of the Securities Act. 34

SELECTED HISTORICAL FINANCIAL DATA The following table presents historical financial data for Mrs. Fields' Original Cookies, Inc. and subsidiaries and its predecessors; namely, Mrs. Fields Inc. and subsidiaries, The Original Cookie Company, Incorporated and the pretzel business of Hot Sam Company, Inc. as of the dates and for the periods indicated. The results of operations for the periods December 31, 1995 through September 17, 1996 and September 18, 1996 through December 28, 1996 are not indicative of the results for the full fiscal year. The selected historical financial data has been derived from the audited financial statements of Mrs. Fields and its predecessors. Due to the acquisitions of the net assets of Mrs. Fields Inc., Original Cookie and Hot Sam on September 17, 1996, the financial data is not comparable for all periods. However, in order for the presentations to be meaningful for the periods presented, some of the statement of operations information for the predecessors has been reclassified to be consistent with the Mrs. Fields historical financial statement presentation. Mrs. Fields and its predecessors operate using a 52/53-week year ending near December 31. The selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and related notes, contained elsewhere in this prospectus. <TABLE> <CAPTION> Predecessors ---------------------------------------------------------------------------- The Original Cookie Company, Incorporated and the Carved- out Portion of Hot Mrs. Fields Inc. and Subsidiaries Sam Company, Inc. (Combined) -------------------------------------- ----------------------------------- December December 52 Weeks Ended 31, 1995 52 Weeks Ended 31, 1995 ----------------------- through ---------------------- through December December September December December September 31, 1994 30, 1995 17, 1996 31, 1994 30, 1995 17, 1996 ----------- ---------- ------------ ---------- --------- ---------- (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Statement of Operations Data: Net store and fund sales.................. $ 87,863 $ 59,956 $ 29,674 $ 89,648 $ 85,581 $ 54,366 Net store contribution(1)........ 8,083 6,591 3,797 13,912 13,063 5,854 Franchising and licensing, net......... 7,241 5,993 3,786 -- -- -- General and administrative expenses............... 16,379 15,612 8,984 12,546 9,216 7,538 Income (loss) from operations............. (1,691) (3,526) (1,742) (750) 2,435 (2,772) Net loss................ (5,320) (2,368) (2,304) (5,355) (2,096) (5,645) Other Data: Cash flows from operating activities... 1,728 (4,478) (447) 3,699 4,451 (378) Cash flows from investing activities... (2,030) 2,526 (385) (3,779) (568) (1,200) Cash flows from financing activities... (732) (185) (58) 3,134 (4,599) (1,380) Interest expense........ 2,155 51 80 4,381 4,356 2,895 Total depreciation and amortization........... 4,415 3,525 1,911 7,423 6,902 4,937 Capital expenditures.... 4,895 4,146 1,054 3,779 568 1,200 EBITDA(2)............... 2,724 (1) 169 6,673 9,337 2,165 Store contribution for stores in the process of being closed or franchised(1).......... $ 319 $ (802) $ (695) $ (542) $ (1,542) $ (1,751) Ratio of earnings to fixed charges(3)....... -- -- -- -- -- -- Balance Sheet Data: Working capital (deficit).............. $ (1,067) $ (3,114) $ (21,704) $ (46) $ 128 $ (3,640) Total assets............ 30,128 23,033 19,144 74,490 66,282 59,024 Debt and capital lease obligations, including current portion........ 22,850 21,226 21,224 36,956 32,357 30,977 Total stockholders' equity (deficit)....... (25,419) (28,017) (30,318) 24,684 22,588 16,943 </TABLE> See footnotes on page 36 35

<TABLE> <CAPTION> Mrs. Fields ------------------------------------------------------ September 18, 53 Weeks 52 Weeks 26 Weeks 26 Weeks 1996 through Ended Ended Ended Ended December 28, January 3, January 2, July 4, July 3, 1996 1998 1999 1998 1999 ------------- ---------- ---------- -------- -------- (Dollars in thousands) <S> <C> <C> <C> <C> <C> Statement of Operations Data: Net store and food sales.................. $ 40,849 $127,845 $140,235 $ 56,687 $ 71,915 Net store contribution(1)........ 9,707 25,044 20,166 6,915 8,686 Franchising and licensing, net......... 1,267 6,563 14,001 2,971 11,562 General and administrative expenses............... 4,035 16,192 19,017 8,587 10,873 Store closure provision.............. -- 538 7,303 -- -- Income (loss) from operations............. 5,649 8,415 (5,389) (1,536) (945) Net income (loss)....... 1,961 (974) (19,143) (7,301) (10,099) Other Data: Cash flows from operating activities... 7,609 919 9,429 (3,306) 2,708 Cash flows from investing activities... (21,131) (15,505) (40,894) (4,270) (2,704) Cash flows from financing activities... 20,231 24,164 19,929 (445) (110) Interest expense........ 1,867 7,830 13,197 5,626 8,686 Total depreciation and amortization........... 2,344 10,403 19,820 6,197 11,263 Capital expenditures.... 1,638 4,678 8,235 3,342 2,604 EBITDA(2)............... 7,993 18,818 14,431 4,661 10,318 Store contribution for stores in the process of being closed or franchised(1).......... $ 513 $ (1,798) $ (2,054) $ (1,605) $ (863) Ratio of earnings to fixed charges(3)....... 2.85x -- -- -- -- Balance Sheet Data: Working capital (deficit).............. $ (2,889) $ 13,133 $(12,727) $ 8,844 $(13,434) Total assets............ 110,055 149,684 231,906 137,408 219,313 Mandatorily redeemable cumulative preferred stock of subsidiaries.. 3,597 902 1,261 1,081 1,440 Line of credit, debt and capital lease obligations, including current portion........ 67,563 101,081 150,989 100,815 151,026 Total stockholder's equity................. 16,961 30,765 40,678 23,464 32,579 </TABLE> <TABLE> <CAPTION> Predecessors --------------------------------------------------------- The Original Cookie Company, Incorporated and the Carved-out Portion of Hot Mrs. Fields Inc. and Sam Company, Inc. Subsidiaries (Combined) ----------------------------- --------------------------- December December 52 Weeks Ended 31, 1995 52 Weeks Ended 31, 1995 ------------------ through ----------------- through December December September December December September 31, 1994 30, 1995 17, 1996 31, 1994 30, 1995 17, 1996 -------- -------- --------- -------- -------- --------- (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> EBITDA Data: Income (loss) from operations............. $(1,691) $(3,526) $(1,742) $ (750) $2,435 $(2,772) ADD: Depreciation and amortization.......... 4,415 3,525 1,911 7,423 6,902 4,937 ------- ------- ------- ------ ------ ------- EBITDA................. $ 2,724 $ (1) $ 169 $6,673 $9,337 $ 2,165 ======= ======= ======= ====== ====== ======= </TABLE> <TABLE> <CAPTION> Mrs. Fields ------------------------------------------------------ September 18, 53 Weeks 52 Weeks 26 Weeks 26 Weeks 1996 through Ended Ended Ended Ended December 28, January 3, January 2, July 4, July 3, 1996 1998 1999 1998 1999 ------------- ---------- ---------- -------- -------- (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> EBITDA Data: Income (loss) from operations............. $5,649 $ 8,415 $(5,389) $(1,536) $ (945) ADD: Depreciation and amortization.......... 2,344 10,403 19,820 6,197 11,263 ------ ------- ------- ------- ------- EBITDA.................. $7,993 $18,818 $14,431 $ 4,661 $10,318 ====== ======= ======= ======= ======= </TABLE> -------- (1) Store contribution is determined by subtracting all store operating expenses including depreciation from net store sales. Management uses store contribution information to measure operating performance at the store level. Store contribution for stores in the process of being closed or franchised as a separate caption is not in accordance with generally accepted accounting principles. Store contribution may not be comparable to other similarly titled measures reported by other companies. (footnotes continue on next page) 36

(2) EBITDA consists of earnings before depreciation, amortization, interest, income taxes, minority interest, preferred stock accretion and dividends of subsidiaries and other income or expense. EBITDA is not intended to represent cash flows from operations as defined by generally accepted accounting principles and should not be considered as an alternative to net income (loss) as an indicator of operating performance or to cash flows as a measure of liquidity. EBITDA has been included in this prospectus because it is one of the indicators upon which Mrs. Fields assesses its financial performance and its capacity to service its debt (see footnote 3 below). EBITDA may not be comparable to similarly titled measures reported by other companies. (3) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense on all indebtedness (whether paid or accrued and net of debt premium amortization), including the amortization of debt issuance costs and original issue discount, noncash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with capital lease obligations, letter of credit commissions, fees or discounts and the product of all dividends and accretion on mandatorily redeemable cumulative preferred stock multiplied by a fraction, the numerator of which is one and the denominator of which is one minus the current combined federal, state and local statutory tax rate. For fiscal years 1994 and 1995 and the period December 31, 1995 through September 17, 1996, Mrs. Fields Inc. and subsidiaries' earnings were insufficient to cover fixed charges by $5,129,000, $2,127,000 and $2,099,000, respectively. For fiscal years 1994 and 1995 and the period December 31, 1995 through September 17, 1996, Original Cookie and Hot Sam (combined) earnings were insufficient to cover fixed charges by $5,131,000, $1,833,000 and $5,645,000, respectively. For the 53 weeks ended January 3, 1998 and the 52 weeks ended January 2, 1999, Mrs. Fields' earnings were insufficient to cover fixed charges by $319,000 and $18,827,000, respectively. For the 26 weeks ended July 4, 1998 and July 3, 1999, Mrs. Fields' earnings were insufficient to cover fixed charges by $7,287,000 and $9,889,000, respectively. 37

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview In 1996, an investor group led by Capricorn Investors II, L.P. formed Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc. as subsidiaries of Mrs. Fields' Holding Company, Inc. On September 17, 1996, Mrs. Fields initiated operations when it purchased substantially all of the assets and assumed certain liabilities of Mrs. Fields Inc. and subsidiaries, The Original Cookie Company, Incorporated and the pretzel business of Hot Sam Company, Inc. Mrs. Fields set out to increase sales and profitability of its cookie and pretzel operations by implementing key elements of its business plan coupled with strategic acquisitions. A key element of the business plan is closing or franchising certain company-owned stores that do not meet specific financial and geographical criteria established by management. Implementation of this element of the business plan is expected to result in enhanced operating margins as these stores are franchised or closed. In some of our tables we refer to stores not planned to be franchised or closed as "core" stores, meaning continuing company-owned stores. Continuing company-owned stores will be operated by Mrs. Fields into the foreseeable future. As a result of converting certain stores to franchises, royalty revenues are expected to increase and net store sales and overhead expenses associated with operating those stores are expected to be reduced. As Mrs. Fields exits stores it has identified for closure through closing or franchising, results from operations are expected to improve on both a short- term and long-term basis. With respect to these specific stores both ongoing operating losses and negative cash flows are expected to cease. Cash payments to landlords for early lease termination costs negatively impact our immediate liquidity position. However, our overall financial position is expected to be strengthened over time as cash flows from operating activities increase. As cash is used to fund the store closure plans, corresponding store closure reserves are reduced which has a neutral impact on working capital and financial position. Should Mrs. Fields' cost estimates for exiting the remaining stores not prove sufficient, it would have a negative impact on both liquidity and results of operations. Mrs. Fields believes that it has sufficient liquidity to complete its store closure plans. A complete analysis of Mrs. Fields' store closure plans is included in Note 5 to the Consolidated Financial Statements. Mrs. Fields is pursuing growth in both its cookie and pretzel businesses through strategic acquisitions. Management expects that significant operating synergies, expense leveraging and geographic market share can be achieved through targeted acquisitions. On July 25, 1997, a subsidiary of Mrs. Fields' Holding, Mrs. Fields' Pretzel Concepts, Inc., acquired substantially all of the assets and assumed liabilities of H&M Concepts Ltd. Co., the largest franchisee of Pretzel Time, Inc. On September 2, 1997, Mrs. Fields' Holding acquired 56% of the common stock of Pretzel Time, the franchisor of the Pretzel Time concept. On November 26, 1997, Mrs. Fields received as a contribution from Mrs. Fields' Holding all of the common stock of The Mrs. Fields' Brand, Inc., the business of Mrs. Fields' Pretzel Concepts and 56% of the shares of common stock of Pretzel Time. On January 2, 1998 and June 12, 1998, Mrs. Fields acquired an additional 4% and 10%, respectively, of Pretzel Time common stock, bringing its total ownership to 70%. On December 9, 1998, Mrs. Fields purchased three percent of Pretzel Time common stock for $0.5 million in cash and on December 30, 1998 Mrs. Fields completed the acquisition of the remaining outstanding common stock of Pretzel Time under a stock purchase agreement, for a purchase price of approximately $4.7 million. On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock and subordinated indebtedness of Cookies USA, the parent company of Great American Cookie Company, Inc., for a total purchase price of $18.4 million. Mrs. Fields also retired approximately $38.9 million of outstanding Great 38

American notes. Concurrently, Cookies USA was merged into Mrs. Fields, at which time Great American became a wholly owned subsidiary of Mrs. Fields. At the same time Mrs. Fields also purchased the stock of two Great American franchisees, Deblan Corporation and Chocolate Chip Cookies of Texas, Inc., together owning and operating 29 Great American franchised stores, for total consideration of $14.4 million. Deblan and Chocolate Chip were merged into Great American at that time. On September 9, 1998, Mrs. Fields acquired eight Great American franchise stores from a Great American franchisee ("Karp"), for a purchase price of $1.9 million. On October 5, 1998, Mrs. Fields purchased all of the retail cookie and related business and operations of eleven Great American franchise stores from a Great American franchisee ("Cookie Conglomerate") for a total purchase price of $2.8 million. On November 19, 1998, Mrs. Fields, under a stock purchase agreement among Pretzelmaker Holdings, Inc., holders of all outstanding capital stock of Pretzelmaker, and Mrs. Fields, acquired all of the outstanding capital stock of Pretzelmaker for $5.7 million, including $5.4 million related to outstanding capital stock and $320,000 related to severance payments in lieu of outstanding stock options, and assumed liabilities totaling $1.3 million. Year 2000 Management has assessed the Year 2000 issue and has determined that all internal information technology systems including financial software, corporate networks, the AS400 system and all other systems are Year 2000 compliant with the exception of systems used for collecting and communicating sales data from retail locations. This assessment was based primarily on independent, third- party verification from Mrs. Fields' vendors and suppliers. Mrs. Fields is currently replacing its sales collection systems with software and hardware that is Year 2000 compliant. Programming and development of the software is complete and has been installed in approximately 80% of its stores. Mrs. Fields projects installation will be complete by September 1999. The estimated cost of this project is $1.9 million and includes software development and new store computers and registers. The costs to complete this project are included in Mrs. Fields' 1999 budget. Funding for this project is being provided by internal cash flow and by a lease finance company. Upgrades of the plant production and distribution software were completed in the first and second quarters of 1999 at an estimated cost of $10,000. No information technology projects have been deferred as a result of Mrs. Field's Year 2000 efforts. Mrs. Fields is not dependent on the proper operation of the sales collection systems to run the day-to-day operations of the business. Therefore, failure or malfunction of these systems due to untimely or incomplete remediation would not have a material adverse effect on its results of operations. Mrs. Fields has assessed Year 2000 issues with respect to its significant vendors and financial institutions as to their compliance plans and whether any Year 2000 issues will impede the ability of such vendors to continue providing goods and services to Mrs. Fields. Failure of Mrs. Fields' key suppliers to remedy their own Year 2000 issues could delay shipments of essential products, thereby disrupting Mrs. Fields' operations. Furthermore, Mrs. Fields relies on various service providers, such as utility and telecommunication service companies, which are beyond its control. Based upon the results of the assessment, Mrs. Fields is not aware of any Year 2000 issues relating to its significant vendors, financial institutions or its non-information technology systems. Mrs. Fields does not have a contingency plan in place to address untimely or incomplete remediation of Year 2000 issues, but it is currently developing contingency plans. These contingency plans are expected to address issues related to significant vendors and financial institutions. 39

Results of Operations of Mrs. Fields and its Predecessors The following table shows, for the periods indicated, information relating to the operations of Mrs. Fields and its predecessors expressed in thousands of dollars and percentage changes from period to period. Annual data in the table reflects the combined results of the predecessors (for the period December 31, 1995 through September 17, 1996) and Mrs. Fields (for the period September 18, 1996 through December 28, 1996) and the consolidated results of Mrs. Fields for the 53 weeks ended January 3, 1998 ("fiscal year 1997"), for the 52 weeks ended January 2, 1999 ("fiscal year 1998") and for the 26 weeks ended July 4, 1998 and July 3, 1999. In order for the presentations to be comparable, some of the historical financial statement information for the predecessors has been reclassified to be consistent with the Mrs. Fields historical financial statement presentation. <TABLE> <CAPTION> For the 26 Weeks % of Ended For the 53 Change % of ----------------- For the 52 Weeks from For the 52 Change % Change Weeks Ended Ended 1996 Weeks Ended from from December 28, January 3, to January 2, 1997 to July 4, July 3, 1998 to 1996 1998 1997 1999 1998 1998 1999 1999 ------------ ---------- ------ ----------- ------- ------- -------- -------- (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> Statement of Operations Data: Revenues: Net store and food sales................. $126,330 $127,845 1.2 % $140,235 9.7 % $58,687 $ 71,915 22.5 % Franchising, net....... 3,447 4,535 31.6 12,464 174.8 2,971 11,562 289.2 Licensing, net......... 1,656 2,028 22.5 1,537 (24.2) 683 688 0.7 -------- -------- -------- ------- -------- Total revenues......... 131,433 134,408 2.3 154,236 14.8 62,341 84,165 35.0 -------- -------- -------- ------- -------- Operating costs and expenses: Selling and store occupancy costs....... 69,209 66,832 (3.4) 75,003 12.2 33,908 41,118 21.3 Cost of sales.......... 31,340 32,028 2.2 38,482 20.2 15,185 21,856 43.9 General and administrative expenses.............. 20,557 16,192 (21.2) 19,017 17.4 8,587 10,873 26.6 Store closure provision............. -- 538 -- 7,303 1,257.4 -- -- -- Depreciation and amortization.......... 9,192 10,403 13.2 19,820 90.5 6,197 11,263 81.7 -------- -------- -------- ------- -------- Total operating costs and expenses.......... 130,298 125,993 (3.3) 159,625 26.7 63,877 85,110 33.2 Interest expense........ (4,842) (7,830) 61.7 (13,197) 68.5 (5,626) (8,686) 54.4 Interest income......... 141 246 74.4 623 153.3 417 78 (81.3) Other income (expense).. (2,422) (1,805) (25.5) (1,180) (34.6) (556) (546) (1.8) -------- -------- -------- ------- -------- Net loss................ $ (5,988) $ (974) (83.7)% $(19,143) 1,865.4 % $(7,301) $(10,099) 38.3 % ======== ======== ======== ======= ======== Supplemental Information: Continuing company-owned stores: Net store and food sales................. $ 95,635 $108,174 13.1 % $122,713 13.4 % $51,695 $ 63,905 23.6 % -------- -------- -------- ------- -------- Operating costs and ex- penses: Selling and store occupancy costs....... 44,963 50,858 13.1 60,900 19.7 27,550 34,866 26.6 Cost of sales.......... 24,499 26,578 8.5 33,621 26.5 13,204 14,962 13.3 Depreciation and amortization.......... 4,932 3,896 (21.0) 5,972 53.3 2,421 4,528 87.0 -------- -------- -------- ------- -------- Total operating costs and expenses.......... 74,394 81,332 9.3 100,493 23.6 43,175 54,356 25.9 -------- -------- -------- ------- -------- Continuing company-owned store contribution..... $ 21,241 $ 26,842 26.4 % $ 22,220 (17.2)% $ 8,520 $ 9,549 12.1 % ======== ======== ======== ======= ======== Stores in the Process of Being Closed or Franchised: Net store and food sales.................. $ 30,695 $ 19,671 (35.9)% $ 17,522 (10.9)% $ 6,992 $ 8,010 14.6 % -------- -------- -------- ------- -------- Operating costs and expenses: Selling and store occupancy costs....... 24,246 15,974 (34.1) 14,103 (11.7) 6,358 6,252 (1.7) Cost of sales.......... 6,841 5,450 (20.3) 4,861 (10.8) 1,981 2,431 22.7 Depreciation and amortization.......... 1,541 45 (97.1) 612 1,260.0 258 190 (26.4) -------- -------- -------- ------- -------- Total operating costs and expenses.......... 32,628 21,469 (34.2) 19,576 (8.8) 8,597 8,873 3.2 -------- -------- -------- ------- -------- Stores in the process of being closed or franchised negative contribution........... $ (1,933) $ (1,798) (7.0) $ (2,054) 14.2 % $(1,605) $ (863) (46.2)% ======== ======== ======== ======= ======== </TABLE> 40

26 Weeks Ended July 3, 1999 Compared to the 26 Weeks Ended July 4, 1998 As of July 3, 1999, there were 492 Company-owned stores and 1,001 franchised or licensed stores in operation. The store activity for the 26 weeks ended July 3, 1999 is summarized as follows: Company-owned and Franchised or Licensed Store Activity <TABLE> <CAPTION> July 3, 1999 July 4, 1998 -------------------- -------------------- Company- Franchised Company- Franchised Owned or Licensed Owned or Licensed -------- ----------- -------- ----------- <S> <C> <C> <C> <C> Stores open as of the beginning of the 26 weeks ended.................. 566 972 481 553 Stores opened (including relocations)...................... 10 49 5 42 Stores closed (including relocations)...................... (23) (38) (7) (42) Stores sold to franchisees......... (7) 7 (1) 1 Non-core (exit plan) stores closed (September 18, 1996 forward)...... (43) -- (8) -- Non-core (exit plan) stores franchised (September 18, 1996 forward).......................... (14) 14 (11) 11 Stores acquired from franchisees... 3 (3) 11 (11) --- ----- --- --- Stores open as of the end of the 26 weeks ended......................... 492 1,001 470 554 === ===== === === </TABLE> Revenues Net Store and Food Sales. Total net store sales increased $13,228,000, or 22.5%, from $58,687,000 to $71,915,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. Net store sales from core stores increased $12,210,000, or 23.6%, from $51,695,000 to $63,905,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. The increase in net store sales from core stores was primarily attributable to the operation of 66 Great American and 2 Pretzelmaker core stores obtained in connection with the acquisitions in August and November 1998, respectively. Net store sales from stores in the process of being closed or franchised increased $1,018,000, or 14.6%, from $6,992,000 to $8,010,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This increase results from the addition of 41 to be closed stores and 13 to be franchised stores in the fourth quarter 1998. Franchising Revenues. Franchising revenues increased $8,591,000, or 289.2%, from $2,971,000 to $11,562,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. The increase in franchising revenues was primarily attributable to batter sales made to franchisees from the Atlanta batter facility purchased in August 1998 and the addition of 201 Great American and 205 Pretzelmaker franchisees due to the acquisitions of these companies in August and November 1998, respectively. Licensing Revenues. Licensing revenues increased $5,000, or 0.7%, from $683,000 to $688,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. Operating Costs and Expenses Selling and Store Occupancy Costs. Total selling and store occupancy costs increased $7,210,000, or 21.3%, from $33,908,000 to $41,118,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. Selling and store occupancy costs for core stores increased by $7,316,000, or 26.6%, from $27,550,000 to $34,866,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. Within this 41

overall increase, selling expenses increased by $4,047,000, or 34.1%, from $11,865,000 to $15,912,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. Store occupancy costs increased $2,112,000, or 18.3%, from $11,569,000 to $13,681,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. These increases were primarily attributable to the 66 Great American and 2 Pretzelmaker core stores obtained in connection with the acquisitions in August and November 1998, respectively, coupled with lease renewal increases. Selling and store occupancy costs for stores in the process of being closed or franchised decreased $106,000, or 1.7%, from $6,358,000 to $6,252,000 for the 26 weeks ended July 3, 1999 compared to the 13 weeks ended July 4, 1998. This decrease was primarily the result of closing or franchising 57 stores during the 26 weeks ended July 3, 1999. Cost of Sales. Total food cost of sales increased $6,671,000, or 43.9%, from $15,185,000 to $21,856,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. Food cost of sales for core stores increased $1,758,000, or 13.3%, from $13,204,000 to $14,962,000 for the 26 weeks ended July 3, 1999. This increase was primarily the result of the addition of 66 Great American and 2 Pretzelmaker core stores in August and November 1998, respectively. Food cost of sales for stores in the process of being closed or franchised increased $450,000, or 22.7%, from $1,981,000 to $2,431,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This increase was primarily the result of the addition of 41 to be closed stores and 13 to be franchised stores in the fourth quarter 1998. General and Administrative Expenses. General and administrative expenses increased $2,286,000, or 26.6%, from $8,587,000 to $10,873,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. The increase in general and administrative expenses was primarily attributable to the acquisitions of Great American and Pretzelmaker. During the 26 weeks ended July 3, 1999, the Company incurred unanticipated consulting and other costs related to the Company's product offering and marketing programs as well as additional compensation and other expenses incurred by the Company due to the resignation of its Chief Financial Officer. Depreciation and Amortization. Total depreciation and amortization expense increased by $5,066,000, or 81.7%, from $6,197,000 to $11,263,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This increase was primarily attributable to increased goodwill and fixed assets from the Great American and Pretzelmaker acquisitions. Depreciation and amortization expense for core stores increased $2,107,000, or 87.0%, from $2,421,000 to $4,528,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This increase in depreciation and amortization expense was primarily attributable to the acquisitions of 66 Great American and 2 Pretzelmaker core stores in August and November 1998, respectively. Interest Expense. Interest expense increased $3,060,000, or 54.4%, from $5,626,000 to $8,686,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This increase was primarily attributable to interest on the $40,000,000 in high yield notes, which were issued in August 1998. Interest Income. Interest income decreased $339,000, or 81.3%, from $417,000 to $78,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This decrease was primarily the result of interest income earned in 1998 on excess cash provided by the $100,000,000 in high yield notes which were put in place in November 1997 that was not earned in fiscal 1999. Other Expenses. Other expenses for the 26 weeks ended July 3, 1999 were comparable to the 26 weeks ended July 4, 1998. 42

Net Loss. The net loss increased by $2,798,000, or 38.3%, from $7,301,000 to $10,099,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998 due to the combination of factors described above. Contribution from Core Stores. Contribution from core stores increased by $1,029,000, or 12.1%, from $8,520,000 to $9,549,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998, primarily due to the operation of 66 Great American and 2 Pretzelmaker core stores obtained in connection with the acquisitions in August and November 1998, respectively. Negative Contribution from Stores in the Process of Being Closed or Franchised. The negative contribution from stores in the process of being closed or franchised decreased by $742,000, or 46.2%, from $1,605,000 to $863,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This decrease was primarily the result of closing 43 stores and franchising 14 stores during the 26 weeks ended July 3, 1999 and the effect of closing or franchising 19 stores during the 26 weeks ended July 4, 1998. In addition, 22 stores were closed and 4 franchised over the remainder of fiscal year 1998, which were in operation during the 26 weeks ended July 4, 1998. 52 Weeks Ended January 2, 1999 Compared to the 53 Weeks Ended January 3, 1998 Company-owned and Franchised or Licensed Store Activity As of January 2, 1999, there were 566 company-owned stores and 972 franchised or licensed stores in operation. The store activity for the 53 weeks ended January 3, 1998 ("fiscal 1997") and the 52 weeks ended January 2, 1999 ("fiscal 1998") is summarized as follows: <TABLE> <CAPTION> Fiscal 1997 Fiscal 1998 -------------------- -------------------- Company- Franchised Company- Franchised owned or Licensed Owned or Licensed -------- ----------- -------- ----------- <S> <C> <C> <C> <C> Stores open as of the beginning of the fiscal year..................... 482 418 481 553 Stores opened (including relocations and acquisitions)................... 86 217 128 504 Stores closed (including relocations)........................ (7) (89) (20) (78) Non-continuing company-owned (exit plan) stores closed (September 18, 1996 forward)....................... (73) -- (30) -- Stores sold to franchisees........... (3) 3 (11) 11 Non-continuing company-owned (exit plan) stores franchised (September 18, 1996 forward)................... (9) 9 (15) 15 Stores acquired from franchisees..... 5 (5) 33 (33) --- --- --- --- Stores open as of the end of the fis- cal year............................ 481 553 566 972 === === === === </TABLE> Revenues Net Store and Food Sales. Total net store and food sales, which includes sales from stores and the mail order facility, increased $12,390,000, or 9.7%, from $127,845,000 to $140,235,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. Net store sales from continuing company-owned stores and mail order increased $14,539,000, or 13.4%, from $108,174,000 to $122,713,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increase in net store sales from continuing company-owned stores was primarily attributable to: (1) the operation of 85 Pretzel Time continuing company-owned stores acquired in connection with the acquisition of H&M and Pretzel Time in July 1997, (2) the operation of 65 Great American stores acquired in connection with the acquisitions of Great American, Deblan, Chocolate Chip, and Karp in August and September 1998, and 43

(3) a 35.5% increase in mail order sales. This increase in net store sales from continuing company-owned stores was offset in part by the negative effect of a calendar shift. Mrs. Fields' year end was December 28 in 1996 and January 3, 1998 in 1997. As a result, the New Year's holiday week fell in the first quarter of fiscal 1997 and again in the fourth quarter of fiscal 1997. The first quarter of 1998 did not benefit from the New Year's holiday sales. The increase in net store sales was also offset in part by negative same store sales. Based on stores that have been open for at least two years (adjusted for the calendar shift), system-wide continuing company-owned store sales were down 1.8% during the 52 weeks ended January 2, 1999 compared to the same period in fiscal 1997. Additionally, there were only 52 weeks in fiscal 1998 compared to 53 weeks in fiscal 1997. Net store sales from stores in the process of being closed or franchised decreased $2,149,000, or 10.9%, from $19,671,000 to $17,522,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This decrease results from closing or franchising 45 stores during the 52 weeks ended January 2, 1999 and the effect of closing or franchising 82 stores during the 53 weeks ended January 3, 1998. Franchising Revenues. Franchising revenues increased $7,929,000, or 174.8%, from $4,535,000 to $12,464,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increase in franchising revenues was primarily attributable to royalties earned from 141 Pretzel Time franchised stores obtained in connection with the acquisition of H&M and Pretzel Time in 1997, the 211 Great American franchised stores obtained in connection with the acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and September 1998 and the 199 Pretzelmaker franchised stores acquired in November 1998. Licensing Revenues. Licensing revenues decreased $491,000, or 24.2%, from $2,028,000 to $1,537,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The decrease in licensing revenues was primarily attributable to reduced concept licensing royalties. Total Revenues. Total revenues increased by $19,828,000, or 14.8%, from $134,408,000 to $154,236,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998 due to the reasons discussed above. Operating Costs and Expenses Selling and Store Occupancy Costs. Total selling and store occupancy costs increased $8,171,000, or 12.2%, from $66,832,000 to $75,003,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. Selling and store occupancy costs for continuing company-owned stores increased by $10,042,000, or 19.7%, from $50,858,000 to $60,900,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. Within this overall increase, selling expenses for continuing company-owned stores increased by $4,836,000, or 21.9%, from $22,094,000 to $26,930,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increase in selling expenses was primarily attributable to the 85 Pretzel Time continuing company-owned stores acquired in connection with the acquisitions of H&M and Pretzel Time in 1997, the 65 Great American continuing company-owned stores acquired in connection with the acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and September 1998, the 2 Pretzelmaker stores acquired in November 1998, and the effect of the minimum wage increasing to $5.15 from $4.75 on September 1, 1997. Store occupancy costs for continuing company-owned stores increased $5,206,000, or 18.1%, from $28,764,000 to $33,970,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increase in store occupancy costs was primarily attributable to the increase in the number of stores discussed above, Mrs. Fields' reacquiring 33 continuing company-owned stores from franchisees during the 52 weeks ended January 2, 1999, rent escalations in existing leases and lease renewal increases. 44

Selling and store occupancy costs for stores in the process of being closed or franchised decreased $1,871,000, or 11.7%, from $15,974,000 to $14,103,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This decrease was primarily the result of closing or franchising 45 stores during the 52 weeks ended January 2, 1999 and the effect of closing or franchising 82 stores during the 53 weeks ended January 3, 1998. Cost of Sales. Total cost of sales increased $6,454,000, or 20.2%, from $32,028,000 to $38,482,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. Cost of sales for continuing company-owned stores increased $7,043,000, or 26.5%, from $26,578,000 to $33,621,000 for the 52 weeks ended January 2, 1999. This increase was primarily the result of the addition of 85 Pretzel Time continuing company-owned stores in July 1997, 65 Great American continuing company-owned stores acquired in connection with the acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and September 1998 and 2 Pretzelmaker stores acquired in November 1998. Cost of sales also increased due to the addition of the Great American batter facility in August 1998 which produces batter for the Great American stores, food costs associated with increased mail order sales and the increasing cost of butter. Butter is one of the main ingredients in a variety of our products and is a condiment for other products. The price of butter has increased from $0.78/lb. at the beginning of fiscal 1997 to a peak of $2.92/lb. in September 1998. Additionally, distribution costs increased during the 52 weeks ended January 2, 1999 as Mrs. Fields' changed distributors to improve product availability and the reliability of service to the stores. Cost of sales for stores in the process of being closed or franchised decreased $589,000, or 10.8%, from $5,450,000 to $4,861,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This decrease was primarily the result of closing or franchising 45 stores during the 52 weeks ended January 2, 1999 and the effect of closing or franchising 82 stores during the 53 weeks ended January 3, 1998. General and Administrative Expenses. General and administrative expenses increased $2,825,000, or 17.4%, from $16,192,000 to $19,017,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increase in general and administrative expenses was primarily attributable to the acquisitions of H&M and Pretzel Time in 1997, the acquisitions of Great American, Deblan, Chocolate Chip, Karp and Pretzelmaker in 1998. Store Closure Provision. During the fourth quarter of 1998, management reassessed its strategy with respect to acceptable levels of contribution from certain existing stores. This resulted in management setting out a plan to close or franchise 54 existing stores. Mrs. Fields recorded an additional $7,303,000 in store closure reserves to cover early lease termination costs. Management believes that the level of store closure reserves is adequate to provide for all closure costs for these stores. Depreciation and Amortization Expense. Total depreciation and amortization expense increased by $9,417,000, or 90.5%, from $10,403,000 to $19,820,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This increase was primarily attributable to increased goodwill amortization from the acquisitions of H&M and Pretzel Time in fiscal 1997 and the acquisitions of Great American, Deblan, Chocolate Chip and Pretzelmaker in fiscal 1998. For stores with negative contribution that were determined to be closed or franchised, Mrs. Fields wrote down the related long-lived assets to net realizable value. This expense is included in depreciation and amortization in the 1998 statement of operations and totaled $3,098,000. Mrs. Fields also assessed the realization of goodwill associated with these stores and recorded an impairment of goodwill totaling $1,033,000 during fiscal 1998. Depreciation and amortization expense for continuing company-owned stores increased $ 2,076,000, or 53.3%, from $3,896,000 to $5,972,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This increase in depreciation and amortization expense was primarily attributable to the 45

addition of 85 Pretzel Time continuing company-owned stores in July 1997, 65 Great American continuing company-owned stores in August and September 1998 and the acquisition of 2 Pretzelmaker continuing company-owned stores in 1998. Total Operating Costs and Expenses. Total operating costs and expenses increased by $33,632,000, or 26.7%, from $125,993,000 to $159,625,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998, for the reasons discussed above. Interest Expense. Interest expense increased $5,367,000, or 68.5%, from $7,830,000 to $13,197,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This increase was primarily attributable to interest expense on the $100,000,000 notes that were placed in November 1997 and the $40,000,000 notes placed in August 1998. Interest Income. Interest income increased $377,000, or 153.3%, from $246,000 to $623,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This increase was primarily the result of interest earned on excess cash provided by the $100,000,000 notes that were placed in November 1997 and the $40,000,000 notes placed in August 1998. Other Expenses. Other expenses decreased $625,000, or 34.6%, from $1,805,000 to $1,180,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This decrease was primarily attributable to minority interest from the acquisitions of H&M and Pretzel Time in 1997 and a decrease in the income tax provision during the 52 weeks ended January 2, 1999. Net Loss. The net loss increased by $18,169,000, or 1,865.4%, from $974,000 to $19,143,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998 due to the combination of factors described above. Income from Continuing Company-Owned Stores. Income from continuing company- owned stores decreased by $4,622,000, or 17.2%, from $26,842,000 to $22,220,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. Income from continuing company-owned stores was negatively impacted by a 1.8% decline in sales from stores that have been open at least two years and by the increases in selling and store occupancy costs, food cost of sales and depreciation and amortization described above. Income from continuing company- owned stores was also negatively impacted by a calendar shift whereby Mrs. Fields' year end was December 28 for fiscal 1996 and January 3, 1998 for fiscal 1997. As a result, the New Year's holiday week fell in the first quarter of 1997 and again in the fourth quarter fiscal 1997. The first quarter of fiscal 1998 did not benefit from the New Year's holiday sales. Additionally, there were only 52 weeks in fiscal year 1998 compared to 53 weeks in fiscal 1997. Loss from Stores in the Process of Being Closed or Franchised. The loss from stores in the process of being closed or franchised increased by $256,000, or 14.2%, from $1,798,000 to $2,054,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increased loss was primarily attributable to the addition of 65 stores from the acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and September 1998, offset in part by closing or franchising 45 stores during the 52 weeks ended January 2, 1999. 46

53 Weeks Ended January 3, 1998 ("Fiscal Year 1997") Compared to the 52 Weeks Ended December 28, 1996 ("Fiscal Year 1996") (Comprised of the Mrs. Fields Inc., Original Cookie and Hot Sam Pre-Acquisition Period of December 31, 1995 through September 17, 1996 and the Mrs. Fields Post-Acquisition Period of September 18, 1996 through December 28, 1996) Company-owned and Franchised or Licensed Store Activity As of January 3, 1998, there were 481 company-owned stores and 553 franchised or licensed stores in operation. The store activity for the 52 weeks ended December 28, 1996 and the 53 weeks ended January 3, 1998 is summarized as follows: <TABLE> <CAPTION> Fiscal 1996 Fiscal 1997 -------------------- -------------------- Company- Franchised Company- Franchised owned or Licensed owned or Licensed -------- ----------- -------- ----------- <S> <C> <C> <C> <C> Stores open as of the beginning of the fiscal year..................... 540 415 482 418 Stores opened (including relocations)........................ 5 118 3 76 Stores acquired through business acquisitions........................ -- -- 83 141 Stores closed (including relocations)........................ (39) (122) (7) (89) Non-continuing company-owned (exit plan) stores closed (September 18, 1996 forward)....................... (17) -- (73) -- Stores sold to franchisees........... (9) 9 (3) 3 Non-continuing company-owned (exit plan) stores franchised (September 18, 1996 forward)................... (3) 3 (9) 9 Stores acquired from franchisees..... 5 (5) 5 (5) --- ---- --- --- Stores open as of the end of the fiscal year......................... 482 418 481 553 === ==== === === </TABLE> Revenues Net Store and Food Sales. Total net store and food sales, which includes sales from stores and the mail order facility, increased $1,515,000, or 1.2%, from $126,330,000 to $127,845,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. Net store sales from continuing company-owned stores and mail order increased $12,539,000, or 13.1%, from $95,635,000 to $108,174,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase in net store sales from continuing company-owned stores was primarily attributable to the operation of Pretzel Time continuing company-owned stores obtained in connection with the acquisitions of H&M and Pretzel Time in July 1997 and an increase in average transaction amounts resulting from the introduction of product line extensions and aggressive marketing initiatives, offset in part by declining transaction counts in some of our product lines. Also, three new continuing company-owned stores were opened and five stores were acquired from franchises during the 53 weeks ended January 3, 1998. Based on stores that have been open for at least two years (adjusted for the calendar shift), system-wide continuing company-owned store sales were up 0.8% during the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. Net store sales from stores in the process of being closed or franchised decreased $11,024,000, or 35.9%, from $30,695,000 to $19,671,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This decrease results from the partial year effect of closing 73 stores and franchising 7 (net) stores during fiscal year 1997 and the full year effect of closing 56 stores and franchising 7 (net) stores during fiscal year 1996. Franchising Revenues. Franchising revenues increased $1,088,000, or 31.6%, from $3,447,000 to $4,535,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The 47

increase in franchising revenues was primarily attributable to royalties earned from Pretzel Time franchised stores obtained in connection with the acquisitions of H&M and Pretzel Time coupled with new franchise openings in fiscal year 1997 and the full year effect of new franchise openings in fiscal year 1996. Licensing Revenues. Licensing revenues increased $372,000, or 22.5%, from $1,656,000 to $2,028,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase in licensing revenues is primarily attributable to licensing fees earned on new license agreements entered into during the 53 weeks ended January 3, 1998, and increased royalties received from existing licensees. Total Revenues. Total revenues increased by $2,975,000, or 2.3%, from $131,433,000 to $134,408,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996, for the reasons discussed above. Operating Costs and Expenses Selling and Store Occupancy Costs. Total selling and store occupancy costs decreased $2,377,000, or 3.4%, from $69,209,000 to $66,832,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. Selling and store occupancy costs for continuing company-owned stores increased by $5,895,000, or 13.1%, from $44,963,000 to $50,858,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. Within this overall increase, selling expenses increased by $4,029,000, or 15.7%, from $25,650,000 to $29,679,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase in selling expenses was primarily attributable to an increase in the minimum wage during the third quarter of 1996 from $4.15 to $4.75 an hour and an increase in labor hours to support the increase in sales. Store occupancy costs increased $1,866,000, or 9.7%, from $19,313,000 to $21,179,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase in store occupancy costs was primarily attributable to the addition of Pretzel Time continuing company-owned stores in July 1997, and the opening of three continuing company-owned stores and acquiring five stores from franchises during the 53 weeks ended January 3, 1998 coupled with lease renewal increases. Selling and store occupancy costs for stores in the process of being closed or franchised decreased $8,272,000, or 34.1%, from $24,246,000 to $15,974,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This decrease is primarily the result of closing 73 stores and franchising seven (net) stores during fiscal year 1997 and the full year effect of closing 56 stores and franchising seven (net) stores during fiscal year 1996. Cost of Sales. Total cost of sales increased $688,000, or 2.2%, from $31,340,000 to $32,028,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. Cost of sales for continuing company-owned stores increased $2,079,000, or 8.5%, from $24,499,000 to $26,578,000 for the 53 weeks ended January 3, 1998. This increase is primarily the result of the addition in July 1997 of Pretzel Time continuing company-owned stores, offset by an aggressive product waste control program which was uniformly applied to all product lines early in the year. Additionally, Mrs. Fields re-negotiated certain vendor contracts to capitalize on Mrs. Fields' economies of scale. Cost of sales for stores in the process of being closed or franchised decreased $1,391,000, or 20.3%, from $6,841,000 to $5,450,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This decrease is primarily the result of closing 73 stores and franchising seven (net) stores during fiscal year 1997 and the full year effect of closing 56 stores and franchising seven (net) stores during fiscal year 1996. General and Administrative Expenses. General and administrative expenses decreased $4,365,000, or 21.2%, from $20,557,000 to $16,192,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks 48

ended December 28, 1996. The decrease in expenses was primarily attributable to the cost savings achieved by combining the operations of Mrs. Fields Inc. and subsidiaries, Original Cookie, Hot Sam and Pretzel Time which resulted in: (1) reduced headcount with corresponding decreases in administrative salaries and benefits; (2) decreased professional service fees, including legal and accounting services; and (3) decreased corporate office expenditures, including general insurance, repairs and maintenance and utilities as a direct result of closing the Original Cookie and Hot Sam headquarters in Cleveland, Ohio, the Pretzel Time headquarters in Harrisburg, Pennsylvania and the H&M headquarters in Boise, Idaho. Depreciation and Amortization Expense. Total depreciation and amortization expense increased by $1,211,000, or 13.2%, from $9,192,000 to $10,403,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. Depreciation and amortization expense for continuing company-owned stores decreased $1,036,000, or 21.0%, from $4,932,000 to $3,896,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The decrease in depreciation and amortization expense was primarily attributable to Mrs. Fields recording the acquired assets of Mrs. Fields Inc. and subsidiaries, Original Cookie and Hot Sam at their fair values at the time of purchase on September 17, 1996, resulting in an overall reduction to the store asset base and the corresponding depreciation. This decrease is partially offset by additional depreciation expense resulting from the addition of Pretzel Time continuing company-owned stores in July 1997, three newly opened continuing company-owned stores and five stores acquired from franchises in fiscal year 1997. Total Operating Costs and Expenses. Total operating costs and expenses decreased by $4,305,000, or 3.3%, from $130,298,000 to $125,993,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996, for the reasons discussed above. Interest Expense. Interest expense increased $2,988,000, or 61.7%, from $4,842,000 to $7,830,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This increase is primarily attributable to an increase in interest expense as a result of the debt incurred to fund the purchase of the assets of Mrs. Fields Inc. and subsidiaries, Original Cookie and Hot Sam on September 17, 1996. Other Expenses. Other expenses decreased $617,000, or 25.5%, from $2,422,000 to $1,805,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This decrease was primarily attributable to a decrease in income tax provision, offset in part by an increase in accretion and dividends on preferred stock of subsidiaries. Net Loss. The net loss decreased by $5,014,000, or 83.7%, from $5,988,000 to $974,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The net loss equaled 0.7% of total revenues during the 53 weeks ended January 3, 1998 compared to 4.6% of total revenues during the 52 weeks ended December 28, 1996. The decrease in net loss is primarily due to cost savings achieved by combining the operations of Mrs. Fields Inc. and subsidiaries, Original Cookie and Hot Sam, cost savings associated with the acquisitions of H&M and Pretzel Time and improved store operations. Income from Continuing Company-Owned Stores. The income from continuing company-owned stores increased by $5,601,000, or 26.4%, from $21,241,000 to $26,842,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996 due to the combination of the factors described above. Loss from Stores in the Process of Being Closed or Franchised. The loss from stores in the process of being closed or franchised decreased by $135,000, or 7.0%, from $1,933,000 to $1,798,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The decrease in negative income 49

was primarily attributable to closing 73 stores and franchising seven (net) stores during fiscal year 1997 and the full year effect of closing 56 stores and franchising seven (net) stores during fiscal year 1996. Liquidity and Capital Resources General Mrs. Fields' principal sources of liquidity are cash flows from operations, cash on hand and available borrowings under Mrs. Fields' existing lease and revolving credit facilities. As of July 3, 1999, Mrs. Fields has $4,645,000 of cash and cash equivalents on hand and $276,000 additional borrowings allowable under its revolving credit facilities. Mrs. Fields expects to use its existing cash, cash flows from operating activities and its credit facilities to provide working capital, finance capital expenditures and to meet debt service requirements. Based on current operations and anticipated cost savings, Mrs. Fields believes that its sources of liquidity will be adequate to meet its anticipated requirements for working capital, capital expenditures, scheduled debt service requirements and other general corporate purposes. There can be no assurance, however, that Mrs. Fields' business will continue to generate cash flows at or above current levels or that cost savings can be achieved. July 3, 1999 Compared to January 2, 1999 As of July 3, 1999, Mrs. Fields had liquid assets (cash and cash equivalents and accounts receivable) of $11,023,000, a decrease of 21.0%, or $2,939,000, from January 2, 1999 when liquid assets were $13,962,000. Cash decreased $106,000, or 2.2%, to $4,645,000 at July 3, 1999 from $4,751,000 at January 2, 1999. Accounts receivable decreased $2,833,000, or 30.8%, to $6,378,000 at July 3, 1999 from $9,211,000 at January 2, 1999 due to the seasonality of the business and improved collections. Mrs. Field's working capital decreased by $707,000 to a negative $13,434,000 at July 3, 1999 from a negative $12,727,000 at January 2, 1999. This decrease is due to decreases in current assets, as discussed above, which more than offset decreases in current liabilities. Long-term assets decreased $8,915,000, or 4.3%, to $198,648,000 at July 3, 1999 from $207,563,000 at January 2, 1999. This decrease was primarily the result of scheduled depreciation and amortization of fixed assets, goodwill and deferred loan costs. During the 26 weeks ended July 3, 1999, Capricorn Investors II L.P., the majority shareholder in Mrs. Fields' Holdings, Mrs. Fields' 100% owner, assumed a $2,000,000 contract payment due in the future. This transaction enhanced Mrs. Fields' tax planning and financial flexibility. Mrs. Fields' cash flows from operating activities of $2,708,000 for the 26 weeks ended July 3, 1999, resulted primarily from store sales and franchising and licensing revenues net of costs and expenses incurred to generate these sales and better management of cash flows. Mrs. Fields utilized $2,704,000 of cash in investing activities during the 26 weeks ended July 3, 1999, primarily for capital expenditures relating to store remodels and renovations. Mrs. Fields utilized $110,000 of cash in financing activities during the 26 weeks ended July 3, 1999, primarily for the payment of debt related to the Pretzel Time acquisition. The specialty cookie and pretzel businesses do not require the maintenance of significant receivables or inventories; however, Mrs. Fields continually invests in its business by upgrading and remodeling stores and adding new stores, carts, and kiosks as opportunities arise. Investments in these long- term assets, which are key to generating current sales, reduce Mrs. Fields' working capital. During the 26 weeks ended July 3, 1999 and July 4, 1998, Mrs. Fields expended $2,604,000 and $3,342,000, respectively, for capital assets and expects to 50

expend a total of approximately $7,000,000 in 1999. Management anticipates that these expenditures will be funded with cash generated from operating activities and short-term borrowings under its credit facility as needed. Year 2000 Management has assessed the Year 2000 issue and has determined that all internal information technology systems including financial software, corporate networks, the AS400 system and all other systems are Year 2000 compliant with the exception of systems used for collecting and communicating sales data from retail locations. This assessment was based primarily on independent, third-party verification from Mrs. Fields' vendors and suppliers. Mrs. Fields is currently replacing its sales collection systems with software and hardware that is Year 2000 compliant. Programming and development of the software is complete and has been installed in approximately 80% of its stores. Mrs. Fields projects installation will be complete by August 1999. The estimated cost of this project is $1.9 million and includes software development and new store computers and registers. The costs to complete this project are included in Mrs. Fields' 1999 budget. Funding for this project is being provided by internal cash flow and by a lease finance company. Upgrades of the plant production and distribution software were completed in the first and second quarters of 1999 at an estimated cost of $10,000. No information technology projects have been deferred as a result of Mrs. Field's Year 2000 efforts. Mrs. Fields is not dependent on the proper operation of the sales collection systems to run the day-to-day operations of the business. Therefore, failure or malfunction of these systems due to untimely or incomplete remediation would not have a material adverse effect on its results of operations. Mrs. Fields has assessed Year 2000 issues with respect to its significant vendors and financial institutions as to their compliance plans and whether any Year 2000 issues will impede the ability of such vendors to continue providing goods and services to Mrs. Fields. Failure of Mrs. Fields' key suppliers to remedy their own Year 2000 issues could delay shipments of essential products, thereby disrupting Mrs. Fields' operations. Furthermore, Mrs. Fields relies on various service providers, such as utility and telecommunication service companies, which are beyond its control. Based upon the results of the assessment, Mrs. Fields is not aware of any Year 2000 issues relating to its significant vendors, financial institutions or its non-information technology systems. Mrs. Fields does not have a contingency plan in place to address untimely or incomplete remediation of Year 2000 issues, but it is currently developing contingency plans. These contingency plans are expected to address issues related to significant vendors and financial institutions. Inflation The impact of inflation on the earnings of the business has not been significant in recent years. Most of Mrs. Fields' leases contain escalation clauses (however, such leases are accounted for on a straight-line basis as required by generally accepted accounting principles which minimizes fluctuations in operating income) and many of Mrs. Fields' employees are paid hourly wages at the Federal minimum wage level. Minimum wage increases will negatively impact Mrs. Fields' payroll costs in the short term, but management believes such impact can be offset in the long term through operational efficiency gains and, if necessary, through product price increases. 51

Consolidated Results of Operations of Cookies USA and Its Wholly Owned Operating Subsidiary, Great American, Prior to the Great American Acquisition As Great American is a significant subsidiary of Mrs. Fields, management's discussion and analysis of financial condition and results of operations is also included for the consolidated operations of Cookies USA and Great American for the 52 weeks ended June 28, 1998 compared to the 52 weeks ended June 29, 1997, for the 52 weeks ended June 29, 1997 compared to the 52 weeks ended June 30, 1996, and the 52 weeks ended June 30, 1996 compared to the 52 weeks ended June 29, 1995. See the historical financial statements and the related notes to the historical financial statements of Cookies USA, Inc. and subsidiary contained elsewhere in this prospectus. References to the beliefs of the management of Great American or Cookies USA in this discussion are to management prior to the acquisition of Great American by Mrs. Fields. As used in this discussion, "management" refers to David Barr, the chief executive officer of Great American and Cookies USA at the time of its acquisition by Mrs. Fields. The factors cited in the following discussion as contributing to changes in operating results are listed in order of importance; however, unless otherwise indicated in the discussion, the quantitative importance of any such factors cannot be determined by Great American management and have not been stated. The "forward-looking statements" contained in this section represent Great American's expectations or beliefs concerning future events, including statements regarding unit growth and cash requirements. Management cautions that a number of important factors could, individually or in the total, cause actual results to differ materially from those stated in the forward-looking statements including, without limitation, the following: . consumer spending trends and habits, . mall traffic trends, . increased competition among snack retailers, . economic conditions in the regions where Great American and its franchisees operate stores, . the ability to identify and secure suitable locations for new stores, . the availability of experienced management and hourly employees, and . the laws and regulations affecting labor and employee benefit costs. Accounting Period During the 52 weeks ended June 30, 1996, Great American changed its year end from the last Thursday in the month of June to the last Sunday in the month of June. As a result, three days were added to the fifty-two week period ended Thursday, June 27, 1996 to effectively change Great American's fiscal year end to Sunday, June 30, 1996. This change does not materially impact the comparability of the years presented in the accompanying consolidated financial statements. 52

52 Weeks Ended June 28, 1998 ("Fiscal Year 1998") Compared to 52 Weeks Ended June 29, 1997 ("Fiscal Year 1997") Company and Franchise Store Activity As of June 28, 1998, there were 77 company-operated stores and 247 franchised stores in operation. The store activity for fiscal year 1997 and for fiscal year 1998 is summarized as follows: <TABLE> <CAPTION> Fiscal 1997 Fiscal 1998 ------------------- ------------------- Company- Company- operated Franchised operated Franchised -------- ---------- -------- ---------- <S> <C> <C> <C> <C> Stores open as of beginning of the fiscal year.......................... 104 225 91 233 Stores opened (including relocations)......................... 1 12 3 7 Stores closed (including relocations)......................... (10) (8) (2) (8) Stores sold to franchisees............ (12) 12 (15) 15 Stores acquired from franchisees...... 8 (8) 0 0 --- --- --- --- Stores open as of the end of the year................................. 91 233 77 247 Satellite locations as of the end of the year............................. 9 30 4 32 --- --- --- --- Total outlets as of the end of the year............................... 100 263 81 279 === === === === </TABLE> The above activity results in 5,161 company-operated equivalent store weeks and 11,858 franchisee-operated equivalent store weeks during the fiscal year ended June 29, 1997 compared to 4,288 company-operated equivalent store weeks and 12,581 franchisee-operated equivalent store weeks during the fiscal year ended June 28, 1998. Total Revenue Total revenue decreased approximately $2,696,000, or 6.7%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. Each of Great American's revenue sources is discussed below: . Cookie and beverage sales at company-operated retail stores decreased approximately $3,521,000, or 15.7%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The decrease in revenue from company-operated retail stores was attributable to: (a) a 16.9% decrease in company-operated equivalent store weeks offset by (b) a 1.2% increase in the average retail sales volume for company- operated stores. Based on those stores which were company-operated during the entire 1998 and 1997 fiscal years, sales volumes did not change. . Batter sales to franchisees increased approximately $944,000, or 8.4%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The increase in batter sales to franchisees was primarily attributable to (a) a 6.1% increase in franchisee-operated equivalent store weeks and (b) a 2.3% increase in the volume of batter sold per franchisee- operated equivalent store week. . Franchise royalties increased approximately $538,000, or 11.4%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The increase in franchise royalties was attributable to: (a) a 6.1% increase in franchisee-operated equivalent store weeks and (b) an increase in the average retail sales volume per franchisee- operated store of 5.3%. 53

Based on those stores which were franchisee-operated during the entire 1998 and 1997 fiscal years, management estimates franchisees' sales volumes increased 3.5%. . Revenue from franchise license fees decreased approximately $172,000, or 25.5%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. Revenue from selling existing and new stores to franchisees is summarized as follows (rounded): <TABLE> <CAPTION> Fiscal 1998 Fiscal 1997 ----------- ----------- <S> <C> <C> Number of licenses sold to franchisees --existing stores................................ 15 12 --new stores..................................... 5 12 Cash and notes from sale of existing stores........ $1,980,000 $2,045,000 Less: net book value of existing stores sold....... 1,235,000 818,000 ---------- ---------- Revenue from sale of existing stores............... 745,000 1,227,000 ---------- ---------- Revenue from license fees for new stores........... 125,000 300,000 Revenue from other fees............................ 3,000 75,000 ---------- ---------- Revenue from license fees for new stores and other fees.............................................. 128,000 375,000 ---------- ---------- Total revenue from sale of existing and new stores to franchisees.................................... 873,000 1,602,000 Less: Gain on sale of existing stores.............. 370,000 927,000 ---------- ---------- Revenue from franchise license fees................ $ 503,000 $ 675,000 ========== ========== </TABLE> . Other revenue increased approximately $73,000, or 111.6%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The increase in other revenue was primarily attributable to: (a) an increase in construction assistance revenue derived from construction assistance performed by the company for the benefit of franchisees and (b) an increase in sales of miscellaneous supplies to franchise stores, offset by (c) an increase in batter discounts given to franchisees as a result of increased batter sales to franchisees in fiscal 1998. Cost of Sales Cost of sales decreased approximately $1,559,000, or 8.4%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The decrease in cost of sales was primarily attributable to: (a) a decline in cookie and beverage sales due to less company-operated equivalent store weeks and (b) an improvement in batter facility margins, offset by (c) an increase in batter sales to franchisees. Retail Store Occupancy Retail store occupancy costs decreased approximately $1,318,000, or 18.7%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The decrease was primarily attributable to a 16.9% decrease in company-operated equivalent store weeks. Other Retail Store Expenses Other retail store expenses decreased approximately $149,000, or 14.6%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The decrease in other retail store expenses was primarily attributable to a 16.9% decrease in company-operated equivalent store weeks. 54

Selling, General and Administrative Expenses Selling, general and administrative expenses decreased approximately $399,000, or 5.2%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. This decrease was primarily attributable to: (a) a decrease in development and testing expense, (b) a decrease in salaries and benefits at the support center, and (c) a decrease in expenses associated with the franchise convention because a franchise convention was not held in fiscal 1998, offset by (d) an increase in marketing expenses and (e) an increase in the cost of training materials related to the rollout of a new training program. In addition, in 1998 Great American revised its estimate of the useful life of some of its computer equipment from five to three years decreasing pre-tax income by $111,000. Management believes that this revision better reflects the equipment's economic useful life. Other Expenses, Net Other expenses, net, increased approximately $557,000, or 60.0%, during the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The increase was primarily attributable to a decrease in gains on the sale of existing stores. Net Loss Net loss decreased approximately $544,000, or 72.9%, for the fiscal year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The decrease in net loss was primarily attributable to: (a) a 12.7% increase in operating income, (b) a 1.7% decrease in other expenses, net, offset by (c) a 111.0% increase in state and federal income tax expense. 52 Weeks Ended June 29, 1997 ("Fiscal Year 1997") Compared to 52 Weeks Ended June 30, 1996 ("Fiscal Year 1996") Great American-owned and Franchise Store Activity As of June 29, 1997, there were 91 Great American-owned stores and 233 franchised stores in operation. The store activity for fiscal year 1996 and for fiscal year 1997 is summarized as follows: <TABLE> <CAPTION> Fiscal Year 1996 Fiscal Year 1997 -------------------------- -------------------------- Great American- Great American- owned Franchised owned Franchised --------------- ---------- --------------- ---------- <S> <C> <C> <C> <C> Stores open as of beginning of the fiscal year................... 108 215 104 225 Stores opened (including relocations)........... 12 14 1 12 Stores closed (including relocations)........... (10) (10) (10) (8) Stores sold to franchisees............ (9) 9 (12) 12 Stores acquired from franchisees............ 3 (3) 8 (8) --- --- --- --- Stores open as of the end of the year........ 104 225 91 233 Satellite locations as of the end of the year................... 11 28 9 30 --- --- --- --- Total outlets as of the end of the year........ 115 253 100 263 === === === === </TABLE> 55

The above activity resulted in 5,661 Great American-owned equivalent store weeks and 11,544 franchised equivalent store weeks during fiscal year 1996 compared to 5,161 Great American-owned equivalent store weeks and 11,858 franchised equivalent store weeks during fiscal year 1997. Total Revenue Total revenue decreased approximately $342,000, or 0.9%, during fiscal year 1997 compared to fiscal year 1996. Each of Great American's revenue sources is discussed below: Cookie and beverage sales at Great American-owned retail stores decreased approximately $2,344,000, or 9.5%, during fiscal year 1997 compared to fiscal year 1996. The decrease in revenue from Great American-owned retail stores was attributable to: (a) an 8.8% decrease in Great American-owned equivalent store weeks and (b) a 0.7% decrease in the average retail sales volume for Great American- owned stores. Based on those stores which were Great American-owned during the entire 1996 and 1997 fiscal years, sales volumes increased 1.3%. The change in average store volume does not equal the change in sales volume from stores that have been open at least two years due to differences in the stores being compared as a result of opening, closing, selling, and acquiring stores throughout the year. Batter sales to franchisees increased approximately $1,166,000, or 11.5%, during fiscal year 1997 compared to fiscal year 1996. The increase in batter sales to franchisees was primarily attributable to: (a) an 8.8% increase in the volume of batter sold per franchised equivalent store week and (b) a 2.7% increase in franchised equivalent store weeks. Franchise royalties increased approximately $440,000, or 10.3%, during fiscal year 1997 compared to fiscal year 1996. The increase in franchise royalties was attributable to: (a) an increase in the average retail sales volume per franchised store of 7.6% and (b) a 2.7% increase in franchised equivalent store weeks. Based on those stores which were franchised during the entire 1996 and 1997 fiscal years, management estimates franchisees' sales volumes increased 5.5%. Revenue from franchise license fees increased approximately $154,000, or 29.6%, during fiscal year 1997 compared to fiscal year 1996. Revenue from selling existing and new stores to franchisees is summarized as follows (rounded): <TABLE> <CAPTION> Fiscal Year Fiscal Year 1996 1997 ----------- ----------- <S> <C> <C> Number of licenses sold to franchisees: Existing stores.................................... 9 12 New stores......................................... 11 12 Cash and notes from sale of existing stores.......... $1,602,000 $2,045,000 Less: net book value of existing stores sold......... (741,000) (818,000) ---------- ---------- Revenue from sales of existing stores................ 861,000 1,227,000 ---------- ---------- Revenue from license fees for new stores............. 275,000 300,000 Revenue from other fees.............................. 21,000 75,000 ---------- ---------- Revenue from license fees for new stores and other fees................................................ 296,000 375,000 ---------- ---------- Total................................................ 1,157,000 1,602,000 Less: Gain on sale of existing stores................ 636,000 927,000 ---------- ---------- Revenue from franchise licensing fees................ $ 521,000 $ 675,000 ========== ========== </TABLE> 56

Other revenue, net decreased approximately $49,000, or 42.6%, during fiscal year 1997 compared to fiscal year 1996. The decrease in other revenue, net was primarily attributable to: (a) a decrease in construction assistance revenue derived from construction assistance performed by Great American for the franchisees and (b) an increase in batter discounts given to franchisees as a result of increased batter sales to franchisees in fiscal year 1997. Cost of Sales Cost of sales decreased approximately $908,000, or 4.7%, during fiscal year 1997 compared to fiscal year 1996. The decrease in cost of sales was primarily attributable to: (a) a decline in cookie and beverage sales due to less Great American-owned equivalent store weeks, and (b) a decrease in the cost of packaging and freight for Great American- owned retail stores, offset by (c) an increase in batter sales to franchisees. Retail Store Occupancy Retail store occupancy costs decreased approximately $324,000, or 4.4%, during fiscal year 1997 compared to fiscal year 1996. The decrease was primarily attributable to an 8.8% decrease in Great American-owned equivalent store weeks. Other Retail Store Expenses Other retail store expenses decreased approximately $297,000, or 22.6%, during fiscal year 1997 compared to fiscal year 1996. The decrease in other retail store expenses was primarily attributable to: (a) a decrease in operating supplies expense within Great American-owned stores in fiscal year 1997 due to (1) the opening of 11 less Great American-owned stores in fiscal year 1997 versus fiscal year 1996 and (2) additional costs incurred in fiscal year 1996 related to the rollout of a new cookie merchandising program, and (b) an 8.8% decrease in Great American-owned equivalent store weeks, offset by (c) an increase in point-of-sale marketing expenses in Great American-owned stores. Selling, General, and Administrative Expenses Selling, general and administrative expenses increased approximately $310,000, or 4.2%, during fiscal year 1997 compared to fiscal year 1996. This increase was primarily attributable to: (a) an increase in professional service fees, (b) an increase in point-of-sale marketing expenses on behalf of franchisee- owned stores, and (c) an increase in salaries, offset by (d) a decrease in travel expense, and (e) a decrease in insurance costs. Other Expenses, Net Other expenses, net decreased approximately $484,000, or 8.7%, during fiscal year 1997 compared to fiscal year 1996. The decrease was primarily attributable to an increase in gains on the sale of existing stores. 57

Net Loss Net loss decreased approximately $615,000, or 45.2%, for fiscal year 1997 compared to fiscal year 1996. The decrease in net loss was primarily attributable to: (a) an $877,000 increase in operating income, and (b) a $193,000 decrease in other expenses, net, offset by (c) a $455,000 increase in state and federal income tax expense. 52 Weeks Ended June 30, 1996 ("Fiscal Year 1996") Compared to 52 Weeks Ended June 29, 1995 ("Fiscal Year 1995") Great American-owned and Franchise Store Activity As of June 30, 1996 there were 104 Great American-owned stores and 225 franchised stores in operation. The store activity for fiscal year 1995 and for fiscal year 1996 is summarized as follows: <TABLE> <CAPTION> Fiscal Year 1995 Fiscal Year 1996 -------------------------- -------------------------- Great American- Great American- owned Franchised owned Franchised --------------- ---------- --------------- ---------- <S> <C> <C> <C> <C> Stores open as of beginning of the fiscal................. 111 204 108 215 Stores opened (including relocations)........... 16 11 12 14 Stores closed (including relocations)........... (8) (11) (10) (10) Stores sold to franchisees............ (12) 12 (9) 9 Stores acquired from franchisees............ 1 (1) 3 (3) --- --- --- --- Stores open as of the end of the fiscal year................... 108 215 104 225 Satellite locations as of the end of the fiscal year............ 12 36 11 28 --- --- --- --- Total outlets as of the end of the fiscal year................... 120 251 115 253 === === === === </TABLE> The activity reflected above resulted in 5,879 and 5,661 Great American-owned equivalent store weeks and 10,716 and 11,544 franchised equivalent store weeks during fiscal year 1995 and fiscal year 1996, respectively. Total Revenue Total revenue decreased approximately $1,024,000, or 2.5%, during fiscal year 1996 compared to fiscal year 1995, primarily attributable to the following: Cookie and beverage sales at Great American-owned retail stores decreased approximately $1,629,000, or 6.2%, during fiscal year 1996 compared to fiscal year 1995. The decrease in revenue from Great American-owned retail stores was primarily attributable to: (a) an approximately 3.7% decrease in Great American-owned equivalent store weeks and (b) a decrease in the average retail sales volume for Great American- owned stores. Specifically, the average retail sales volume for Great American-owned stores decreased approximately 2.6% per equivalent store week. Based on those stores which were Great American-owned during the entire 1995 and 1996 fiscal years, sales volumes decreased 0.3%. Batter sales to franchisees increased approximately $729,000, or 7.8%, during fiscal year 1996 compared to fiscal year 1995. The increase in batter sales to franchisees was primarily attributable to: (a) an increase of approximately 7.7% in franchised equivalent store weeks and (b) a 0.1% increase in the volume of batter sold per franchised equivalent store week. 58

Franchise royalties increased approximately $313,000, or 7.9%, during fiscal year 1996 compared to fiscal year 1995. The increase in franchise royalties was primarily attributable to: (a) an increase of approximately 7.7% in equivalent franchised retail store weeks and (b) an increase in the average franchised equivalent store sales volume of 0.2%. Based on those stores which were franchised during the entire 1995 and 1996 fiscal years, management estimates that franchisees' sales volumes did not change materially. Revenue from franchise license fees decreased approximately $391,000, or 25.3%, during fiscal year 1996 compared to fiscal year 1995. Revenue from selling existing and new stores to franchisees is summarized below (rounded): <TABLE> <CAPTION> Fiscal Year Fiscal Year 1995 1996 ----------- ----------- <S> <C> <C> Number of licenses sold to franchisees: Existing stores................................. 12 9 New stores...................................... 11 11 Cash proceeds from sale of existing stores........ $ 2,558,000 $1,602,000 Less: net book value of existing stores sold...... (1,346,000) (741,000) ----------- ---------- Revenue from sales of existing stores............. 1,212,000 861,000 ----------- ---------- Revenue from license fees for new stores.......... 280,000 275,000 Revenue from other fees........................... 56,000 21,000 ----------- ---------- Revenue from license fees for new stores and other fees............................................. 336,000 296,000 ----------- ---------- Total............................................. 1,548,000 1,157,000 Less: Gain on sale of existing stores............. 912,000 636,000 ----------- ---------- Revenue from franchise license fees............... $ 636,000 $ 521,000 =========== ========== </TABLE> Other revenue, net decreased approximately $46,000, or 28.6%, during fiscal year 1996 compared to fiscal year 1995. The decrease in other revenue, net is primarily attributable to: (a) an increase in batter discounts taken by franchisees, which was consistent with the increase in batter sales to franchisees, partially offset by (b) an increase in sales of miscellaneous supplies to franchise stores. Cost of Sales Cost of sales decreased approximately $452,000, or 2.3%, during fiscal year 1996 compared to fiscal year 1995. The decrease was primarily attributable to: (a) a decline in retail cookie and beverages sales volume in Great American-owned stores and (b) an improvement in wholesale batter margins, partially offset by (c) an increase in the volume of batter sold to franchisees. Retail Store Occupancy Retail store occupancy costs decreased approximately $209,000, or 2.8%, during fiscal year 1996 compared to fiscal year 1995. The decrease in retail store occupancy costs was primarily attributable to: (a) a decrease of approximately 3.7% in Great American-owned store weeks, partially offset by (b) an increase in depreciation due to Great American revising its estimate of the useful life of certain leasehold improvements. 59

Great American began amortizing leasehold improvements using accelerated methods over an average of eight years instead of using the straight-line method over ten years. The effect of this change in estimate was to increase fiscal year 1996 pre-tax loss by $214,000. Management believes that this revision better reflects the leasehold improvements' useful life. Other Retail Store Expenses Other retail store expenses decreased approximately $223,000, or 14.5%, during fiscal year 1996 compared to fiscal year 1995. The decrease in other retail store expenses was primarily attributable to: (a) a decrease in marketing expenses and (b) a decrease in bank charges and supplies expense as a result of cost containment efforts. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased approximately $376,000, or 4.9%, during fiscal year 1996 compared to fiscal year 1995. The decrease in selling, general and administrative expenses was primarily attributable to: (a) a reduction in administrative salaries and benefits, (b) a decrease in professional service fees, including legal and accounting services, and (c) a decrease in various home office expenditures, including postage, supplies, and training materials, partially offset by (d) an increase in travel costs due to additional review of stores by field supervisors. Other Expenses, Net Other expenses, net increased approximately $231,000, or 4.4%, during fiscal year 1996 compared to fiscal year 1995. The increase was primarily attributable to: (a) decrease gains on the sale of existing stores, (b) a decrease in interest income due to lower average cash balances, and (c) an increase in interest expense due to an increase in capital lease obligations. Non-Recurring Litigation Charge During the third quarter of fiscal year 1995, a non-recurring litigation charge of $439,000 was recorded to cover a potential forthcoming judgment against Great American in the Haagen-Burbank lawsuit. In June 1993, Great American won a judgment for breach of written contract to a lease entered into with a developer, Haagen-Burbank. On appeal, the Court of Appeals of the State of California Second Appellate District overturned the jury's verdict and directed the trial court to determine the amount of attorney fees and costs due to Haagen-Burbank as the prevailing party in the litigation. Haagen- Burbank had submitted to the court a request for legal fees totaling $439,000; however, on April 27, 1995, the trial court entered a judgment of $417,985. On September 15, 1995 Great American paid $395,966 to Haagen-Burbank as settlement of the judgment against Great American. Net Loss Net loss decreased approximately $469,000, or 25.6%, for fiscal year 1996 compared to fiscal year 1995. The decrease in net loss was primarily attributable to: (a) a $236,000 increase in operating income, and the occurrence of the non- recurring litigation charge in fiscal 1995, offset by (b) a $118,000 decrease in state and federal income tax benefit, and (c) a $45,000 increase in other expenses, net. 60

WHERE YOU CAN FIND MORE INFORMATION We file reports and other information with the Commission under the Exchange Act. We have agreed that, whether or not it is required to do so by the rules and regulations of the Commission, we will deliver to The Bank of New York, as trustee under the indenture, to each holder of notes and to each prospective purchaser of notes identified to us by a placement agent for the offering in August 1998, annual and quarterly financial statements substantially equivalent to financial statements that would be included in reports filed with the Commission, if we were subject to the reporting and other informational requirements of the Exchange Act. Mrs. Fields and Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel Time, the guarantors of the notes, have filed with the Commission a registration statement on Form S-4 (in this prospectus, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act, with respect to the notes offered in this prospectus. This prospectus, which forms a part of the Registration Statement, does not contain all of the information in the Registration Statement and its exhibits, parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to Mrs. Fields, the guarantors and the notes offered in this prospectus, we refer you to the Registration Statement. With respect to any statements made in this prospectus concerning the provisions of any documents, we refer you to the copy of that document filed as an exhibit to the Registration Statement otherwise filed with the Commission. Great American, Pretzelmaker and Pretzel Time intend to submit separately and Mrs. Fields' Brand has separately submitted to the staff of the Commission, no- action requests that they not be subject to the informational requirements of the Exchange Act in connection with the notes offered in this prospectus. If the Commission grants these requests, Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel Time would not be required to make such filings but Mrs. Fields, as the issuer of the notes offered in this prospectus, would be required to include summarized financial information regarding Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel Time in the periodic reports and certain other documents that Mrs. Fields files with the Commission. If this request is not granted, Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel Time would be required to file with the Commission periodic reports, but would not be required to file proxy or information statements. You may read and copy the Registration Statement, the exhibits forming a part of it and the reports and other information filed by Mrs. Fields with the Commission in accordance with the Exchange Act, at the Public Reference Section of the Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following regional offices of the Commission: 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10004; and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. You may obtain copies of all or any portion of the material by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. This information is also available electronically on the Commission's home page on the Internet (http://www.sec.gov). If Mrs. Fields is not required to be subject to the reporting requirements of the Exchange Act in the future, Mrs. Fields will be required under the indenture to furnish the holders of the notes with: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if Mrs. Fields were required to file those forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the financial information by Mrs. Fields' independent public accountants, and (2) all current reports that would be required to be filed with the Commission on Form 8-K if Mrs. Fields were required to file those reports, in each case, within the time periods specified in the Commission's rules and regulations. This prospectus incorporates documents by reference that are not presented in or delivered with this prospectus. These documents are available upon request from Michael Ward, Esq., Mrs. Fields' Original Cookies, Inc., 2855 East Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, (801) 736-5600. In order to ensure timely delivery, any request should be made by , 1999. 61

BUSINESS General Mrs. Fields is one of the largest retailers in the premium snack-food industry, with cookies and pretzels as its major product lines. Mrs. Fields is the largest retailer of baked on-premises cookies and the second largest retailer of baked on-premises pretzels in the United States. Mrs. Fields is one of the most widely recognized and respected brand names in the premium cookie industry. Based on a 1994 study that we commissioned from Corey, Canapary and Galanis, 94% of customers in the study were aware of the Mrs. Fields brand. Twenty percent named our brand without prompting, and 74% knew of our brand when prompted. Mrs. Fields has recently developed a significant presence in the rapidly growing, health-oriented pretzel segment as a result of the acquisitions of the pretzel businesses of Hot Sam, Pretzel Time, Pretzelmaker and H&M, which was formerly the largest Pretzel Time franchisee. As of July 3, 1999, our retail network consisted of 1,493 locations, of which 986 were cookie stores and 507 were pretzel stores. Of the total 1,493 stores, 492 were company-owned and 1,001 were franchised or licensed. Mrs. Fields' stores average approximately 600 to 700 square feet in size and are located predominantly in shopping malls. Mrs. Fields, through licensed locations, also operates kiosks and carts at airports, universities, stadiums, hospitals and office building lobbies. Mrs. Fields' objective is to increase sales and profitability by focusing on its continuing company-owned stores. As a result, by the end of fiscal year 2000, Mrs. Fields plans to close or franchise approximately 40 company-owned cookie stores and 7 company-owned pretzel stores that do not meet certain financial and geographical criteria established by management after giving effect to the acquisitions of Great American and the stock and stores of several of its franchises. For the year ended January 2, 1999, Mrs. Fields generated pro forma net revenue and EBITDA of $191.2 million and $20.7 million, respectively. Actual net revenue and EBITDA for the year ended January 3, 1998 was $134.4 million and $18.8 million, respectively. For the 26 weeks ended July 4, 1998 and July 3, 1999, Mrs. Fields generated pro forma net revenue and EBITDA of $92,640 and $10,334, and actual net revenue and EBITDA of $84,165 and $10,318, respectively. Cookies We operate and franchise 986 retail cookie stores: 574 under the Mrs. Fields brand, 105 under the Original Cookie brand and 307 under the Great American brand. As a result of the acquisition of Great American, Mrs. Fields has cookie stores in 48 states, with Great American stores concentrated in the southeastern and south central states and Mrs. Fields and Original Cookie stores strongly represented in the western, midwestern and eastern states. There is little overlap between Mrs. Fields and Great American stores, with a dual presence in 9 malls. Management believes that Mrs. Fields is positioned in the premium quality, baked on-premises segment of the approximately $12 billion U.S. cookie industry. We offer over 50 different types of cookies, brownies and muffins, which are baked continuously and served fresh throughout the day. Baked products are made using only high quality ingredients, and all dough is centrally manufactured and frozen or refrigerated to maintain product quality and consistency. All products pass strict quality assurance and control steps at both the manufacturing plants and the stores. In addition, Mrs. Fields continually creates and tests new products to attract new customers and satisfy current customers. Product development is currently focused on sugar-free dough and reduced-fat cookies and brownies. Mrs. Fields Inc., one of the predecessors of Mrs. Fields, was founded in 1977 by Debbi Fields and, following its initial success, embarked on an aggressive national expansion program in the early 1980s. By the late 1980s, however, Mrs. Fields Inc. experienced financial difficulty as a result of excessive debt levels, certain poor real estate locations, and a recessionary retailing environment. In connection with a financial restructuring by its lenders, Mrs. Fields put a new management team into place in mid-1994 under the leadership of Larry A. Hodges, who has extensive experience in the food and retailing industries. Mr. Hodges introduced a new strategic plan for Mrs. Fields, which involved the following key elements: (1) identifying stores to close or franchise, (2) introducing company-wide operating procedures to improve store income before interest, taxes and other expenses 62

(3) developing a marketing strategy and promotional calendar to turn around sales of stores that have been open at least two years, and (4) improving employee morale through selective new senior hires, increased training and various incentive plans. Mrs. Fields reinvested the savings from the improved store operations in marketing and other measures designed to improve sales from stores that have been open at least two years. Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in connection with the acquisitions of Mrs. Fields Inc., Original Cookie and Hot Sam by Mrs. Fields' Holding, a subsidiary of Capricorn. As of January 2, 1999, Capricorn had invested more than $28 million in Mrs. Fields through Mrs. Fields' Holding. Capricorn retained Mr. Hodges as Chief Executive Officer of Mrs. Fields. Great American, incorporated in 1977, is a leading operator and franchisor of mall-based specialty retail cookie outlets, including full-size stores and satellite sites, consisting of carts, wagons and kiosks. As of July 3, 1999, Great American had 307 in-line stores, including 100 Great American-operated and 207 franchised retail units, operating primarily in the southeastern and south central United States, generating $109.3 million in estimated system-wide annual sales for the 52-week period ended June 28, 1998. Great American derives its revenue principally from: (1) the sale of cookies and beverages at Great American-operated stores, (2) the sale of proprietary batter to franchised stores, and (3) the receipt of royalty payments based on gross sales of franchisees. In addition, Great American generates revenues from initial franchise fees and the sale of existing Great American-operated stores to franchisees. Great American outlets sell a variety of cookies and brownies, including "cookie cakes," as well as assorted soft drinks, frozen drinks, coffee and tea. Cookie cakes are extra-large cookies, decorated with customer-selected personalized messages, for special occasions. Although cookie sales are generally the result of impulse buying, we believe that cookie cakes, which are often purchased as gifts for special occasions, differentiate Great American from other specialty cookie retailers by making Great American stores destination outlets. Pretzels We operate and franchise 507 retail pretzel stores: 235 under the Pretzel Time brand, 56 under the Hot Sam brand and 216 under the Pretzelmaker brand, which offer "sweet dough" soft pretzels and "Bavarian" style pretzels with a variety of toppings. Pretzel Time's primary product is an all-natural, hand- rolled soft pretzel, freshly baked from scratch at each store location. Pretzel Time stores prepare pretzels with a variety of flavors and specialty toppings, including cheddar cheese, cream cheese and pizza sauce. The stores also offer soft drinks and freshly squeezed lemonade. The Hot Sam pretzel stores specialize in the Bavarian style pretzel. This product has declined in popularity in recent years as sweet dough pretzel sales have grown dramatically. In addition, Pretzel Time stores have, during fiscal year 1998, achieved higher average revenue for the continuing company-owned stores than Hot Sam stores ($277,000 versus $232,000). As a result, Mrs. Fields intends to continue converting its continuing company-owned and to-be-franchised Hot Sam stores to Pretzel Time stores, which it believes will result in an increase in net sales, sales from stores that have been open at least two years, and income from store operations. Management believes that retail pretzel stores have similar operating characteristics to retail cookie stores that will permit us to offer our products with those of other well-known brand names. In addition, the retail pretzel business has grown more quickly than the retail cookie business in recent years. Hot Sam was acquired by 63

Mrs. Fields in connection with the acquisition of Original Cookie. In order to expand its presence in the retail pretzel industry, Mrs. Fields acquired the business of H&M and the common stock of Pretzel Time and Pretzelmaker. Business Strategy Mrs. Fields' objective is to increase sales and profitability at its continuing company-owned and franchised stores by implementing the key elements of its long-term business strategy. The percentage change in sales from stores that have been open at least two years was a negative 1.6% for the fiscal year ended January 2, 1999 compared to a positive 0.6% for the fiscal year ended January 3, 1998 and a negative 0.4% for the 26 weeks ended July 3, 1999 compared to a negative 1.5% for the same period of 1998. Net franchising and licensing revenues increased by 29.9% for the fiscal year ended January 3, 1998 over the fiscal year ended December 28, 1996, by 113.3% for the fiscal year ended January 2, 1999 compared to the fiscal year ended January 3, 1998 and by 235.2% for the 26 weeks ended July 3, 1999 compared to the same period of 1998. The key elements of Mrs. Fields' business strategy are as follows: . Enhance Quality of Company-Owned Store Base. Since current management assumed responsibility in 1994, we have focused on closing and franchising company-owned stores that do not meet certain financial and geographical criteria. From June 1994 through January 2, 1999, Mrs. Fields closed 178 Mrs. Fields brand stores and franchised an additional 136 Mrs. Fields brand stores. We have targeted 129 additional stores that sell our various products to be either closed or franchised by the end of 2000. These measures are expected to result in increased income before interest, tax and other expenses, as unprofitable stores are closed and other stores are converted into franchises, with the result of increasing royalty payments and eliminating administrative and other costs of Mrs. Fields associated with those stores. . Improve Productivity of Continuing Company-Owned Stores. We have embarked on a program to improve the performance of our continuing company-owned stores by: (1) expanding product offerings to include breakfast items, such as muffins, croissants and bagels, and low-fat cookies, brownies and muffins, (2) raising the average sales by tying sales of products together, (3) promoting catering services by individual stores to corporate customers, (4) decreasing store expenses by reducing waste in the cookie baking process and controlling the cost of ingredients and supplies, (5) improving merchandising by enhancing product presentation and refining the selection of products and (6) increasing training and various incentive programs for management and sales staff. . Capitalize on the Strong "Mrs. Fields" Brand Name. Management believes that the Mrs. Fields brand is the most widely recognized and respected brand name in the retail premium cookie industry, and that Mrs. Fields brand stores, for fiscal year 1998, achieved higher average revenue ($347,000 versus $276,000) for the continuing company-owned Mrs. Fields stores than Original Cookie stores. As a result, we intend to continue selectively converting our continuing company-owned and to-be-franchised Original Cookie stores to Mrs. Fields brand stores, which we believe will result in an increase in net sales, sales from stores that have been open at least two years, and income from store operations. We will also test the success of converting selected Great American company-owned stores to Mrs. Fields brand stores. In addition, any Great American franchisee will have the option to convert to Mrs. Fields brand stores, at its sole expense, in areas where there is no overlap with existing Mrs. Fields brand franchise stores. Original Cookie stores represent 31% and Great American stores represent 29% of all 64

company-owned cookie stores. In addition, we intend to further capitalize on the Mrs. Fields brand name by: (1) further developing and expanding the ways we distribute our products, including kiosks and carts in malls, airports, convention centers, office buildings, street fronts and sports complexes, (2) increasing the emphasis on the mail order business, and (3) developing and capitalizing on licensing opportunities, such as linking sales of Mrs. Fields with prominent names in the retailing and food service industry, expanding licensing agreements with our existing licensees, entering into new licensing agreements with food service operators and developing product line extensions, such as frozen cookie dough and in-store bakery products to be sold in supermarkets and other convenient locations. . Develop Great American Brand Name. Management believes that the Great American brand name has high consumer awareness in the southeast United States. We intend to build on the Great American brand name by continuing to franchise additional Great American stores and by testing the success of converting selected company-owned Original Cookie stores into Great American stores. . Capitalize on the Strong "Pretzel Time" Brand Name. Through the acquisition of Pretzel Time, we have obtained the use of the "Pretzel Time" brand name, one of the leading brand names in pretzel retailing. Management believes that there are significant opportunities to improve its existing Hot Sam store operations by continuing to convert our continuing company-owned and to-be-franchised Hot Sam stores to Pretzel Time stores. Pretzel Time stores have, during fiscal year 1998, achieved higher average revenue per continuing company-owned store than Hot Sam stores ($277,000 vs. $232,000). Hot Sam stores represent 38% of all company-owned pretzel stores. Management believes that the conversion to the Pretzel Time name will result in an increase in net sales, sales from stores that have been open at least two years, and income from store operations for Mrs. Fields' pretzel business. In addition, we believe there are significant new Pretzel Time franchising opportunities. . Develop New Company-Owned and Franchised Stores. We plan to build and franchise new stores, as well as carts and kiosks, in existing and new markets. We have identified over 100 mall and non-traditional locations, such as amusement parks and other entertainment centers, that we believe would be ideal for cookie and pretzel stores. By the end of fiscal year 2000, we intend to franchise approximately 27 existing cookie and 15 existing pretzel stores. Beginning in fiscal year 1999, we intend to add approximately 20 new company-owned stores per year and to franchise approximately 38 new cookie and 36 new pretzel stores per year. In addition to pursuing new store development opportunities within the United States, we plan to grow internationally by expanding our franchise operations. As of July 3, 1999, there were 125 franchised Mrs. Fields and Pretzelmaker brand stores open internationally. . Realize Purchasing and Overhead Cost Savings. As a result of the acquisitions of Great American and the stock and stores of several of its franchisees, we expect to realize significant cost savings from the elimination of duplicative administrative functions, the consolidation of management information systems and the reduction of the cost of food and other supplies as a result of our enhanced purchasing power with vendors. Management believes that incremental pre-tax cost savings would have totaled approximately $4.1 million for the year ended January 2, 1999. The savings include $2.2 million of savings on administrative and other costs associated with stores of Mrs. Fields and $1.9 million of cost savings related to one-time expenses of eliminating multiple headquarter facilities. . Pursue Further Strategic Acquisitions of Related Businesses. We intend to selectively pursue strategic acquisitions, in addition to the acquisitions of Great American and the stock and stores of several of its franchises and other recent acquisitions, in order to expand our geographic presence and to achieve efficiencies from consolidating and reducing administrative and other costs shared by stores. Our management has demonstrated its ability to identify and integrate new businesses through its acquisitions of the cookie and pretzel businesses of Original Cookie and Hot Sam, respectively, in September 1996 and the majority interest in Pretzel Time and the business of H&M in 1997. 65

Product Offerings Our product offerings consist primarily of: (1) fresh baked cookies, brownies, muffins, and other baked goods and (2) fresh baked sweet dough and "Bavarian" style pretzels. During the fiscal year 1998, pro forma for the acquisitions of Great American and the stock and stores of several of its franchisees, our revenue by product category consisted of the following: <TABLE> <S> <C> Cookies and Brownies................................................... 56% Pretzels............................................................... 21% Beverages.............................................................. 22% Other.................................................................. 1% </TABLE> Cookies. The primary products of our cookie stores are a variety of cookies, which are baked in view of customers throughout the day. Secondary product lines include several varieties of brownies, muffins, other baked goods, gourmet coffees, frozen drinks and other beverages. Mrs. Fields stores, Original Cookie stores and Great American stores also sell decorated cookie cakes, which are extra-large cookies decorated with customer-selected slogans purchased as gifts for special occasions, such as birthdays, Valentine's day, Father's day and Easter. Based on pounds of batter shipped, cookie cakes constitute the second largest volume product of Great American stores. We plan to utilize Great American's superior expertise in baking and marketing cookie cakes to enhance sales of the existing cookie cake products in Mrs. Fields and Original Cookie stores. Baked products are made using only pure, high quality, vanilla, chocolate, raisins, nuts and other ingredients. To maintain product quality and consistency at both company-owned and franchised stores, Mrs. Fields and Original Cookie stores use centrally manufactured frozen dough, which is manufactured by outside suppliers according to proprietary formulas of Mrs. Fields. Great American stores use refrigerated batter that is shipped daily from the Atlanta production facility. All products must pass strict quality assurance and control steps at both the manufacturing plants and the stores. Pretzels. Through its Hot Sam and Pretzel Time stores, Mrs. Fields offers a wide variety of fresh-baked pretzels. Pretzels have become a popular snack due to consumers' attraction to salted snacks and the increased demand for snacks that are low in fat and cholesterol. Hot Sam is the largest U.S. retailer of fresh-baked "Bavarian" style pretzels. Pretzel Time stores offer all natural, hand-rolled sweet dough pretzels prepared with a variety of flavors and special toppings, including cheddar cheese, cream cheese and pizza sauce. In addition, Pretzel Time stores offer specialty pretzels and related products, such as cinnamon pretzels and cinnamon twists, as well as several recently introduced pretzel products, such as pretzel dogs, chocolate chip pretzels and caramel crunch pretzels. Product Development. We maintain a product development department which continually creates and tests new products to attract new customers and revitalize the interest of current customers. Once a new product is identified, we develop prototypes to determine the initial formula. For Mrs. Fields products, the formula is then scaled up for test production runs at one or more approved facilities. Once the product has been successfully produced, ingredient specifications, formulas, manufacturing processes, finished product specifications, shelf life, storage and distribution procedures are established. The new product is either immediately launched throughout the system, as in the case of seasonal items or simple line extensions, or test marketed in a limited number of stores. After a trial period to evaluate both consumer response and store operations' ability to handle the new product, it is fully commercialized, modified or discontinued. We continually review our selection of products in an effort to maximize daytime offerings and profitability. For example, new muffin flavors, bagels, croissants and a revitalized coffee program were recently introduced to enhance morning offerings, as cookies begin selling primarily after mid-day. 66

In the cookie business, product development efforts are currently focused on a fresh-baked, sugar-free cookie dough and other products, such as low-fat brownies, reduced-fat cookies and seasonal items that are designed to capitalize on consumer trends and draw interest to our store locations. In the pretzel business, we have been testing "made-from-scratch" hand rolled pretzels, which serve as a platform for a variety of other products, such as jalapeno, cinnamon raisin and garlic pretzels with a sweet dough base, meat and cheese filled pretzel pockets and pretzelwiches (pretzel bun sandwiches). Store Operations Store Base. As of July 3, 1999, Mrs. Fields' store portfolio consisted of 492 company-owned stores, 705 domestic franchised locations, 125 international franchised locations and 171 licensed locations. By brand, the stores are distributed as follows: <TABLE> <CAPTION> Company-owned ---------------------------- Continuing Company- To Be To Be Domestic International Owned Closed Franchised Franchised Franchised Licensed Total ---------- ------ ---------- ---------- ------------- -------- ----- <S> <C> <C> <C> <C> <C> <C> <C> Mrs. Fields............. 131 2 6 190 86 159 574 Original Cookie......... 86 7 12 -- -- -- 105 Great American.......... 59 31 10 207 -- -- 307 --- --- --- --- --- --- ----- Cookie Subtotal........ 276 40 28 397 86 159 986 --- --- --- --- --- --- ----- Pretzel Time............ 86 2 -- 147 -- -- 235 Hot Sam................. 46 2 8 -- -- -- 56 Pretzelmaker............ 1 3 -- 161 39 12 216 --- --- --- --- --- --- ----- Pretzel Subtotal....... 133 7 8 308 39 12 507 --- --- --- --- --- --- ----- Totals................ 409 47 36 705 125 171 1,493 === === === === === === ===== </TABLE> 67

As of July 3, 1999, Mrs. Fields' domestic stores were located in 48 states. The following table represents states with ten or more outlets: STORE GEOGRAPHY LIST <TABLE> <CAPTION> % of Domestic Company- Retail State owned Franchised Licensed Total Outlets ----- -------- ---------- -------- ----- ------------- <S> <C> <C> <C> <C> <C> California..................... 70 89 17 176 12.90% Texas.......................... 43 57 5 105 7.70% Florida........................ 20 42 14 76 5.57% New York....................... 33 23 16 72 5.28% Ohio........................... 49 9 9 67 4.91% Illinois....................... 28 20 11 59 4.33% Georgia........................ 14 27 3 44 3.23% Michigan....................... 27 16 -- 43 3.15% Missouri....................... 3 38 1 42 3.08% Pennsylvania................... 16 12 13 41 3.01% Virginia....................... 20 17 3 40 2.93% Colorado....................... 3 23 10 36 2.64% Arizona........................ 12 17 4 33 2.42% North Carolina................. 6 22 3 31 2.27% New Jersey..................... 10 12 8 30 2.20% Indiana........................ 14 10 6 30 2.20% Utah........................... 7 20 1 28 2.05% Iowa........................... 3 24 -- 27 1.98% Washington..................... 9 17 -- 26 1.91% Louisiana...................... 12 10 2 24 1.76% Wisconsin...................... 16 7 -- 23 1.69% Tennessee...................... 2 19 2 23 1.69% Minnesota...................... 3 17 3 23 1.69% Massachusetts.................. 7 8 7 22 1.61% Connecticut.................... 7 10 5 22 1.61% Alabama........................ -- 19 3 22 1.61% Maryland....................... 10 8 3 21 1.54% Nevada......................... 3 9 8 20 1.47% South Carolina................. 9 6 3 18 1.32% Oklahoma....................... 5 6 2 13 0.95% Nebraska....................... 4 8 -- 12 0.88% Kentucky....................... 3 8 1 12 0.88% Kansas......................... 2 9 1 12 0.88% West Virginia.................. 4 6 1 11 0.81% </TABLE> Configuration. We have developed a number of retail configurations that have wide application and adaptability to a variety of retail environments. In addition to the stores that have been designed for prime mall locations, we have developed other formats intended to extend our presence within and beyond mall locations. The introduction of frozen dough technology has led to a number of new store configurations, expanded product offerings in smaller outlets and non-traditional formats. Cookie Stores. All stores are uniformly designed in accordance with the Mrs. Fields, Original Cookie or Great American prototype, making extensive use of glass, painted wood, brass, mirrors, lighting and point-of-sale displays intended to create an upscale, open and inviting look. Stores also attractively and efficiently display their fresh-baked products using custom-made showcases. Store size ranges from 350 to 800 square 68

feet, and the typical company-owned store is about 600 to 700 square feet with a minimum of about 15 linear feet of counter space. Locational possibilities for new stores include high traffic regional malls, central downtown shopping districts and recreational shopping environments. Mrs. Fields and its franchisees and licensees also operate cookie kiosks and carts in a number of malls on a year-round basis. Kiosks have 100 to 250 square feet of retail space, supported by off-site storage and preparation space. Carts range in size from 30 to 92 square feet. Currently only the Great American kiosks have self-contained baking ovens. Because of their small size, carts and kiosks do not have baking equipment, and are supplied cookie products by a fully-equipped store usually located in the same mall. We plan to add baking equipment to carts and kiosks in malls, airports, convention centers, office buildings, street fronts and sports complexes, giving these outlets greater flexibility in the products they can offer. All designs contain retail display, small freezers and cash registers. We see expansion opportunities from the use of carts, which create incremental revenue at a relatively low cost. All of the retail store configurations are executed to include the same high- quality marketing, merchandising and design features which customers have come to expect from Mrs. Fields. The store designs are bright with high-profile trademark identity. All products are baked throughout the day on the premises with ovens located in full view of the customer to support the "fresh-baked" image. Pretzel Stores. Hot Sam stores are uniformly designed in accordance with the Hot Sam brand, making extensive use of tile, stained wood, lighting and point- of-sale displays intended to create an upscale, open and inviting look. Stores also attractively and efficiently display their products using custom-made showcases. The typical company-owned pretzel store is about 500 square feet. Pretzel Time outlets have an average size of 700 square feet in both kiosks and store locations. Pretzel Time stores are designed to enable customers to enjoy watching the pretzels being rolled, twisted and baked, which underscores freshness and lends to the product's growing appeal. Location and Leasing. Locational possibilities include any high pedestrian traffic areas, including second locations within malls, airport concourses, office building lobbies, hospitals, universities, stadiums, and supermarket foyers. Taking the impulse nature of its business into consideration, Mrs. Fields tries to locate its outlets in areas of high pedestrian traffic, with easy proximity to pedestrian traffic flow and at a distance from other food providers of any kind. The majority of Mrs. Fields' stores are located in shopping malls, with the vast majority of Mrs. Fields brand stores in malls falling into the "A" and "B" classifications, or the better-quality malls in the country. As of July 3, 1999, Mrs. Fields, including franchise locations, has a presence in 90% of the top 150 (as measured in sales per foot) "A" and "B" malls in the country. Malls in "A" and "B" classifications generally have the following characteristics: . Size greater than 700,000 square feet . Sales per square foot greater than $300 . Population density greater than 150,000 people within a five-mile radius . Median family income greater than $50,000 . Generally supported by national fashion anchor tenants . Located to minimize competition from other malls Great American stores are located primarily in high-traffic "B" malls. Marketing and Advertising. Mrs. Fields' in-house marketing department and an outside promotional agency emphasize product sampling, local store marketing and brand name identification. We advertise at the 69

store level, using the aroma of fresh-baked cookies and the attractive arrangement of finished products to create a store ambiance that is conducive to sales. Recently we experimented with an advertising campaign with nationally televised commercials during peak holiday periods. We cultivate local customer loyalty by offering regular 20% discounts to employees in malls where stores are located and occasional other discounts. Historically we have spent relatively little on paid advertising, relying mainly on in-store signage, promotions and the public relations of Debbi Fields, who makes store visits and local media appearances throughout the country and internationally for Mrs. Fields. In addition to posters and display of products, we promote products by offering special packaging and selling other promotional items. A promotion for Mrs. Fields' 20th anniversary featured a tie-in with the popular Peanuts characters from the syndicated comic strip, a sweepstakes, and gifts with purchases. Mrs. Fields is currently working on developing catered corporate accounts for both company-owned and franchised stores and will be building awareness of products geared toward corporate accounts at the store level for the local market area and through catalogue sales. We also promote our products as gifts, particularly at holiday time. Great American's marketing strategy has emphasized strong merchandising of its products and the use of proactive sales techniques, including the free sampling of products and other methods intended to increase the size of customer orders. Mail Order Business. Our mail order division markets a variety of fresh-baked and other gift items through its mail order gift catalogue using toll free telephone numbers, including "1-800-COOKIES." The mail order division had $5.2 million in revenues during fiscal year 1998. We believe that there is significant potential in the mail order business and are developing this division by targeting both corporate customers and individuals with a history of purchases at Mrs. Fields stores. Sales from the mail order division for the fiscal year 1999 have increased approximately 9.4% over sales for the prior fiscal year. Customer Profile. We believe that our products are best targeted to a demographic profile which is relatively young, with upper-middle income levels. At the time of a May 1994 study, 66% of Mrs. Fields' customers were female and 34% were male, the mean age of a customer was 35.1 years of age, and 57% of customers had a household income of $50,000 or more. We believe that this demographic profile remains valid. Seasonality. Our sales and profitability in both the cookie business and the pretzel business are subject to seasonal fluctuation and are traditionally higher during the Thanksgiving and Christmas holiday season and other gift- giving holidays due to increased mall traffic and holiday gift purchases. Supplies and Distribution Ingredients and Supplies. We rely primarily on outside suppliers and distributors for the ingredients used in our products and other items used in our stores. Mrs. Fields stores receive frozen products, made according to proprietary recipes of Mrs. Fields, from its primary supplier, Pennant Food Corp. Pennant uses stringent quality controls in testing ingredients and manufacturing, and products are not released for distribution unless they pass all quality control steps, including an evaluation of the finished baked product. Pennant's contract for making frozen products for Mrs. Fields expires on December 31, 2000 and is renewable every three years. Pennant supplies the majority of Mrs. Fields and Original Cookie frozen bakery product. J&J Foods, Inc. supplies the majority of the frozen pretzel dough to Hot Sam Stores. We have identified alternative suppliers for frozen dough at Mrs. Fields and Hot Sam. Pretzel Time stores buy a proprietary dry mix from selected distributors and mix and bake pretzels at individual stores. Pretzel Time franchisees buy from various distributors. Most supplies other than dough are ordered from distributors by either Mrs. Fields or the franchisee and are directly shipped to the store. We sell exclusively Coca-Cola soft drinks in Mrs. Fields, Original Cookie, Pretzel Time, Hot Sam and Great American stores under agreements with Coca-Cola USA Fountain. Great American stores receive "ready to bake" refrigerated batter from a batter facility in Atlanta, which Mrs. Fields acquired in the acquisition of Great American. The batter, which has a shelf life of about 90 days, 70

is stored at the batter facility for an average of one to three weeks, depending on demand, before being shipped. Most other supplies are ordered from third-party vendors by Great American or the franchisee and are shipped directly to the store. Distribution. Regional distributors handle distribution of perishable and non-perishable items to Mrs. Fields and Original Cookie stores weekly. Regional distributors own and maintain all of the inventory, but are authorized to purchase inventory items only from authorized vendors at prices that have been negotiated by Mrs. Fields. Hot Sam distributes perishable and non-perishable items weekly to stores using seven different regional distribution companies. Pretzel Time franchisees use a variety of distributors. Mrs. Fields ships equipment related items, including smallwares equipment and oven parts, directly from public warehouses. Great American stores receive batter from the Atlanta batter facility by refrigerated common carrier. Management Information Systems We have made a substantial investment in developing our point-of-sale system, which gathers information transmitted daily to corporate headquarters from most of our Mrs. Fields brand continuing company-owned stores. We also plan to install our upgraded back-office system, along with the point-of-sale registers and Pentium computers, in our continuing company-owned Original Cookie stores, Hot Sam stores, Pretzelmaker stores, Pretzel Time stores and certain Great American stores by September 1999. We are currently replacing our sales collection systems with software and hardware that is Year 2000 compliant. Replacement of the plant production and distribution software was completed in the first half of 1999 at an estimated cost of $10,000. For more information on our information technology, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations--Year 2000." Management has assessed Year 2000 issues with respect to its significant vendors and financial institutions as to their compliance plans and whether any Year 2000 issues will impede the ability of such vendors to continue providing goods and services to us. See "Risk Factors--failures in Year 2000 compliance could disrupt our operations." Store Management Management Structure. We monitor all company-owned stores with a regionally based staff of district sales managers. District sales managers are responsible for monitoring all cookie and pretzel stores in their territory. Until recently, a separate staff of regionally based franchise operations consultants had monitored franchisees. We plan to consolidate the franchise operations consultants with the district sales managers. As a result, each district sales manager is responsible for overseeing approximately 30 company-owned or franchised cookie and pretzel stores within his or her region. Each district sales manager reports to one of the four regional vice-presidents of store operations. The field staff is also responsible for introducing new products and processes to the stores, ensuring proper implementation and quality control. Management Incentives. Each store has an on-site management team consisting of a manager and an assistant manager. The store manager is responsible for hiring, training and motivating store personnel. Each manager of a company- owned store is eligible for salary increases and bonuses based upon the performance of his or her store, including sales, profits and store appearance. We believe that our incentive and other programs for management have achieved a strong retention rate for managers. Without giving effect to the acquisition of Great American, 72% of Mrs. Fields' district sales managers have been with Mrs. Fields for at least four years (67% for over five years), and 51% of Mrs. Fields' store managers have been with Mrs. Fields for at least four years (40% for over five years). Training. We believe store managers are a critical component in creating an effective retail environment, and accordingly have developed ongoing programs to improve the quality and effectiveness of our store managers and to increase retention rates. New store managers are required to attend a two-week training 71

program at our Salt Lake City training facility and ongoing training courses in new products, standards, and procedures are available throughout the year to all Mrs. Fields personnel. New franchisees and store managers of Great American are required to attend a one-week training program at Great American's Atlanta training facility, known as "Cookie University." In addition, training courses are available throughout the year to all Great American and franchisee personnel. Franchise Operations In accordance with our business strategy, we have been selling, and expect to continue to sell, selected company-owned stores to franchisees to reduce costs, increase profitability and provide for liquidity and development of additional stores in the future. We are also actively seeking to franchise new stores. Cookie Business. Each franchisee pays Mrs. Fields an initial licensing fee of $25,000 per Mrs. Fields store location and is responsible for funding the building-out of the new store and purchasing initial dough inventory and supplies, at a total cost of approximately $200,000, including the initial franchise fee. However, the cost of opening a new store can vary based on individual operating and location costs. We also charge franchisees a fee to handle equipment purchases and to provide other assistance in helping the franchisee to set up operations. After a store is set up, a franchisee pays royalty fees to us of 6% of the franchised store's annual gross sales, and an advertising fee of 1% of annual gross sales. We do not currently anticipate franchising Original Cookie stores. Franchisees come from a wide variety of business backgrounds and bring with them different operating styles and business objectives. Among our franchisees are full-time store operators, passive investors, retired professionals and people seeking a second source of income. The majority of Mrs. Fields franchisees own one store. As of January 2, 1999, the 22 largest Mrs. Fields franchisees operated 164 stores, and the largest Mrs. Fields franchisee operated 14 stores. Each Great American franchisee pays an initial licensing fee of $25,000 per store and is responsible for funding the build-out of the new store and purchasing initial batter inventory and supplies, at a total cost of approximately $164,000, including the initial licensing fee. However, the cost of opening a new store can be significantly higher for franchisees who purchase existing company-owned stores and otherwise varies based on individual operating and location costs. We also charge franchisees a fee to purchase equipment and to provide other assistance in helping the franchisee to set up operations. Pretzel Business. We do not franchise Hot Sam stores. We are a franchisee of 87 Pretzel Time stores, with rights to sub-franchise, if desired. Each franchisee pays Pretzel Time an initial licensing fee of $25,000 per new Pretzel Time store location and is responsible for funding the building-out of the new store and supplies, at a total cost of approximately $190,000 to $240,000, including the initial franchise fee. However, the cost of opening a new store can vary based on individual operating and location costs. Pretzel Time also charges franchisees a fee to handle equipment purchases and to provide other assistance in helping the franchisee to set up operations. After a store is set up, a franchisee pays royalty fees to Pretzel Time of 7% of the franchised store's annual gross sales, and a marketing fee of 1% of annual gross sales. Franchisee Recruiting and Training. We have been successful in recruiting franchisees and completing franchise transactions and believe we will continue to realize significant cash flow from franchising by: (1) emphasizing the use of proprietary dough that minimizes product quality issues and ensures a consistent product across all outlets, (2) frequent quality, service and cleanliness evaluations of franchised stores by operations support staff, and (3) initial and continuing training of franchisees to improve their financial and retail sales skills. 72

We believe our franchisees are a critical component in creating an effective retail environment, and accordingly we make our ongoing programs available to franchisees to improve their quality and effectiveness. Franchisees are required to attend a two-week training program at our Salt Lake City training facility and ongoing training courses in new products, standards, and procedures are available throughout the year to all franchisee personnel. Licensing In the past few years, we have utilized a "branding" strategy which has capitalized on the highly-recognized Mrs. Fields brand to build traffic, expand sales, improve market share, and to increase profits through cultivating different ways of distributing our products. The following is a comprehensive list of branding strategies, with examples of current licensees within Mrs. Fields' system: Concept Licensing. We have developed a licensing program for non-mall retail outlets that enables us to enter difficult-to-reach markets and facilitate brand exposure through "presence" and "prestige" marketing. Our licensees duplicate the Mrs. Fields store concept and purchase dough from our various distributors. Several of these licensees are contract management companies that manage and operate food service in host locations. Our licensees include Host Marriott, which sells our product in airports and travel plazas, ARAMark, which sells our product in stadiums and convention centers and Holiday Inn Worldwide, which sells our product in hotels. Retail Licensing. We plan to capitalize on our brand awareness and the perception of quality among consumers to expand the product line to include products sold in other retail environments, including refrigerated dough, dry-mix and non-food products, and other applications outside the original scope of our retail cookie store concept. A current example is Maxfield's Chocolates, which has the exclusive United States rights to retail boxed chocolates. Another licensee is Wham-O, Inc., which has a license to market the Mrs. Fields Baking Oven for children sold in most toy stores and through mass merchandisers. Supply Licensing. We currently have arrangements with United Airlines and TWA under which our mail order division sells cookies to the airlines and allows the airlines to promote the Mrs. Fields brand and products to their first-class customers. We are pursuing similar relationships to compete with other manufacturers' brands selling in this business. Competition We compete for both leasing opportunities and customers with other cookie and pretzel retailers, as well as other confectionery, sweet snack and specialty food retailers, including cinnamon rolls, yogurt, ice cream, baked goods and candy shops. The specialty retail food and snack industry is highly competitive with respect to price, service, location and food quality, and there are many well-established competitors with greater resources than those of Mrs. Fields. We compete with these retailers on the basis of price, quality, location and service. We face competition from a wide variety of sources, including such companies as Cinnabon, Inc., TCBY Yogurt Inc., Auntie Anne's Soft Pretzels, and Baskin-Robbins 31 Flavors. Properties As of July 3, 1999, we leased 796 retail stores, of which 304 were subleased to franchisees under terms which cover all obligations of Mrs. Fields thereunder. Under our franchise agreements, we have rights to gain control of a retail site in the event of default under the lease or the franchise agreement. Most of our operating leases provide for the payment of lease rents plus real estate taxes, utilities, insurance, common area charges and certain other expenses, as well as contingent rents which generally range from 8% to 10% of net retail store sales in excess of stipulated amounts. See "Risk Factors--We may not be able to obtain leases in the future; our success depends in part on our ability to obtain leases in high quality shopping malls at reasonable rents" and "--We have continuing obligations under real estate leases; if we close an unprofitable store but must still make lease payments on it, we will lose money." 73

We lease 31,000 square feet of office space in Salt Lake City, Utah, which we use as our corporate headquarters. We also lease approximately 20,000 square feet of office space in Salt Lake City, Utah for our product development, training and mail order operations. We own substantially all of the equipment used in both of these facilities and in company-owned retail outlets. Great American owned its headquarters and batter production facility, located in a building of approximately 28,000 square feet in Atlanta, Georgia. We acquired this facility in the acquisition of Great American. Great American's headquarters have been transferred to Salt Lake City since the acquisition of Great American. The batter facility remains in Atlanta. Employees As of July 3, 1999, we had approximately 4,086 employees in company-owned stores, of whom approximately 802 were store managers and assistant store managers and 3,284 were part-time sales assistants. The typical Mrs. Fields store employs 5 to 13 employees. During the period from November through February, we may hire as many as 750 additional part-time employees to handle additional mall traffic. Most employees are paid on an hourly basis, except store managers. Our employees are not unionized. We have never experienced any significant work stoppages and believe that our employee relations are good. Many of our employees are paid hourly rates based upon the federal minimum wage. The federal minimum wage increased from $4.75 to $5.15 on September 1, 1997. As of July 3, 1999, 851 of our 4,086 employees in company-owned stores earned the federal minimum wage. The September 1, 1997 minimum wage increase is expected to negatively impact our labor costs, increasing wages by approximately $354,000 annually, but management believes this impact can be negated in the long-term through increased efficiencies in our operations and, as necessary, through retail price increases. Trademarks We are the holder of numerous trademarks that have been federally registered in the United States and in other countries located throughout the world. We are a party to disputes with respect to trademarks, none of which, in the opinion of management of Mrs. Fields, is material to our business, financial condition or results of operations. We currently hold 52 trademarks that are federally registered in the United States and 141 trademarks that are registered in 48 countries outside the United States. Our trademarks consist of various brand and product names and logos. Trademarks are registered under United States laws for periods of 7 to 10 years and in other countries for periods of 7 to 20 years, and at any time, we may have trademarks whose registration will soon expire and must be renewed. Under our license agreements, our licensees receive the rights to use our recipes and our registered trademarks. We view our trademarks and the ability to license them to third parties, as some of our most valuable assets. Legal Proceedings; Government Regulation In the ordinary course of business, we are involved in routine litigation, including franchise disputes and trademark disputes. Except as described below, we are not a party to any legal proceedings which, in the opinion of management of Mrs. Fields, after consultation with legal counsel, is material to our business, financial condition or results of operations. In connection with the initial discussions relating to the acquisition of Great American, on or about September 12, 1997, 9 franchisees of Great American filed an action challenging a possible acquisition of Great American by Mrs. Fields. Under settlement agreements and waivers with most Great American franchisees, those franchisees released all claims with respect to this litigation. It was a condition of the acquisition of Great 74

American that this litigation be dismissed with prejudice. A motion dismissing the litigation with prejudice was filed on August 24, 1998. See "The Transactions--The Great American Transactions." Our stores and products are subject to regulation by numerous governmental authorities, including, without limitation, federal, state and local laws and regulations governing health, sanitation, environmental protection, safety and hiring and employment practices. 75

MANAGEMENT Directors and Executive Officers The following table sets forth certain information regarding the executive officers and directors of Mrs. Fields as of July 3, 1999. The directors are also directors of Mrs. Fields' Holding. <TABLE> <CAPTION> Name Age Title ---- --- ----- <S> <C> <C> Larry A. Hodges.......... 50 Director, President and Chief Executive Officer Pat W. Knotts............ 44 Senior Vice President of Operations Garry Remington.......... 47 Senior Vice President of Real Estate Mark S. Tanner........... 45 Senior Vice President and Chief Financial Officer Michael R. Ward.......... 41 Vice President, General Counsel and Secretary Herbert S. Winokur, Jr... 55 Chairman of the Board of Directors Richard Ferry............ 61 Director Debbi Fields............. 43 Director Nat Gregory.............. 50 Director Walker Lewis............. 54 Director Peter Mullin............. 58 Director Gilbert Osnos............ 69 Director </TABLE> Mr. Hodges has been President and Chief Executive Officer of Mrs. Fields Inc. and Mrs. Fields since March 1994, and a Director of Mrs. Fields and Mrs. Fields Holding since April 1993. From 1992 to 1994, Mr. Hodges was the Chief Executive Officer of Food Barn Stores, Inc. (Kansas City, Missouri). Earlier Mr. Hodges was a consultant to various manufacturers and retailers. For 25 years, Mr. Hodges was with American Stores Company where he served as President of two of its subsidiaries ranging in annual sales from $600 million to $2.3 billion. Mr. Hodges has over 32 years of experience in the retail field serving as president of four supermarket chains and consultant and director to large food companies. Mr. Hodges is a director of Ameristar Casinos, Inc. and Coinstar, Inc. Mr. Knotts has been Senior Vice President of Mrs. Fields since October 1996. Mr. Knotts' responsibilities include all aspects of store operations and related support functions. Between January 1992 and October 1996, Mr. Knotts served as Executive Vice President of Operations for Original Cookie and Hot Sam, where he was responsible for store operations, marketing, purchasing, construction and store design. Mr. Knotts also held the position of Regional Vice President of Stores for Silo Inc., a $1 billion consumer electronics and major appliance chain. Mr. Remington has been Senior Vice President of Real Estate of Mrs. Fields since July 1997. Mr. Remington's responsibilities include all aspects of real estate, store construction, remodels and lease negotiations. Between October 1996 and July 1997, Mr. Remington served as Vice President of Real Estate for Sbarro, Inc. From 1994 to 1996, Mr. Remington held the position of Senior Vice President of Leasing for the Woolworth Corporation, with responsibilities for Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other divisions, and from 1992 to 1994, Mr. Remington was Vice President and Director of Leasing for the Woolworth Corporation, which he joined in 1972. Mr. Tanner has been Chief Financial Officer and Senior Vice President of Finance & Administration since June 1999. Prior to Mrs. Fields, Mr. Tanner held the position of CFO and Sr. Vice President with the Salt Lake Organizing Committee for the XIX Olympic Winter Games, where he was responsible for finance and administration. Prior to SLOC, Mr. Tanner was Vice President and CFO for Pepsi Cola International's operations in Asia, the Middle East, and Africa (AMEA). He also held the positions of Vice President of Strategic Planning & Finance for Pepsi Cola North America, and Chief Financial Officer, Eastern Division of Pepsi Cola during his tenure with Pepsi Cola. 76

Mr. Ward serves as Vice President, General Counsel and Secretary for Mrs. Fields. Mr. Ward's responsibilities include management of our Legal Department. Between 1991 and 1996, Mr. Ward's responsibilities were overseeing the Legal Department and the Human Resources Department for Mrs. Fields Inc. He is admitted to practice law in the State of Utah. Mr. Ward was appointed acting Chief Financial Officer on April 30, 1999 and acted in that capacity prior to Mr. Tanner's assuming responsibilities of Chief Financial Officer. Mr. Winokur has been Chairman of the Board of Directors of Mrs. Fields and Mrs. Field's Holding since their inception in September 1996. Mr. Winokur is managing member of Capricorn Holdings, L.L.C., the General Partner of Capricorn. Mrs. Fields is owned by Mrs. Fields' Holding, a portfolio company of Capricorn which owns the majority of Mrs. Field's Holding's stock. Mr. Winokur is President of Winokur Holdings, Inc. (an investment company) and Managing General Partner of Capricorn Investors, L.P. and Capricorn, private investment partnerships concentrating on investments in restructure situations, organized by Mr. Winokur in 1987 and 1994, respectively. Prior to his current appointment, Mr. Winokur was Senior Executive Vice President and Director of Penn Central Corporation. Mr. Winokur is also a Director of NAC Re Corporation, The WMF Group, Ltd., C.C.C. Information Services Corp., Inc., DynCorp., and Enron Corp. Mr. Ferry has been a Director of Mrs. Fields since its inception in September 1996. Mr. Ferry is co-founder and Chairman of Korn/Ferry International, the world's leading executive search firm. Mr. Ferry is on the Board of Directors of Avery Dennison, Dole Food Company and Pacific Life Insurance Company. Debbi Fields has been a Director of Mrs. Fields since its inception in September 1996. Debbi Fields founded a predecessor to Mrs. Fields in 1977 and served as President and Chief Executive Officer until 1993. She currently serves on the Board of several non-profit organizations and lectures throughout the United States to Fortune 500 companies. Debbi Fields is a director of Outback Steakhouse, Inc. Mr. Gregory has been a Director of Mrs. Fields since its inception in September 1996. Since 1993, Mr. Gregory has served as Chairman and Chief Executive Officer of NATCO, an international supplier of oilfield production equipment, which is a portfolio company of Capricorn. Mr. Gregory is a member and managing director of Capricorn Holdings, L.L.C., the General Partner of Capricorn, and a director of Marine Drilling Companies, Inc. Mr. Lewis has been a Director of Mrs. Fields since its inception in September 1996. Mr. Lewis is the Chairman of Devon Value Advisers. Mr. Lewis served as Chairman of Strategic Planning Associates, specializing in shareholder value strategies. Mr. Lewis was a Senior Advisor at Dillon Read & Co., Inc. and his company, Devon Value Advisors, continues to act as a consultant to Dillon Read. He was a Managing Director of Kidder, Peabody & Co., Inc., President of Avon North America and Executive Vice President of Avon Products, Inc. Mr. Lewis has served on the Board of Directors of Owens Corning, American Management Systems, Incorporated, Jostens, Inc., Marakon Associates and London Fog. Mr. Mullin has been a Director of Mrs. Fields since its inception in September 1996. Mr. Mullin founded Mullin Consulting, Inc. in Los Angeles in 1969, and serves as its Chairman and Chief Executive Officer. He also co- founded Strategic Compensation Associates and serves as Chairman of the firm's Executive Committee. Mr. Mullin is a member of the Board of Directors of Avery Dennison Corporation, 1st Business Bank, Process Technology Holdings, Inc., Golden State Vintners, M Life Insurance Company and the Board of Advisors of CMS Companies. Mr. Osnos has been a Director of Mrs. Fields since its inception in September 1996. Mr. Osnos has served since 1992 as Chairman of Osnos & Company, which provides interim management to companies. He has served as Interim President/CEO/COO to a large array of companies in manufacturing, distribution, retailing and service industries. In 1979 he joined the predecessor firm and became a partner in 1981. He has been Chairman of the Turnaround Management Association and a member of its Board since prior to 1993. He is also on the Board of Directors of Furr's/Bishop's, Inc. He serves on the Advisory Committee of Business Executive for National Security in the New York Chapter. 77

Executive Compensation The following table sets forth information with regard to compensation for services rendered in all capacities to Mrs. Fields by its Chief Executive Officer and the four other most highly compensated executive officers of Mrs. Fields other than the CEO who were serving as executive officers at the end of the last completed fiscal year. Information described in the table reflects compensation earned by these individuals for services with Mrs. Fields or its subsidiaries. SUMMARY COMPENSATION TABLE <TABLE> <CAPTION> Long Term Compensation Annual Compensation Awards -------------------------------------- ---------------------------- Other Restricted Securities Annual Stock Underlying All Other Name and Salary Bonus Compensation Award(s) Options/SARS(7) Compensation Principal Position Year ($) ($) ($) ($) (#) ($) ------------------ ---- -------- -------- ------------ ---------- --------------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> Larry Hodges 1998 $339,583 $150,000 $4,833 $ -- -- $471,000(8) President and CEO 1997 300,000 185,412 2,177 50,000(6) -- -- 1996 262,834 -- 1,656 -- 229,992 -- L. Tim Pierce(9) 1998 193,430 70,000 2,634 -- -- -- Senior Vice President 1997 175,000 103,607 1,287 -- -- 71,867(8) and CFO 1996 167,723 -- 1,107 -- 32,856 33,000(1) Pat Knotts 1998 191,699 70,000 -- -- -- -- Senior Vice President 1997 162,500 27,321 -- -- -- 23,920(3) Operations 1996 172,490 267,212(2) -- -- 32,856 2,912(4) Michael Ward 1998 135,385 50,000 1,370 -- -- -- Vice President 1997 109,904 56,393 619 -- -- 39,488(8) Legal and Administration 1996 83,020 -- 526 -- 24,642 -- Garry Remington 1998 180,000 33,945 -- -- -- -- Senior Vice President 1997 82,859 -- -- -- 24,642 46,707(5) Real Estate 1996 -- -- -- -- -- -- </TABLE> -------- (1) Represents forgiveness of a loan made by Mrs. Fields Inc. in 1993. (2) Represents payments under retention and employment agreements from Original Cookie/Hot Sam. (3) Represents payment of relocation expenses of $20,920 and a grant of $3,000 under the Original Cookie 401(k) plan. (4) Represents a grant under the Original Cookie 401(k) plan. (5) Represents payment of relocation expenses. (6) 50% of the restricted shares vested on January 1, 1999 and the other 50% vest on January 1, 2000. (7) The stock options for common stock of Mrs. Fields' Holding have 10-year terms and were granted as of September 1996, with the exception of Garry Remington's, which were granted as of July 1997. All options have an exercise price of $10.00 per share, with the exception of Garry Remington's, which have an exercise price of $13.00 per share. (8) Represents payment under Mrs. Field's Inc. Management Value Creation Plan. (9) Mr. Pierce resigned from Mrs. Fields on April 30, 1999. Mrs. Fields bought back his vested shares of stock for $291,560 and entered into a severance agreement with him for $20,000. Option Grants and Exercises The Board of Directors of Mrs. Fields' Holding approved the provisions of a director stock option plan (the "Director Stock Option Plan"), providing for the issuance of common stock, par value $.001 per share, of Mrs. Fields' Holding to directors of Mrs. Fields' Holding, and an employee stock option plan (the "Employee Stock Option Plan" and, together with the Director Stock Option Plan, the "Plans"), providing for the issuance of options to purchase common stock of Mrs. Fields' Holding to officers and other employees of Mrs. Fields' Holding and its subsidiaries, including Mrs. Fields. The Plans provide for the issuance of options to purchase an total of 542,840 shares of common stock of Mrs. Fields' Holding to directors of Mrs. Field's Holding and officers and employees of Mrs. Fields' Holding's subsidiaries, including Mrs. Fields, of which 375,840 shares, representing approximately 10% of the total common stock of Mrs. Fields' Holding on a fully 78

diluted basis, after giving effect to the issuance of stock under the warrants to purchase common stock of Mrs. Fields' Holding and to issuances of stock under options currently issued to directors and employees under the Plans, have been issued. See "Beneficial Ownership of Capital Stock." Board Compensation The Board of Directors of Mrs. Fields meets regularly on a quarterly basis and more often as required. Board members, other than officers of Mrs. Fields and Mr. Winokur, Mr. Gregory and Ms. Fields, are compensated for services rendered annually as follows: (1) $12,000 cash; and (2) grants of options to purchase common stock of Mrs. Fields' Holding, under the Director Stock Option Plan. The Board of Directors of Mrs. Fields' Holding approved the award of options under the Director Stock Option Plan to purchase 3,350 shares of common stock of Mrs. Fields' Holding to each of Messrs. Ferry, Gregory, Lewis, Osnos and Winokur as of January 1, 1997, at an exercise price of $10.00 per share, and the award of options to purchase 1,792 shares of common stock of Mrs. Fields' Holding as of January 1, 1998, at an exercise price of $16.74 to each of the same directors, with the options of Messrs. Gregory and Winokur being issued to Capricorn. The Board members were also offered an opportunity to acquire shares of common stock of Mrs. Fields' Holding under a director stock purchase plan (the "Director Stock Purchase Plan"). The compensation in shares that would be payable or issuable to Messrs. Winokur and Gregory will be paid to Capricorn. A total of 51,667 vested shares of common stock of Mrs. Fields' Holding and 28,333 restricted shares of common stock of Mrs. Fields' Holding have been issued to directors and officers of Mrs. Fields under the Director Stock Purchase Plan. Board Committees Three functioning committees of the Board have been organized: an Executive Committee, a Compensation Committee and an Audit Committee. Following is a brief description of each of these committees. Executive Committee. The Executive Committee is composed of Messrs. Winokur (Chairman), Gregory and Hodges. The purpose of this committee is to act on the behalf of the entire Board of Directors between Board meetings. Compensation Committee. The Compensation Committee is composed of Messrs. Gregory (Chairman), Mullin and Lewis. The purpose of this committee is to ensure that Mrs. Fields has a broad plan of executive compensation that is competitive and motivating to the degree that it will attract, hold and inspire performance of managerial and other key personnel of a quality and nature that will enhance the growth and profitability of Mrs. Fields. Audit Committee. The Audit Committee is comprised of Messrs. Ferry (Chairman) and Osnos. The purpose of the Audit Committee is to provide oversight and review of Mrs. Fields' accounting and financial reporting process in consultation with Mrs. Fields' independent and internal auditors. Indemnification and Compensation Mrs. Fields' By-Laws authorize Mrs. Fields to indemnify its present and former directors and officers and to pay or reimburse expenses for those individuals in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of those individuals to repay any amounts if so required. 79

Employment Agreements All of the executive officers are parties to employment agreements with Mrs. Fields. Each employment agreement provides for a period of employment of two years (or three years, in the case of Larry Hodges) from the date of the agreement, subject to termination provisions and to automatic extension of the agreement. Each employment agreement permits the employee to participate in any incentive compensation plan adopted by Mrs. Fields to replace the Fiscal 1994 Incentive Compensation Plan of Mrs. Fields Inc., benefit plans and an equity- based plan or arrangement. If Mrs. Fields terminates employment for cause or if the employee terminates employment without good reason, Mrs. Fields has no further obligation to pay the employee. If Mrs. Fields terminates employment without cause, or the employee terminates employment with good reason, the employee can receive in severance pay the amount equal to the product of his or her then current semi-monthly base salary by the greater of the number of semi- monthly periods from the notice of termination or 36 semi-monthly periods, plus a portion of any discretionary bonus that would otherwise have been payable. The employment agreement prohibits the employee, for a year from the date of termination of employment under the agreement, from becoming an employee, owner, officer, agent or director of a firm or person that directly competes with Mrs. Fields in a line or lines of business of Mrs. Fields' that accounts for 10% or more of Mrs. Fields' gross sales, revenues or earnings before taxes. An exception is made for investments of not more than 3% of the equity of a company listed or traded on a national securities exchange or an over-the- counter securities exchange. The employment agreements have customary provisions for vacation, fringe benefits, payment of expenses and automobile allowances. The employees who have employment agreements, and their base salaries, are: Larry Hodges, President and Chief Executive Officer, $350,000, Pat Knotts, Senior Vice President of Operations, $215,000, Michael Ward, Vice President, General Counsel and Secretary, $150,000 and Garry Remington, Senior Vice President of Real Estate, $190,000. 80

BENEFICIAL OWNERSHIP OF CAPITAL STOCK As of the date of this prospectus, all of the capital stock of Mrs. Fields is owned by Mrs. Fields' Holding, whose address is 2855 East Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121. The following table shows certain information, as of June 1, 1999, believed by us to be accurate based on information provided to it concerning the beneficial ownership of common stock by each stockholder who is known by Mrs. Fields to own beneficially in excess of 5% of the outstanding common stock, and by each director, Mrs. Fields' Chief Executive Officer, each of Mrs. Fields' other four most highly compensated executive officers and all officers and directors as a group, as of June 1, 1999. The stockholders listed below are deemed beneficial owners of common stock of Mrs. Fields as a result of their ownership of common stock of Mrs. Fields' Holding, the owner of 100% of the capital stock of Mrs. Fields. Except as otherwise indicated, all persons listed below have (1) sole voting power and investment power with respect to their shares, except to the extent that authority is shared by spouses under applicable law, and (2) record and beneficial ownership with respect to their shares. The shares and percentages described below include shares of common stock which were outstanding or issuable within 60 days upon the exercise of options outstanding as of June 1, 1999 and give effect to the exercise of the warrants issued by Mrs. Fields' Holding. See "Management--Option Grants and Exercises" and "--Board Compensation," As of June 1, 1999, there were eight record holders of common stock of Mrs. Fields' Holding. <TABLE> <CAPTION> Common Stock -------------------- Number of Percentage Title of Class Name of Beneficial Owner Shares of Class -------------- ------------------------ --------- ---------- <C> <S> <C> <C> Capricorn Investors II, Common stock, par L.P.(1)(2)(3).................. 3,181,513 86.1% value $0.001 per share, Larry Hodges(2)(3)............. 89,141 2.5% of Mrs. Fields' Holding Peter Mullin(2)(3)............. 17,123 0.5% Richard Ferry(2)(3)............ 12,123 0.3% Walker Lewis(2)(3)............. 9,623 0.3% Gilbert Osnos(2)(3)............ 9,623 0.3% Pat Knotts(3).................. 14,785 0.4% Michael Ward(3)................ 11,500 0.3% Garry Remington(3)............. 6,435 0.2% All executive officers and directors as a group (8 persons)(2)(3)(4)............. 3,351,866 90.9% </TABLE> -------- (1) The address of Capricorn is 30 East Elm Street, Greenwich, CT 06830. (2) Larry Hodges, Peter Mullin, Richard Ferry, Walker Lewis and Gilbert Osnos are directors of the Company. Herbert Winokur and Nat Gregory are managing member and member, respectively, of Capricorn Holdings, L.L.C., the General Partner of Capricorn, and are directors of Mrs. Fields. See "Management." (3) The shares and percentages include shares subject to options granted to directors and officers of Mrs. Fields that are currently vested as of June 1, 1999, as follows: Capricorn, 4,246 shares; Mr. Hodges, 59,141 shares; Mr. Mullin, 2,123 shares; Mr. Ferry, 2,123 shares; Mr. Lewis, 2,123 shares; Mr. Osnos, 2,123 shares; Mr. Knotts, 14,785 shares; Mr. Ward, 11,500 shares; and Mr. Remington, 6,434 shares; all executive officers and directors as a group, 104,598. Capricorn's shares include the 101,419 shares to be issued under the Assignment and Assumption Agreement. An economically equivalent transaction may be entered into instead. See "Certain Relationships and Related Transactions." (4) Includes shares beneficially owned by Capricorn. 81

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Agreements with Debbi Fields and Affiliates. In November 1996, Mrs. Fields entered into a consulting agreement with Debbi Fields, a director of Mrs. Fields, under which Debbi Fields travels and performs public relations and advertising activities on behalf of Mrs. Fields for at least 50 days a year for a fee of $250,000 per year, with an option to perform 20 additional days a year for additional pay of $5,000 per day. The compensation increased by 10% a year beginning on January 1, 1999. The consulting agreement expires on December 31, 1999. Mrs. Fields may terminate the consulting agreement for cause and Debbi Fields may terminate the consulting agreement at any time. Under the consulting agreement, Debbi Fields may not disclose any confidential information of Mrs. Fields, including recipes and trade secrets, and may not, without the prior written consent of Mrs. Fields, compete with Mrs. Fields. In addition, Mrs. Fields has a license agreement with FSG Holdings, Inc., a Delaware Corporation, under which Debbi Fields has a nonexclusive license to use certain trademarks, names, service marks and logos of Mrs. Fields in connection with book and television series projects. Debbi Fields is required to pay 50 percent of any gross revenues in excess of $200,000 that she receives from the book and television series projects to Mrs. Fields as a license fee. Mrs. Fields, until recently, leased certain office space to an entity which is owned in part by Debbi Fields. Billings to the entity for the fiscal years ended January 3, 1998 and January 2, 1999 totaled approximately $274,000 and $0, respectively, of which approximately $23,000 and $0 is included in accounts receivable as of January 3, 1998 and January 2, 1999, respectively. The lease was terminated in the first quarter of fiscal year 1998. Mrs. Fields believes that the arrangements were on terms that could have been obtained from an unaffiliated third party. Arrangements with Walker Lewis. Mr. Lewis, a director of Mrs. Fields, acts as a consultant and an advisor to Dillon Read. Mr. Lewis' company, Devon Value Advisers, received a fee of $250,000, plus expenses, from Mrs. Fields in the first quarter of 1998 under an agreement to provide advisory acquisition and consulting services to Mrs. Fields. Mrs. Fields believes that the arrangements were on terms that could have been obtained from an unaffiliated third party. Korn/Ferry Agreement. Mrs. Fields has paid fees of approximately $157,000 and $70,600 during the years ended January 3, 1998 and January 2, 1999, respectively, to Korn/Ferry International, an executive search firm of which Richard Ferry, a director of Mrs. Fields, is the Chairman, in connection with the hiring of employees for Mrs. Fields. Mrs. Fields believes that the arrangements are on terms that could have been obtained from an unaffiliated third party. Arrangements With Mrs. Fields' Holding. Mrs. Fields and Mrs. Fields' Holding expect to enter into a Tax Sharing Agreement as defined in and permitted by the indenture. See "Description of Notes--Certain Covenants." As of January 3, 1998 and January 2, 1999, Mrs. Fields had payables of $105,000 and $150,000 due to Mrs. Fields' Holding, respectively, and as of July 3, 1999, a receivable of $16,500 due from Mrs. Fields' Holding. The receivables stem primarily from goods sold and an allocation of payroll and other operating expenses. Mrs. Fields believes that the terms of the sale and allocations are essentially equivalent to the terms that would have been obtained from an unaffiliated third party in a similar transaction. Incentive Arrangements. Under a senior management value creation plan that was adopted by Mrs. Fields Inc. and assumed by Mrs. Fields at the time of its formation in September 1996, the following payments were made in 1998: $471,484 to Mr. Hodges; $71,867 to Mr. Pierce; $39,488 to Mr. Ward; and $71,078 to a vice president of Mrs. Fields Inc. Mr. Hodges used $250,000, representing substantially all of this payment after his payment of related taxes, to purchase 25,000 shares of common stock of Mrs. Fields' Holding at $10.00 per share. 82

Director Stock Purchase Plan. Each of the directors of Mrs. Fields was offered an opportunity to purchase common stock of Mrs. Fields Holding under the Director Stock Purchase Plan. Under the Director Stock Purchase Plan, shares of common stock of Mrs. Fields' Holding, either restricted or vested, can be issued to outside directors of Mrs. Fields' Holding and its subsidiaries, including Mrs. Fields. Restricted shares vest 50% on January 1, 1999 and 50% on January 1, 2000, or earlier, upon a change of control of Mrs. Fields' Holding or Mrs. Fields. See "Management--Board Compensation." A total of 51,667 vested shares of common stock of Mrs. Fields Holding and 28,333 restricted shares of common stock of Mrs. Fields Holding have been issued to directors and officers of Mrs. Fields under the Director Stock Purchase Plan. The Plans. Under the Employee Stock Option Plan, a committee of the Board of Directors is authorized to administer the Employee Stock Option Plan and has the power, among other things, to grant awards to officers and other employees of Mrs. Fields' Holding and its subsidiaries, including Mrs. Fields, of options for common stock of Mrs. Fields' Holding. The Employee Stock Option Plan provides for the issuance of three types of options. Performance vested options are deemed to be vested 20% for fiscal year 1997 and vest an additional 20% per year for each subsequent fiscal year in which there is a 10% increase in the implied valuation of Mrs. Fields, which is equal to the excess of 5.5 times Adjusted EBITDA for that fiscal year over net debt at the end of that fiscal year. Time vested options vest 25% per year on the anniversaries of the dates on which they are granted, and vest in full upon a change of control of Mrs. Fields' Holding or Mrs. Fields. Upside options vest upon the earlier to occur of the expiration of the option and a change of control, in accordance with internal rate of return targets: (1) if the IRR through the vesting date is less than 20%, the option will not vest; (2) if the IRR is from 20% to 24.99%, the option will vest one-third; (3) if the IRR is from 25% to 29.99%, the option will vest two-thirds; and (4) if the IRR is at least 30%, the option will vest in full. IRR means, as of any date, the internal rate of return, determined in accordance with generally accepted practice, on one share of common stock of Mrs. Fields' Holding calculated from September 18, 1996, through the date as of which the determination is being made, using (1) a value of $10.00 per share at September 18, 1996 (subject to adjustments), (2) if the relevant date is the date of a change of control, the value paid under or implicit in the change of control transaction (as determined in good faith by a committee of the Board of Directors), and (3) if the relevant date of determination is the expiration of such option, the value determined in good faith based on the implied valuation for the four most recent fiscal quarters for which financial statements are available. A total of 492,840 shares of common stock of Mrs. Fields' Holding have been reserved for issuance under the Employee Stock Option Plan. Stock issued under the Employee Stock Option Plan is subject to customary restrictions on transfer. Under the Director Stock Option Plan, a committee of the Board is authorized to administer the Director Stock Option Plan and has the power, among other things, to grant awards of options for common stock of Mrs. Fields' Holding to outside directors of Mrs. Fields' Holding and its subsidiaries, including Mrs. Fields. The Director Stock Option Plan provides for the issuance of time vested options, which vest 25% per year on the anniversaries of the dates on which they are granted, and vest in full upon a change of control of Mrs. Fields' Holding or Mrs. Fields. An total of 50,000 shares of common stock of Mrs. Fields' Holding are reserved for issuance under the Director Stock Option Plan. Common stock of Mrs. Fields' Holding issued under the Director Stock Option Plan is subject to customary restrictions on transfer. Options have been awarded under the Director Stock Option Plan to each of Messrs. Ferry, Gregory, Lewis, Osnos and Winokur 83

to purchase 3,350 shares of common stock of Mrs. Fields' Holding as of January 1, 1997, at an exercise price of $10.00 per share, and to purchase 1,792 shares of common stock of Mrs. Fields' Holding as of January 1, 1998, at an exercise price of $16.74 per share, with the options of Messrs. Gregory and Winokur being issued to Capricorn. The Stockholders' Agreement. Mrs. Fields' Holding has entered into a stockholders' agreement with its stockholders. The stockholders' agreement gives rights of first refusal to Mrs. Fields' Holding if any Mrs. Fields' Holding stockholder receives an offer to purchase common stock of Mrs. Fields' Holding and, if Mrs. Fields' Holding does not exercise its rights, gives the rights of first refusal to other Mrs. Fields' Holding stockholders. In the event of a sale to a third party approved by Capricorn, Capricorn has the right to require the other Mrs. Fields' Holding stockholders to sell their common stock of Mrs. Fields' Holding (the "Drag Along"). If Capricorn sells any common stock of Mrs. Fields' Holding, the other Mrs. Fields' Holding stockholders will have the opportunity to sell their common stock of Mrs. Fields' Holding in proportion to their holdings (the "Tag Along"). The stockholders' agreement also provides for piggyback registration rights for all Mrs. Fields' Holding stockholders, and gives one Mrs. Fields' Holding stockholder demand registration rights. The stockholders' agreement gives Mrs. Fields' Holding the option to purchase all of the common stock of Mrs. Fields' Holding held by an officer or director that holds common stock of Mrs. Fields' Holding if the officer or director is terminated. If an officer or director is terminated other than for cause, the officer or director has the right to sell shares to Mrs. Fields' Holding. The stockholders' agreement provides for customary restrictions on transfer of common stock of Mrs. Fields' Holding. The holders of warrants to purchase common stock of Mrs. Fields' Holding will be subject to the Drag Along and benefit from the Tag Along. Arrangements With Capricorn. On May 27, 1999, Mrs. Fields, Mrs. Fields' Holding, Pretzel Time, Martin Lisiewksi and Capricorn entered into an assignment and assumption agreement under which Capricorn agreed to assume a payment obligation of Mrs. Fields of $2,000,000 for Pretzel Time stock held by Mr. Lisiewksi that is due on December 31, 1999. In a related transaction on the same date, Capricorn and Mrs. Fields' Holding entered into a contribution agreement under which Mrs. Fields' Holding and Capricorn agreed to treat the assumption by Capricorn of the Mrs. Fields payment obligation described above as a capital contribution from Capricorn to Mrs. Fields' Holding, and Mrs. Fields' Holding agreed either to issue 101,419 shares of its common stock to Capricorn at the request of Capricorn or to enter into an economically equivalent transaction that is permitted under the debt instruments of Mrs. Fields' Holding and its subsidiaries or no consideration. This transaction enhanced Mrs. Fields' tax planning and financial flexibility. 84

DESCRIPTION OF NOTES You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the word "Mrs. Fields" refers only to Mrs. Fields' Original Cookies, Inc. and not to any of its subsidiaries. We will issue the new notes under an indenture among Mrs. Fields, the guarantors and The Bank of New York, as trustee. The terms of the new notes being offered in the exchange offer include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The following description is a summary of the material provisions of the indenture and the registration rights agreement. It does not restate those agreements in their entirety. We urge you to read the indenture and the registration rights agreement because they, and not this description, define your rights as holders of these notes. We have filed copies of the indenture and the registration rights agreement as exhibits to the registration statement which includes this prospectus. Brief Description of the Notes and the Guarantees The notes These notes: . are general unsecured obligations of Mrs. Fields; . are senior in right of payment to all subordinated Indebtedness of Mrs. Fields; . are equal in right of payment to all existing and future senior Indebtedness of Mrs. Fields; and . are unconditionally guaranteed on a senior basis by the guarantors. As of July 3, 1999, Mrs. Fields had approximately $11.6 million in Indebtedness other than the notes. The Guarantees "guarantors" means each of: (1) The Mrs. Fields' Brand; and (2) any other Subsidiary that executes a guarantee in accordance with the provisions of the indenture and their respective successors and assigns. A "Subsidiary" means, with respect to any person, (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that person or one or more of the other Subsidiaries of that person (or a combination of the preceding) and (2) any partnership (a) the sole general partner or the managing general partner of which is that person or a Subsidiary of that person or (b) the only general partners of which are that person or of one or more Subsidiaries of such person (or any combination of the preceding). These notes are guaranteed by the following subsidiaries of Mrs. Fields: The Mrs. Fields' Brand, Inc. Great American Cookie Company, Inc. Pretzelmaker Holdings, Inc. Pretzel Time, Inc. 85

The guarantees of these notes: . are general unsecured obligations of each guarantor; . are senior in right of payment to all subordinated Indebtedness of each guarantor; and . are equal in right of payment to any existing and future senior Indebtedness of each guarantor. As of July 3, 1999, Mrs. Fields' subsidiaries had approximately $382,000 in indebtedness and had preferred stock with a value upon liquidation of $1.5 million, substantially all of which is senior in right of payment to the notes. The indenture will permit us and the guarantors to incur additional Indebtedness. The notes will be guaranteed by any additional guarantors. Principal, Maturity and Interest Mrs. Fields can issue up to $200.0 million of notes under the indenture. Before August 1998, Mrs. Fields had issued $100.0 million of notes under the indenture. Mrs. Fields issued an additional $40.0 million of notes on August 24, 1998. . Interest on the notes will accrue at the rate of 10 1/8% per annum. . We will pay interest on the new notes semi-annually in arrears on June 1 and December 1 of each year, commencing June 1, 1999. We will make each interest payment to holders of record of the new notes on the immediately preceding May 15 and November 15. . Interest on the new notes will accrue from the date it was most recently paid. We will compute interest on the basis of a 360-day year comprised of twelve 30-day months. . Old notes that are accepted for exchange will cease to accrue interest from and after the date the exchange offer is completed. . The notes mature on December 1, 2004. Methods of Receiving Payments on the Notes If a holder has given wire transfer instructions to us, we will make all principal, premium and interest and, if any, liquidated damages, payments on those notes in accordance with those instructions. All other payments on the notes will be made at the office or agency that we maintain within the City and State of New York unless we elect to make interest payments by check mailed to the holders at their addresses described in the register of holders. Until we designate otherwise, our office or agency in New York will be the office of the trustee. Transfer and Exchange A holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and Mrs. Fields may require a holder to pay any taxes and fees required by law or permitted by the indenture. We are not required to transfer or exchange any note selected for redemption. Also, we are not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. The registered holder of a note will be treated as the owner of it for all purposes. Guarantees The guarantors will, jointly and severally, unconditionally guarantee Mrs. Fields' obligations under these notes on a senior unsecured basis. The obligations of each guarantor under its guarantee will be limited as 86

necessary to prevent that guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors--Fraudulent conveyance risks; federal and state statutes allow courts, under specific circumstances, to void payments under the notes and guarantees and require noteholders to return payments received." A guarantor may not consolidate with or merge with or into (whether or not such guarantor is the surviving person), another person unless: (1) the person formed by or surviving the consolidation or merger assumes all the obligations of that guarantor under a supplemental indenture satisfactory to the trustee; (2) immediately after giving effect to that transaction, no Default or Event of Default exists; (3) the guarantor, or any person formed by or surviving the consolidation or merger, would have Consolidated Net Worth immediately after giving effect to the transaction equal to or greater than the Consolidated Net Worth of the guarantor immediately preceding the transaction; and (4) Mrs. Fields would be permitted by virtue of giving effect to its pro forma Fixed Charge Coverage Ratio, immediately after giving effect to the transaction, to incur at lest $1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test described in the covenant described below under the caption: "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." A Default means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. Events of Default are listed under "Event of Default and Remedies" below. The guarantee of a guarantor will be released: (1) in connection with any sale or other disposition of all of the assets of that guarantor (including by way of merger or consolidation), if Mrs. Fields applies the Net Proceeds of that sale or other disposition, in accordance with the applicable provisions of the indenture; or (2) in connection with any sale of all of the capital stock of a guarantor (including by way of a merger or consolidation), if Mrs. Fields applies the Net Proceeds of that sale in accordance with the applicable provisions of the indenture. In the event of a sale or other disposition of all of the assets of a guarantor, the corporation acquiring the property will be released. See "Redemption at the Option of Holders--Asset Sales." Optional Redemption Until November 20, 2001, Mrs. Fields may on any one or more occasions redeem up to 35% of the total principal amount of notes ever issued under the indenture at a redemption price of 110.125% of the principal amount of those notes, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that (1) at least 65% of the in total principal amount of notes ever issued under the indenture remains outstanding immediately after the occurrence of the redemption; and (2) the redemption must occur within 60 days of the date of the closing of the Public Equity Offering. Except under the preceding paragraph, the notes will not be redeemable at Mrs. Fields' option prior to December 1, 2001. 87

After December 1, 2001, Mrs. Fields may redeem all or a part of these notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) described below plus accrued and unpaid interest and liquidated damages, if any, on those notes, to the applicable redemption date, if redeemed during the twelve-month period beginning on December 1 of the years indicated below: <TABLE> <CAPTION> Year Percentage ---- ---------- <S> <C> 2001.............................................................. 103.375% 2002.............................................................. 101.688% 2003 and thereafter............................................... 100.000% </TABLE> Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each holder of notes will have the right to require Mrs. Fields to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's notes under the Change of Control Offer. In the Change of Control Offer, Mrs. Fields will offer a Change of Control Payment in cash equal to 101% of the total principal amount of notes repurchased plus accrued and unpaid interest on those notes, if any, and liquidated damages, if any, to the date of purchase. Within 60 days following any Change of Control, Mrs. Fields will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in the notice, under the procedures required by the indenture and described in the notice. Mrs. Fields will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations under the Exchange Act to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. On the Change of Control Payment Date, Mrs. Fields will, to the extent lawful: (1) accept for payment all notes or portions thereof properly tendered under the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes so tendered; and (3) deliver or cause to be delivered to the trustee the notes so accepted together with an officers' certificate stating the total principal amount of notes or portions of notes being purchased by Mrs. Fields. The paying agent will promptly mail to each holder of notes so tendered the Change of Control Payment for those notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000. Mrs. Fields will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require Mrs. Fields to make a Change of Control Offer following a Change of Control will be applicable regardless of whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of the notes to require that Mrs. Fields repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. Indebtedness of Mrs. Fields currently prohibits, and it is expected that future Indebtedness of Mr. Fields will prohibit, events that would constitute a Change of Control. In addition, the exercise by the holders of notes 88

of their right to require Mrs. Fields to repurchase the notes could cause a default under that Indebtedness, even if the Change of Control itself does not, due to the financial effect of those repurchases on Mrs. Fields. Finally, Mrs. Fields' ability to pay cash to the holders of notes upon a repurchase may be limited by Mrs. Fields' then existing financial resources. Mrs. Fields will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements described in the indenture applicable to a Change of Control Offer made by Mrs. Fields and purchases all notes validly tendered and not withdrawn under the Change of Control Offer. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of Mrs. Fields and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting, the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require Mrs. Fields to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Mrs. Fields and its Subsidiaries taken as a whole to another person or group may be uncertain. Asset Sales Mrs. Fields will not, and will not permit any of its Subsidiaries to, consummate an Asset Sale unless: (1) Mrs. Fields (or the Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) the fair market value is (a) evidenced by an officers' certificate delivered to the trustee, in the case of an Asset Sale or Asset Sales aggregating $10,000 or more; or (b) determined by Mrs. Fields' Board of Directors and evidenced by a resolution of the Board of Directors described in an officers' certificate delivered to the trustee, in the case of any Asset Sale having a fair market value or resulting in net proceeds in excess of $5.0 million; and (3) at least 75% of the consideration therefor received by Mrs. Fields or the Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (a) any liabilities (as shown on Mrs. Fields' or the Subsidiary's most recent balance sheet), of Mrs. Fields or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any guarantee of those liabilities) that are assumed by the transferee of any assets under a customary novation agreement that releases Mrs. Fields or the Subsidiary from further liability; and (b) any securities, notes or other obligations received by Mrs. Fields or any the Subsidiary from the transferee that are immediately converted by Mrs. Fields or the Subsidiary into cash (to the extent of the cash received in that conversion). "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). Within 270 days after the receipt of any Net Proceeds from an Asset Sale, Mrs. Fields may apply the Net Proceeds at its option: (1) to repay senior Indebtedness of Mrs. Fields or any guarantor; 89

(2) to make a Permitted Investment; (3) to make a capital expenditure in the same or a similar line of business as Mrs. Fields and its Subsidiaries were engaged in on November 26, 1997, including, without limitation, the specialty retail snack-food business; or (4) to acquire long-term assets in the same or a similar line of business as Mrs. Fields and its Subsidiaries were engaged in on November 26, 1997, including, without limitation, the specialty retail snack-food business. Pending the final application of the Net Proceeds, Mrs. Fields may temporarily reduce Indebtedness under a credit facility with a maximum total amount of $15.0 million that is permitted under the indenture, including the credit agreement with La Salle National Bank, or otherwise invest the Net Proceeds in any manner that is not prohibited by the indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute Excess Proceeds. When the total amount of Excess Proceeds exceeds $5.0 million, Mrs. Fields will make an Asset Sale Offer to all holders of notes to purchase the maximum principal amount of notes that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest, if any, and liquidated damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after completion of an Asset Sale Offer, Mrs. Fields may use those Excess Proceeds for general corporate purposes. If the total principal amount of notes tendered into the Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select the notes to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Selection and Notice If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption as follows: (1) if the notes are listed, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or (2) if the notes are not so listed, on a pro rata basis, by lot or by any method as the trustee shall deem fair and appropriate. No notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any note is to be redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of that note upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. Certain Covenants Restricted Payments Mrs. Fields will not, and will not permit any of its Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of Mrs. Fields' or any of its Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Mrs. Fields) or to the direct or indirect 90

holders of Mrs. Fields' or any of its Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Mrs. Fields or dividends or distributions payable to Mrs. Fields or any Wholly Owned Subsidiary of Mrs. Fields that is a guarantor); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Mrs. Fields) any Equity Interests of Mrs. Fields or any direct or indirect parent of Mrs. Fields or other Affiliate of Mrs. Fields (other than the Equity Interests owned by Mrs. Fields or any Wholly Owned Subsidiary of Mrs. Fields); (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the notes, except a payment of interest or principal at the Stated Maturity of that Indebtedness; or (4) make any Investment other than a Permitted Investment (all of the payments and other actions (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to that Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence of the Restricted Payment, and (2) Mrs. Fields would, at the time of the Restricted Payment and after giving pro forma effect to it as if the Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test described in the first paragraph of the covenant described below under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock"; and (3) the Restricted Payment, together with the total amount of all other Restricted Payments made by Mrs. Fields and its Subsidiaries after November 26, 1997 (excluding Restricted Payments permitted by clauses (2), (3) or (4) of the next succeeding paragraph), is less than the sum of (a) 50% of the Consolidated Net Income of Mrs. Fields for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after November 26, 1997 to the end of Mrs. Fields' most recently ended fiscal quarter for which internal financial statements are available at the time of the Restricted Payment (or, if the Consolidated Net Income for that period is a deficit, less 100% of the deficit), plus (b) 100% of the total net cash proceeds (other than proceeds referred to in the proviso to the first sentence of the definition of "Investments") received by Mrs. Fields since November 26, 1997 of Equity Interests of Mrs. Fields (other than Disqualified Stock, but including the capital contribution from Mrs. Fields Holding on August 24, 1998) or Disqualified Stock or convertible debt securities that have been converted into Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of Mrs. Fields and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (c) to the extent that any Investment other than a Permitted Investment that was made after November 26, 1997 is sold for cash or otherwise liquidated or repaid for cash, the lesser of (1) the cash return of capital with respect to that Investment (less the cost of disposition, if any) and (2) the initial amount of that Investment. "Wholly Owned Subsidiary" of any person means a Subsidiary of that person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be 91

owned by that person or by one or more Wholly Owned Subsidiaries of that person and one or more Wholly Owned Subsidiaries of that person. The preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at said date of declaration the payment would have complied with the provisions of the indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of Mrs. Fields in exchange for, or out of the net cash proceeds of, the substantially concurrent sale (other than to a Subsidiary of Mrs. Fields) of, other Equity Interests of Mrs. Fields (other than Disqualified Stock); provided that the amount of any net cash proceeds that are utilized for that redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Subsidiary of Mrs. Fields to the holders of any Equity Interests on a pro rata basis; and (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Mrs. Fields or any Subsidiary of Mrs. Fields held by any member of Mrs. Fields' (or any of its Subsidiaries') management under any management equity subscription agreement or stock option agreement; provided that the total price paid for all of those repurchased, redeemed, acquired or retired Equity Interests shall not exceed, in any twelve-month period, $250,000, plus the amount of cash proceeds received by Mrs. Fields from any reissuance of Equity Interests by Mrs. Fields to members of management of Mrs. Fields or its Subsidiaries during such period, which total amount shall in no event exceed $500,000 in that period, and no Default or Event of Default shall have occurred and be continuing immediately after the transaction; (6) payments to Mrs. Fields Holding under the Tax Sharing Agreement; (7) payments pursuance to the Employment Agreement, dated as of September 2, 1997, between Pretzel Time and Martin E. Lisiewski and the Management Agreement, dated as of September 2, 1997, between Mrs. Fields and Pretzel Time; and (8) the redemption or repurchase of preferred stock of Pretzel Time outstanding on November 26, 1997. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Mrs. Fields or its Subsidiary, as the case may be, under the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect to it shall be delivered to the trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $2.0 million. Not later than the date of making any Restricted Payment, Mrs. Fields shall deliver to the trustee an officers' certificate stating that the Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the indenture. Incurrence of Indebtedness and Issuance of Preferred Stock Mrs. Fields will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Indebtedness), and Mrs. Fields will not 92

issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided that Mrs. Fields may incur Indebtedness (including Acquired Indebtedness) or issue Disqualified Stock, if: (1) the Fixed Charge Coverage Ratio for Mrs. Fields' most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the additional Indebtedness is incurred or the Disqualified Stock is issued would have been at least (a) From the date of the indenture to December 31, 1999, 2.25 to 1 and (b) thereafter, 2.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of that four- quarter period; and (2) the Weighted Average Life to Maturity of the Indebtedness is equal to or greater than the remaining Weighted Average Life to Maturity of the notes, provided that this clause (2) shall not apply in the case of Acquired Indebtedness. The first paragraph of this covenant will not prohibit the incurrence of any of the following, items of Indebtedness (collectively, "Permitted Indebtedness"): (1) the incurrence by Mrs. Fields and its Subsidiaries of the Existing Indebtedness other than the notes; (2) the incurrence by Mrs. Fields and its Subsidiaries on November 26, 1997 of Indebtedness represented by the notes in a total principal amount not to exceed $100.0 million and the guarantees of that Indebtedness by the guarantors; (3) the incurrence by Mrs. Fields or any of its Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of improvement of property, plant or equipment used in the business of Mrs. Fields or the Subsidiary, in a total principal amount not to exceed $5.0 million at anytime outstanding; (4) the incurrence by Mrs. Fields or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness that was permitted by the indenture to be incurred; (5) the incurrence by Mrs. Fields or any of its Subsidiaries of intercompany Indebtedness between or among Mrs. Fields and any of its Wholly Owned Subsidiaries; provided, that: (a) if Mrs. Fields is the obligor on that Indebtedness, the Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the notes; and (b) (1) any subsequent issuance or transfer of Equity Interests that results in any of that Indebtedness being held by a person other than Mrs. Fields or a Wholly Owned Subsidiary of Mrs. Fields and (2) any sale or other transfer of that Indebtedness to a person that is not either Mrs. Fields or a Wholly Owned Subsidiary of Mrs. Fields shall be deemed, in each case, to constitute an incurrence of that Indebtedness by Mrs. Fields or that Subsidiary, as the case may be; (6) the incurrence by Mrs. Fields of Hedging Obligations in the ordinary course of business; (7) the incurrence of Indebtedness in connection with one or more standby letters of credit, guarantees, performance or surety bonds or other reimbursement obligations, in each case, issued 93

in the ordinary course of business and not in connection with the borrowing of money or the obtaining of advances or credit other than: (a) advances or credit on open account, includible in current liabilities, for goods and services in the ordinary course of business and on terms and conditions customary in the same or a similar line of business as Mrs. Fields and its Subsidiaries were engaged in on November 26, 1997, including, without limitation, the speciality retail snack-foods business and (b) the extension of credit represented by the letter of credit, guarantee, bond or other obligation itself, provided that any draw under or call upon any of the foregoing is repaid in full within 45 days, and provided further that the total amount of all Indebtedness incurred under this clause (7) shall not exceed $5.0 million at any time outstanding; (8) the incurrence of Indebtedness arising from agreements of Mrs. Fields or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary (other than guarantees of Indebtedness incurred by any person acquiring all or a portion of the business, assets or Subsidiary for the purpose of financing the acquisition), provided that the maximum total liability of that Indebtedness shall at no time exceed 50% of the gross proceeds actually received by Mrs. Fields or the Subsidiary in connection with the disposition; (9) the guarantee by Mrs. Fields or any of the guarantors of Indebtedness of Mrs. Fields or a Subsidiary of Mrs. Fields that is a guarantor that was permitted to be incurred by another provision of this covenant; (10) the incurrence by Pretzel Time of Indebtedness under a working capital facility, provided that the total principal amount of all Indebtedness (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of Pretzel Time thereunder) outstanding thereunder after giving effect to the incurrence, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred under this clause (10), does not exceed an amount equal to $1.0 million; (11) the incurrence by Mrs. Fields of additional Indebtedness (including Indebtedness under a credit facility) in a total principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred under this clause (11), not to exceed $15.0 million at any time outstanding; (12) the incurrence by Mrs. Fields or any of its subsidiaries of Acquired Indebtedness in a total amount not to exceed $5.0 million at any time outstanding; (13) the guarantee by Mrs. Fields or any of its Subsidiaries (other than Mrs. Fields' Brand) of operating store lease obligations of Mrs. Fields or any of its Subsidiaries or any franchisee of Mrs. Fields or any of its Subsidiaries in the ordinary course of business and consistent with past practice; (14) the guarantee by any Subsidiary of Mrs. Fields of Indebtedness of the Mrs. Fields under any credit facility with a maximum total amount of $15.0 million otherwise permitted to be incurred under the indenture; (15) the incurrence by Mrs. Fields of Indebtedness in the form of notes issued in connection with the repurchase, redemption, acquisition or retirement of Equity Interests of Mrs. Fields or any Subsidiary of Mrs. Fields in an amount not to exceed $500,000 at any time outstanding and subordinated in right of payment to the notes; and 94

(16) the incurrence by Mrs. Fields of Indebtedness or the guarantee by Mrs. Fields of Indebtedness incurred by franchisees in connection with the cost of purchasing a franchise and the cost of equipment in connection with the set-up of a franchise, provided that the Indebtedness or guarantee does not exceed $3.0 million at any time outstanding. For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (16) above, or is entitled to be incurred under the first paragraph of this covenant, Mrs. Fields will be permitted to classify that item of Indebtedness on the date of its incurrence in any manner that complies with this covenant. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. Liens Mrs. Fields will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries Mrs. Fields will not, and will not permit any of its Subsidiaries, directly or indirectly, to create or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to Mrs. Fields or any of Mrs. Fields' Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to Mrs. Fields or any of Mrs. Fields' Subsidiaries; (2) make loans or advances to Mrs. Fields or any of Mrs. Fields' Subsidiaries; or (3) transfer any of its properties or assets to Mrs. Fields or any of Mrs. Fields' Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) Existing Indebtedness as in effect on November 27, 1997 (2) the indenture and the notes; (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a person acquired by Mrs. Fields or any of its Subsidiaries as in effect at the time of the acquisition (except to the extent the Indebtedness was incurred in connection with or in contemplation of the acquisition), which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the property or assets of the person, so acquired, provided that, in the case of Indebtedness, the Indebtedness was permitted by the terms of the indenture to be incurred; (5) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (4) above; (7) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing the Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; 95

(8) customary restrictions imposed on the transfer of copyrighted or patented materials and customary provisions in agreements that restrict the assignees of the agreements or any rights thereunder; or (9) restrictions with respect to a Subsidiary of Mrs. Fields imposed under a binding agreement relating to the sale or disposition of all or substantially all of the Capital Stock or assets of the Subsidiary. Merger, Consolidation, or Sale of Assets Mrs. Fields may not: (1) consolidate or merge with or into another person (whether or not Mrs. Fields is the surviving corporation); or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another person; unless: (a) either: (1) Mrs. Fields is the surviving corporation; or (2) the person formed by or surviving the consolidation or merger (if other than Mrs. Fields) or the entity to which the sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (b) the person formed by or surviving the consolidation or merger (if other than Mrs. Fields) or the person to which the sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of Mrs. Fields under the notes and the indenture under a supplemental indenture reasonably satisfactory to the trustee; (c) immediately after the transaction no Default or Event of Default exists; and (d) except in the case of a merger of Mrs. Fields with or into a Wholly Owned Subsidiary of Mrs. Fields, Mrs. Fields or the person formed by or surviving the consolidation or merger (if other than Mrs. Fields), or to which the sale, assignment, transfer, lease, conveyance or other disposition shall have been made: (1) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of Mrs. Fields immediately preceding the transaction; and (2) will, on the date of the transaction after giving pro forma effect to it and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test described in the first paragraph of the covenant described above under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock." Transactions with Affiliates Mrs. Fields will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to Mrs. Fields or the relevant Subsidiary than those that would have been obtained in a comparable transaction by Mrs. Fields or the Subsidiary with an unrelated person; and 96

(2) Mrs. Fields delivers to the trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving total consideration in excess of $1.0 million, a resolution of the Board of Directors contained in an officers' certificate certifying that the Affiliate Transaction complies with this covenant and that the Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving total consideration in excess of $5.0 million, an opinion as to the fairness to the holders of the Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) payments to Mrs. Fields Holding under the Tax Sharing Agreement; (2) any employment agreement entered into by Mrs. Fields or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of Mrs. Fields or the Subsidiary; (3) transactions between or among Mrs. Fields and/or its Subsidiaries; (4) Restricted Payments that are permitted by the provisions of the indenture described above under the caption "Restricted Payments"; (5) the payment of reasonable fees, expense reimbursements and customary indemnification, advances and other similar arrangements to directors and officers of Mrs. Fields and its Subsidiaries; and (6) reasonable loans or advances to employees of Mrs. Fields and its Subsidiaries in the ordinary course of business of Mrs. Fields or the Subsidiary. Additional Subsidiary Guarantees If: (1) Mrs. Fields or any of its Subsidiaries acquires or creates another domestic wholly owned Subsidiary after the date of the Indenture having assets (a) with a fair market value in excess of $100,000 or (b) consisting of one or more stores; or (2) Mrs. Fields acquires all remaining common stock of Pretzel Time, then the newly acquired or created Subsidiary or Pretzel Time, as the case may be, must become a guarantor and execute a supplemental indenture and deliver an opinion of counsel, in accordance with the terms of the indenture. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries Mrs. Fields will not, and will not permit any of its Wholly Owned Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of Mrs. Fields to any person (other than Mrs. Fields or a Wholly Owned Subsidiary of Mrs. Fields), unless: (1) the transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of the Wholly Owned Subsidiary; and 97

(2) the cash Net Proceeds from the transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "Repurchase at the Option of Holders--Asset Sales." In addition, Mrs. Fields will not permit any Wholly Owned Subsidiary of Mrs. Fields to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any person other than to Mrs. Fields or a Wholly Owned Subsidiary of Mrs. Fields. Limitations on Issuances of Guarantees of Indebtedness Mrs. Fields will not permit any of its Subsidiaries, directly or indirectly, to guarantee or pledge any assets to secure the payment of (other than as a result of a Permitted Lien) any other Indebtedness of Mrs. Fields or any subsidiary of Mrs. Fields unless the Subsidiary simultaneously executes and delivers a supplemental indenture providing for the guarantee of the payment of the notes by the Subsidiary, which guarantee shall be senior to or rank equal in right to payment with the Subsidiary's guarantee of or pledge to secure the other Indebtedness. Notwithstanding the preceding paragraph, any guarantee by a Subsidiary of the notes will provide by its terms that it will be automatically and unconditionally released and discharged under the circumstances described above under the caption "Guarantees." The form of the guarantee is attached as an exhibit to the indenture. Business Activities Mrs. Fields will not, and will not permit any Subsidiary to, engage in any business other than the same or a similar line of business as Mrs. Fields and its Subsidiaries were engaged in on November 26, 1997, including, without limitation, the specialty retail snack-food business, except to an extent as would not be material to Mrs. Fields and its Subsidiaries taken as a whole. In addition, (1) Mrs. Fields will not engage in any Asset Sale involving Mrs. Fields' Brand, (2) neither Mrs. Fields nor Mrs. Fields' Brand will engage in any Asset Sale involving the "Mrs. Fields" or "Pretzel Time" brand name, and (3) for so long as Mrs. Fields' Brand is a Subsidiary of Mrs. Fields, Mrs. Fields' Brand will not incur any Indebtedness (other than its guarantee of the notes and any guarantee of Indebtedness under a credit facility with a maximum total amount of $15.0 million that is permitted under the indenture). Payments for Consent Mrs. Fields will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless the consideration is offered to be paid and is paid to all holders of the notes that consent, waive or agree to amend in the time frame described in the solicitation documents relating to the consent, waiver or agreement. Reports Whether or not required by the Commission, so long as any notes are outstanding, Mrs. Fields will furnish to the holders of notes, within the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if Mrs. Fields were required to file those Forms, 98

including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by Mrs. Fields' certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if Mrs. Fields were required to file those reports. In addition, whether or not required by the Commission, Mrs. Fields will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept the filing) and make the information available to securities analysts and prospective investors upon request. In addition, Mrs. Fields and the guarantors have agreed that, for so long as any notes remain outstanding, they will furnish to the holders of notes and to securities analysts and prospective investors, upon their request, the information required to be delivered under Rule 144A(d)(4) under the Securities Act. Events of Default and Remedies Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest or liquidated damages, if any, with respect to the notes; (2) default in payment when due of the principal of or premium, if any, on the notes; (3) failure by Mrs. Fields for 30 days after notice to comply with any of its other agreements in the indenture or the notes; (4) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Mrs. Fields or any of its Subsidiaries (or the payment of which is guaranteed by Mrs. Fields or any of its Subsidiaries) whether the Indebtedness or guarantee now exists, or is created after November 26, 1997, if that default: (a) is caused by a failure to pay principal of or premium, if any, or interest on that Indebtedness prior to the expiration of the grace period provided in that Indebtedness on the date of that default (a "Payment Default"); or (b) results in the acceleration of that Indebtedness prior to its express maturity, and, in each case, the principal amount of that Indebtedness, together with the principal amount of any other Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, totals $2.5 million or more; (5) failure by Mrs. Fields or any of its Subsidiaries to pay final judgments aggregating in excess of $2.5 million, which judgments are not paid, discharged or stayed for a period of 60 days; (6) events of bankruptcy or insolvency with respect to Mrs. Fields or any of its Subsidiaries; and (7) except as permitted by the indenture, any guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any guarantor, or any person acting on behalf of any guarantor, shall deny or disaffirm its obligations under its guarantee. In the case of an Event of Default arising from events of bankruptcy or insolvency, with respect to Mrs. Fields, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a 99

Significant Subsidiary, all outstanding notes will become due and payable without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The holders of a majority in total principal amount of the notes then outstanding by notice to the trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the notes. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of Mrs. Fields with the intention of avoiding payment of the premium that Mrs. Fields would have had to pay if Mrs. Fields then had elected to redeem the notes under the optional redemption provisions of the indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. If an Event of Default occurs prior to December 1, 2001 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of Mrs. Fields with the intention of avoiding the prohibition on redemption of the notes before December 1, 2001, then the premium specified in the indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the notes. If an Event of Default occurs prior to December 1, 2001 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of Mrs. Fields with the intention of avoiding the prohibition on redemption of the notes prior to December 1, 2001, then the premium specified in the indenture shall also become immediately due and payable to the extent permitted by law upon acceleration of the notes. Mrs. Fields is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, Mrs. Fields is required to deliver to the trustee a statement specifying the Default or Event of Default. No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of Mrs. Fields or any guarantor, as such, shall have any liability for any obligations of Mrs. Fields or the guarantor under the notes, the guarantees the indenture, or for any claim based on, in respect of, or by reason of, those obligations or their creation. Each holder of notes by accepting a note waives and releases all liability of this kind. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws. Legal Defeasance and Covenant Defeasance Mrs. Fields may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes ("Legal Defeasance") except for: (1) the rights of holders of outstanding notes to receive payments in respect of the principal of, premium, if any, and interest and liquidated damages, if any, on those notes when those payments are due from the trust referred to below; (2) Mrs. Fields' obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; 100

(3) the rights, powers, trusts, duties and immunities of the trustee, and Mrs. Fields' obligations in connection with them; and (4) the Legal Defeasance provisions of the indenture. In addition, Mrs. Fields may, at its option and at any time, elect to have the obligations of Mrs. Fields released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, some of the events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute a Default or an Event of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) Mrs. Fields must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in amounts that will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and liquidated damages, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and Mrs. Fields must specify whether the notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, Mrs. Fields shall have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) Mrs. Fields has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since November 26, 1997, there has been a change in the applicable federal income tax law, in either case to the effect that, and based on which the opinion of counsel shall confirm that, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of the Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, Mrs. Fields shall have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of the Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing either: (a) on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to the deposit); or (b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (5) the Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which Mrs. Fields or any of its Subsidiaries is a party or by which Mrs. Fields or any of its Subsidiaries is bound; (6) Mrs. Fields must have delivered to the trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; 101

(7) Mrs. Fields must deliver to the trustee an officers' certificate stating that the deposit was not made by Mrs. Fields with the intent of preferring the holders of notes over the other creditors of Mrs. Fields with the intent of defeating, hindering, delaying or defrauding creditors of Mrs. Fields or others; and (8) Mrs. Fields must deliver to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Amendment, Supplement and Waiver Without the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder): (1) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes (other than provisions relating to the covenants described above under the caption "Repurchase at the Option of Holders"); (3) reduce the rate of or change the time for payment of interest on any note; (4) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the notes (except a rescission of acceleration of the notes by the holders of at least a majority in total principal amount of the notes and a waiver of the payment default that resulted from the acceleration); (5) make any note payable in money other than that stated in the notes; (6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of or premium, if any, or interest on the notes; (7) waive a redemption payment with respect to any note (other than a payment required by one of the covenants described above under the caption "Repurchase at the Option of Holders"); or (8) make any change in the preceding amendment and waiver provisions. Notwithstanding the preceding, without the consent of any holder of notes, Mrs. Fields and the trustee may amend or supplement the indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated notes in addition to or in place of certificated notes; (3) to provide for the assumption of Mrs. Fields' obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of Mrs. Fields' assets; (4) to make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the indenture of any holder; or (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act. Concerning the Trustee If the trustee becomes a creditor of Mrs. Fields, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. 102

The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate the conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default shall occur and be continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to those provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless that holder shall have offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. Book-Entry, Delivery and Form The new notes exchanged for old notes through the Book-Entry Transfer Facility will be represented by a Global Note (the "New Global Note"). One New Global Note shall be issued with respect to each $100 million or less in total principal amount at maturity of the New Global Note. The New Global Note will be issued on the date of the closing of the exchange offer with the trustee, as custodian of The Depository Trust Company, under a FAST Balance Certificate Agreement between the trustee and The Depository Trust Company and registered in the name of Cede & Co., as nominee of The Depository Trust Company (that nominee being referred to as the "Global Holder"). New notes exchanged for old notes which are in the form of registered definitive certificates will be issued in the form of certificated notes. The certificated notes may, unless the New Global Note has previously been exchanged for certificated notes, be exchanged for an interest in the New Global Note representing the principal amount of new notes being transferred. The Depository Trust Company has advised us that it is a limited-purchase trust company that was created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the placement agents for the old notes), banks and trust companies, clearing corporations and certain other organizations. Access to The Depository Trust Company's system is also available to the other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of The Depository Trust Company only through the Participants or the Indirect Participants. We expect that under procedures established by The Depository Trust Company: (1) upon deposit of the New Global Note, The Depository Trust Company will credit the accounts of Participants with portions of the New Global Note; and (2) ownership of the notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by The Depository Trust Company, the Participants and the Indirect Participants. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer notes may be limited. For so long as the Global Holder is the registered owner of any New Global Notes, the Global Holder will be considered the sole owner of those new notes represented by those New Global Notes outstanding under the indenture. Except as provided below, owners of beneficial interests in a New Global Note will not be entitled to have new notes represented by the New Global Note registered in their names, will not receive or be entitled to receive physical delivery of certificated notes, and will not be considered the owners or holders thereof under 103

the indenture for any purpose. As a result, the ability of a person having a beneficial interest in new notes represented by a New Global Note to pledge that interest to persons or entities that do not participate in The Depository Trust Company's system or to otherwise take actions in respect of that interest, may be affected by the lack of physical certificate evidencing that interest. Accordingly, each person owning a beneficial interest in a New Global Note must rely on the procedures of The Depository Trust Company, if that person is not a Participant or an Indirect Participant, on the procedures of the Participant through which that person owns its interest, to exercise any rights of a holder under that New Global Note of the indenture. Neither Mrs. Fields nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of new notes by The Depository Trust Company, or for maintaining, supervising or reviewing any records of The Depository Trust Company relating to those new notes. The trustee will make payments in respect of the principal of, premium, if any, interest and liquidated damages, if any, on any new notes registered in the name of a Global Holder on the applicable record date to or at the direction of such Global Holder in its capacity as the registered holder under the indenture. Under the terms of the indenture, Mrs. Fields and the trustee may treat the persons in whose name the notes, including the New Global Notes, are registered as the owners of such notes for the purpose of receiving such payments and all other purposes. We expect that The Depository Trust Company or its nominee, upon receipt of payments of principal, premium, if any, interest and liquidated damages, if any, on the New Global Notes, will credit their Participants' or Indirect Participants' accounts with payments in amounts proportionate to their respective interests in the principal amount of the New Global Notes as shown on the records of The Depository Trust Company. Neither Mrs. Fields nor the trustee has any responsibility or liability for those payments. Payments by the Participants and the Indirect Participants to the beneficial owners of new notes will be governed by standing instructions and customary practice. Those payments will be the responsibility of the Participants or the Indirect Participants. Certificated Securities If: (1) Mrs. Fields notifies the trustee in writing that The Depository Trust Company is no longer willing or able to act as a depository and Mrs. Fields is unable to locate a qualified successor within 90 days or (2) Mrs. Fields, at its option, notifies the trustee in writing that it elects to cause the issuance of the new notes in definitive form under the indenture, then, upon surrender by the relevant Global Holder of its New Global Note, new notes in that form will be issued to each person that the Global Holder and The Depository Trust Company identifies as the beneficial owner of the related new notes. In addition, subject to certain conditions, any person having a beneficial interest in the New Global Note may, upon request to the trustee, exchange that beneficial interest for certificated notes. Upon issuance, the trustee is required to register the new notes in the name of, and cause the same to be delivered to, that person or persons (or the nominee of any of them). The new notes would be issued in fully registered forms. Exchange Offer; Registration Rights Mrs. Fields, Mrs. Fields Brand, Great American and the placement agents for the 10 1/8% Series C Senior Notes due 2004 entered into the registration rights agreement on August 24, 1998. The registration rights agreement requires Mrs. Fields and the guarantors to file with the Commission the Registration Statement on the appropriate form under the Securities Act with respect to an offer to exchange the 10 1/8% Series C Senior Notes due 2004 for the new notes, which will have terms substantially similar in all material respects to the old 104

notes. Upon the effectiveness of the Registration Statement, Mrs. Fields will offer to the holders of notes that are subject to restrictions on transfer under the exchange offer who are able to make the necessary representations the opportunity to exchange their notes for new notes. If: (1) Mrs. Fields and the guarantors had not been required to file the exchange offer Registration Statement or are not permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or Commission policy; or (2) any holder of notes that are subject to restrictions on transfer notifies Mrs. Fields prior to the 20th day following consummation of the exchange offer that: (a) it is prohibited by law or Commission policy from participating in the exchange offer or (b) that it may not resell the new notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the Registration Statement is not appropriate or available for resales; (c) that it is a broker-dealer and owns 10 1/8% Series C Senior Notes due 2004 acquired directly from Mrs. Fields or an affiliate of Mrs. Fields, then Mrs. Fields and the guarantors will file with the Commission a Shelf Registration Statement to cover resales of the 10 1/8% Series C Senior Notes due 2004 by the holders of those notes who satisfy specific conditions relating to the provision of information in connection with the Shelf Registration Statement. Mrs. Fields and the guarantors will use their best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. Notes will be subject to restrictions on transfer until: (1) a person other than a broker-dealer has exchanged notes in the exchange offer, (2) a broker-dealer has exchanged notes in the exchange offer and sells them to a purchaser that receives this prospectus from the broker- dealer on or before the sale, (3) the notes are sold under an effective shelf registration statement that we have filed, or (4) the notes are sold to the public under Rule 144 of the Securities Act. The registration rights agreement requires that: (1) Mrs. Fields and the guarantors must file a Registration Statement with the Commission on or prior to 90 days after August 24, 1998, (2) Mrs. Fields and the guarantors must use their best efforts to have the Registration Statement declared effective by the Commission on or prior to 150 days after August 24, 1998, (3) unless the exchange offer would not be permitted by applicable law or Commission policy, Mrs. Fields will commence the exchange offer and use its best efforts to issue on or prior to 30 business days after the date on which the exchange offer Registration Statement was declared effective by the Commission, new notes in exchange for all old notes tendered prior to it in the exchange offer, and (4) if obligated to file the Shelf Registration Statement, Mrs. Fields and the guarantors will use their best efforts to file the Shelf Registration Statement with the Commission on or prior to 90 days after that filing obligation arises and to cause the Shelf Registration to be declared effective by the Commission on or prior to 150 days after that obligation arises. If: (1) Mrs. Fields and the guarantors fail to file any of the Registration Statements required by the registration rights agreement on or before the date specified for the filing, 105

(2) any of the Registration Statements is not declared effective by the Commission on or prior to the date specified for effectiveness (the "Effectiveness Target Date"), or (3) Mrs. Fields fails to consummate the exchange offer within 30 business days of the Effectiveness Target Date with respect to the Registration Statement, or (4) the Shelf Registration Statement or the Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of notes that are subject to restrictions on transfer during the periods specified in the registration rights agreement each event referred to in clauses (1) through (4) above a "Registration Default", then Mrs. Fields and the guarantors will pay liquidated damages to each holder of old notes, with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to $.05 per week per $1,000 principal amount of 10 1/8% Series C Senior Notes due 2004 held by the holder. The amount of the liquidated damages will increase by an additional $.05 per week per $1,000 principal amount of notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 principal amount of 10 1/8% Series C Senior Notes due 2004. Mrs. Fields will pay all accrued liquidated damages on each damages payment date to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to holders of certificated old notes by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no accounts have been specified. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. Since the Registration Statement was not effective by January 21, 1999, Mrs. Fields has incurred liquidated damages of approximately $56,000 as of July 3, 1999. On June 1, 1999, Mrs. Fields paid $42,000 of this amount to the holders of 10 1/8% Series C Senior Notes due 2004. Holders of old notes will be required to make certain representations to Mrs. Fields in order to participate in the exchange offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods described in the registration rights agreement in order to have their notes included in the Shelf Registration Statement and benefit from the provisions regarding liquidated damages described above. Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the indenture for a full disclosure of all of these terms, as well as any other capitalized terms used in this prospectus for which no definition is provided. "Accounting Firm" means any of Arthur Andersen LLP, Deloitte & Touche LLP, Ernst & Young LLP, KPMG Peat Marwick LLP and PricewaterhouseCoopers LLP or any of their successor firms. "Acquired Indebtedness" means, with respect to any specified person: (1) Indebtedness of any other person existing at the time the other person is merged with or into or became a Subsidiary of the specified person, excluding, however, Indebtedness incurred in connection with, or in contemplation of, the other person merging with or into or becoming a Subsidiary of the specified person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by the specified person. "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with the specified Person. For purposes of this definition, "control," as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the person, whether through the ownership of 106

voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting stock of a person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided that the sale, conveyance or other disposition of all or substantially all of the assets of Mrs. Fields and its Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "Change of Control" and/or the provisions described above under the caption "Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests of any of Mrs. Fields' Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that: (a) involves assets having a fair market value equal to or less than $1.0 million; or (b) results in net proceeds equal to or less than $1.0 million; (2) a transfer of assets between or among Mrs. Fields and its Wholly Owned Subsidiaries, (3) an issuance of Equity Interests by a Wholly Owned Subsidiary to Mrs. Fields or to another Wholly Owned Subsidiary; (4) a Restricted Payment that is permitted by the covenant described above under the caption "Restricted Payments"; (5) arrangements providing for the receipt by Mrs. Fields of franchise and royalty fees but not otherwise involving the sale of assets of Mrs. Fields or any of its Subsidiaries (other than inventory in the ordinary course of business); and (6) a disposition of any Non-Core Stores. "Beneficial Owner" has the meaning assigned to that term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), that "person" shall be deemed to have beneficial ownership of all securities that the "person" has the right to acquire, whether that right is currently exercisable or is exercisable only upon, the occurrence of a subsequent condition. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with generally accepted accounting principles in effect on November 26, 1997. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing person. 107

"Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of any of them having maturities of not more than six months from the date of acquisition; (3) marketable direct obligations issued by any State of the United States or any local government or other political subdivision of any of them rated (at the time of the acquisition of the security) at least "AA" by Standard & Poor's Rating Service or an equivalent rating by Moody's Investors Service, Inc. and having maturities of not more than one year from the acquisition of the security; (4) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of B or better or with any registered broker-dealer whose commercial paper is rated at least A-1 by Standard & Poor's Rating Service or an equivalent rating by Moody's Investors Service, Inc.; (5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (4) above entered into with any financial institution meeting the qualifications specified in clause (4) above; (6) commercial paper rated at least A-1 by Standard & Poor's Rating Service or an equivalent rating by Moody's Investors Service, Inc. and, in each case, maturing within six months after the date of acquisition; and (7) investments in money market funds all of whose assets consist of securities described in clauses (2) through (6) above. "Change of Control" means the occurrence of any of the following: (1) the sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of Mrs. Fields and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act) other than Herbert S. Winokur, Jr. and Capricorn Investors II, L.P. or their Related Parties. (2) the adoption of a plan relating to the liquidation or dissolution of Mrs. Fields; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than Herbert S. Winokur, Jr. and Capricorn Investors II, L.P. or their Related Parties becomes the Beneficial Owner, directly or indirectly, of more than 50% of the voting stock of Mrs. Fields, measured by voting power rather than number of shares; or (4) the first day on which a majority of the members of the Board of Directors of Mrs. Fields are not Continuing Directors; For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring voting stock of Mrs. Fields will be deemed to be a transfer of that portion of the voting stock as corresponds to the portion of the equity of the entity that has been so transferred. "Consolidated Cash Flow" means, with respect to any person for any period, the Consolidated Net Income of that person for that period plus: (1) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale, to the extent those losses were deducted in computing the Consolidated Net Income; plus 108

(2) provision for taxes based on income or profits of that person and its Subsidiaries for that period, to the extent that the provision for taxes was deducted in computing the Consolidated Net Income; plus (3) consolidated interest expense of that person and its Subsidiaries for that period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments, if any, under Hedging Obligations), to the extent that the expense was deducted in computing the Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding the non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of the person and its Subsidiaries for that period to the extent that the depreciation, amortization and other non-cash expenses were deducted in computing the Consolidated Net Income; minus (5) non-cash items increasing the Consolidated Net Income for that period, in each case, on a consolidated basis and determined in accordance with generally accepted accounting principles in effect on November 26, 1997. Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the specified person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent and in the same proportion that the net income of the Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to Mrs. Fields by the Subsidiary without prior governmental approval (that has not been obtained), under the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any specified person for any period, the total of the Net Income of the Person and its Subsidiaries for that period, on a consolidated basis, determined in accordance with generally accepted accounting principles in effect on November 26, 1997; provided that: (1) the Net Income (but not loss) of any person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified person or a Wholly Owned Subsidiary of the person that is a guarantor; (2) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; (3) the Net Income of any person acquired in a pooling of interests transaction for any period prior to the date of the acquisition shall be excluded; and (4) the cumulative effect of a change in accounting principles shall be excluded. 109

"Consolidated Net Worth" means, with respect to any person as of any date, the sum of: (1) the consolidated equity of the common stockholders of the person and its consolidated Subsidiaries as of that date plus (2) the respective amounts reported on that person's balance sheet as of that date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless those dividends may be declared and paid only out of net earnings in respect of the year of declaration and payment, but only to the extent of any cash received by the person upon issuance of the preferred stock, less (a) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to November 26, 1997 in the book value of any asset owned by the person or a consolidated Subsidiary of the person, (b) all investments as of that date in unconsolidated Subsidiaries and in persons that are not Subsidiaries (except, in each case, Permitted Investments), and (c) all unamortized debt discount and expense and unamortized deferred charges as of that date, all of the foregoing determined in accordance with generally accepted accounting principles in effect on November 26, 1997. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of Mrs. Fields who: (1) was a member of the Board of Directors on the date of the indenture; or (2) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of the Board at the time of the nomination or election. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, under a sinking fund obligation or otherwise, or redeemable at the option of its holder, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely as a result of any maturity or redemption of that Capital Stock shall not constitute Disqualified Stock if that maturity or redemption or redemption complies with the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Existing Indebtedness" means Indebtedness of Mrs. Fields and its Subsidiaries (including preferred stock of Pretzel Time outstanding on November 26, 1999 but excluding any Indebtedness of Mrs. Fields or any of its Subsidiaries under any credit facility with a maximum total amount of $15.0 million that is permitted under the indenture existing on November 26, 1999) in existence on November 26, 1999, until those amounts are repaid. "Fixed Charges" means, with respect to any person for any period, the sum, without duplication, of (1) the consolidated interest expense of the Person and its Subsidiaries for that period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers acceptance financings, and net payments (if any) under Hedging Obligations); (2) the consolidated interest expense of the Person and its Subsidiaries that was capitalized during that period; 110

(3) any interest expense on Indebtedness of another person that is guaranteed by that person or one of its Subsidiaries or secured by a Lien on assets of that person or one of its Subsidiaries (whether or not that guarantee or Lien is called upon); and (4) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of the Person or any of its Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of Mrs. Fields, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of the person, expressed as a decimal, in each case, on a consolidated basis and in accordance with generally accepted accounting principles in effect on August 29, 1998. "Fixed Charge Coverage Ratio" means with respect to any person for any period, the ratio of the Consolidated Cash Flow of that person for that period to the Fixed Charges of that person for that period. In the event that Mrs. Fields or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to that incurrence, assumption, guarantee or redemption of Indebtedness, or that issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above: (1) acquisitions that have been made by Mrs. Fields or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four- quarter reference period or subsequent to that reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for that reference period shall be calculated without giving effect to clause (3) of the proviso described in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with generally accepted accounting principles in effect on November 26, 1997, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with generally accepted accounting principles in effect on November 26, 1997, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to those Fixed Charges will not be obligations of the specified person or any of its Subsidiaries following the Calculation Date; and (4) the financial information of Mrs. Fields with respect to any portion of the four fiscal quarters prior to generally accepted accounting principles in effect on November 26, 1997 may be adjusted to eliminate certain historical expenses that are not expected to recur after the consummation of the Pretzel Contributions so long as those adjustments are not deemed to be contrary to the requirements of Regulation S-X under the Securities Act by an Accounting Firm. In calculating the Fixed Charge Coverage Ratio for any period, to the extent that the proceeds from the incurrence of any Indebtedness are to be used to fund the acquisition of Equity Interests or assets in the same or a similar line of business as Mrs. Fields and its Subsidiaries were engaged in on November 26, 1997, including, without limitation, the specialty retail snack- food business, Mrs. Fields may include any pro forma adjustments permitted by Regulation S-X under the Securities Act in its calculation of the amount of Consolidated Cash Flow that relate solely to the acquisition, so long as these pro forma adjustments are not deemed to be contrary to the requirements of Rule 11-02 of Regulation S-X under the Securities Act in writing by an Accounting Firm. 111

"Hedging Obligations" means, with respect to any person, the obligations of that person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements designed to protect that person against fluctuations in interest or foreign currency exchange rates. "Indebtedness" means, with respect to any specified person, any indebtedness of that person, whether or not contingent, in respect of: (1) borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect of those instruments); (3) banker's acceptances; (4) representing Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, if and to the extent any of the preceding (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified person prepared in accordance with generally accepted accounting principles in effect on November 26, 1997. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified person (whether or not such Indebtedness is assumed by the specified person) and, to the extent not otherwise included, the guarantee by the person of any Indebtedness of any other person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness that does not require current payments of interest; and (2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any person, all investments by that person in other persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with generally accepted accounting principles in effect on November 26, 1997, provided that an acquisition of assets, Equity Interests or other securities by Mrs. Fields for consideration consisting of common stock of Mrs. Fields shall not be deemed to be an Investment. If Mrs. Fields or any Subsidiary of Mrs. Fields sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of Mrs. Fields such that, after giving effect to the sale or disposition, the person is no longer a Subsidiary of Mrs. Fields, Mrs. Fields shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of the Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "Certain Covenants--Restricted Payments". "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of that asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, 112

any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction), provided that the definition of Lien shall not include any option, call or similar right relating to treasury shares of Mrs. Fields to the extent that the option, call or right is granted: (1) under any employee stock option plan, employee stock ownership plan or similar plan or arrangement of Mrs. Fields or its Subsidiaries or (2) in connection with the issuance of Indebtedness permitted to be incurred under the covenant described under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock". "Net Income" means, with respect to any person, the net income (loss) of that person, determined in accordance with generally accepted accounting principles in effect on November 26, 1997 and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on that gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions under sale and leaseback transactions) or (b) the disposition of any securities by the person or any of its Subsidiaries or the extinguishment of any Indebtedness of the person or any of its Subsidiaries; and (2) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on that extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the total cash proceeds received by Mrs. Fields or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non- cash consideration received in any Asset Sale but only as and when received), net of the direct costs relating to the Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the permanent repayment of, or permanent reduction in availability or commitment under, Indebtedness secured by a Lien on the asset or assets that were the subject of the Asset Sale and any reserve for adjustment in respect of the sale price of the asset or assets established in accordance with generally accepted accounting principles in effect on November 26, 1997. "Non-Core Stores" means the stores listed in Exhibit B to the Indenture. "Permitted Investments" means: (1) any Investment in Mrs. Fields or in a Wholly Owned Subsidiary of Mrs. Fields that is a guarantor and that is engaged; (2) any Investment in Cash Equivalents; (3) any Investment by Mrs. Fields or any Subsidiary of Mrs. Fields in a person, if as a result of the Investment (a) the person becomes a Wholly Owned Subsidiary of Mrs. Fields and a guarantor that is engaged in the same or a similar line of business as Mrs. Fields and its Subsidiaries were engaged in on November 26, 1997, including without limitation, the specialty retail snack-food business or (b) the person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Mrs. Fields or a Wholly Owned Subsidiary of Mrs. Fields that is a guarantor and that is engaged in the same or a similar line of business as Mrs. Fields and its Subsidiaries were engaged in on November 26, 1997, including without limitation, the specialty retail snack-food business; 113

(4) any Investment other than a Permitted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made under and in compliance with the covenant described above under the caption "Repurchase at the Option of Holders -- Asset Sales"; (5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Mrs. Fields; (6) any Investments in accounts and notes receivable acquired in the ordinary course of business; (7) any Investments in notes of employees, officers, directors and their transferees and Affiliates issued to Mrs. Fields representing payment of the exercise price of options to purchase common stock of Mrs. Fields; (8) any Investments by Mrs. Fields in Hedging Obligations otherwise permitted to be incurred under the indenture; (9) any Investments existing on November 26, 1997 (including, without limitation, a $500,000 loan to Martin E. Lisiewski outstanding as of November 26, 1997); and (10) any purchase of any and all remaining common stock of Pretzel Time. "Permitted Liens" means: (1) Liens securing Indebtedness under a credit facility with a maximum total amount of $15.0 million that is permitted under the indenture that was permitted by the terms of the indenture to be incurred; (2) Liens in favor of Mrs. Fields; (3) Liens on property of a person existing at the time the person is merged into or consolidated with Mrs. Fields or any Subsidiary of Mrs. Fields, provided that those Liens were in existence prior to the contemplation of the merger or consolidation and do not extend to any assets other than those of the person merged into or consolidated with Mrs. Fields; (4) Liens on property existing at the time of acquisition thereof by Mrs. Fields or any Subsidiary of Mrs. Fields, provided that those Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets of Mrs. Fields other than the property so acquired; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clauses (3) and (10) of the second paragraph of the covenant entitled "Incurrence of Indebtedness" and Issuance of Preferred Stock, provided that, in the case of Indebtedness permitted by clause (3), covering only the assets acquired with that Indebtedness; (7) Liens existing on November 26, 1997; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with generally accepted accounting principles in effect on November 26, 1997 shall have been made therefor; and (9) Liens incurred in the ordinary course of business of Mrs. Fields or any Subsidiary of Mrs. Fields that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the total materially detract from the value of the property or materially impair the use thereof in the operation of business by Mrs. Fields or the Subsidiary. 114

"Permitted Refinancing Indebtedness" means any Indebtedness of Mrs. Fields or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of Mrs. Fields or any of its Subsidiaries, provided that (1) the principal amount (or accreted value, if applicable) of the Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (2) the Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes, the Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the notes on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) the Indebtedness is incurred either by Mrs. Fields or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Public Equity Offering" means a public offering registered under the Securities Act (except for any registration under Form S-8) of common stock of: (1) Mrs. Fields or (2) Mrs. Fields Holding to the extent that the net proceeds thereof are contributed to Mrs. Fields as a capital contribution, provided that the total proceeds from the public offering shall in no event be less than $20.0 million. "Related Party" with respect to Herbert S. Winokur, Jr. and Capricorn Investors II, L.P. means: (1) any greater than 50% owned Subsidiary, or spouse or immediate family member (in the case of an individual) of Herbert S. Winokur, Jr. or Capricorn Investors II, L.P. or (2) trust, corporation, general partnership or other entity, the beneficiaries, stockholders, partners, owners or persons beneficially holding a greater than 50% controlling interest of which consist, or a limited partnership, the general partner of which consists, of Herbert S. Winokur, Jr. or Capricorn Investors II, L.P. and/or any other persons referred to in the immediately preceding clause (1). "Significant Subsidiary" means any Subsidiary that would be a significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated under the Securities Act, as that Regulation is in effect on November 26, 1997. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which that payment of interest or principal was scheduled to be paid in the original documentation governing that Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any that interest or principal prior to the date originally scheduled for the payment thereof. "Tax Sharing Agreement" means any tax allocation agreement between Mrs. Fields or any of its Subsidiaries with Mrs. Fields or any direct or indirect shareholder of Mrs. Fields with respect to consolidated or combined tax returns including Mrs. Fields or any of its Subsidiaries, but, in each case, only to the extent that 115

amounts payable from time to time by Mrs. Fields or any Subsidiary under any agreement do not exceed the corresponding tax payments that Mrs. Fields or the Subsidiary would have been required to make to any relevant taxing authority had Mrs. Fields or the Subsidiary not joined in those consolidated or combined returns, but instead had filed returns including only Mrs. Fields and its Subsidiaries. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between that date and the making of that payment; by (2) the then outstanding principal amount of that Indebtedness. 116

DESCRIPTION OF CERTAIN INDEBTEDNESS Credit Agreement Mrs. Fields entered into an Amended and Restated Loan Agreement, dated as of February 28, 1998, with LaSalle National Bank. Under the agreement, LaSalle National Bank will provide Mrs. Fields with a revolving loan commitment of up to $15.0 million until the maturity date of March 31, 2001 or until the agreement is otherwise terminated or accelerated by LaSalle National Bank. Principal amounts due on revolving loans made under the agreement bear interest at Mrs. Fields option at either the Prime rate or LIBOR plus two percent per annum. Any amount of principal or interest that is not paid when due bears interest payable on demand at the default rate of interest, which is the regular interest rate plus two percent. The agreement also provides that LaSalle National Bank may issue letters of credit on behalf of Mrs. Fields in a total amount not to exceed $500,000. The total amount of letters of credit issued plus the total amount of revolving loans outstanding cannot exceed $15.0 million. Substantially all of the assets of Mrs. Fields have been pledged to LaSalle National Bank under the agreement, as a result of which the notes to be issued in the exchange offer will be effectively subordinated to amounts outstanding under the agreement. The agreement contains certain restrictions on, among other things, payments, the incurrence of indebtedness and liens, which are substantially similar to the restrictions in the indenture. As of July 3, 1999, there was $7.0 million outstanding under the agreement. Under the borrowing base, Mrs. Fields is limited to borrowing an additional $ 276,000 in accordance with restrictions of the indenture. On May 27, 1999, Pretzel Time entered into agreements with LaSalle National Bank under which Pretzel Time borrowed, on May 28, 1999, $1,000,000 in aggregate principal amount from LaSalle. Pretzel Time issued a revolving note to LaSalle to evidence its borrowing, which bears interest at the Prime rate, or Prime plus 2% for any balance payable after the note has matured on June 30, 2000. Pretzel Time has pledged its assets to LaSalle to secure its obligations, and Mrs. Fields has guaranteed Pretzel Time's obligations to LaSalle. PLAN OF DISTRIBUTION Each broker-dealer that receives notes issued in the exchange offer for its own account must acknowledge that it will deliver a prospectus in connection with any resale of those notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of notes received in exchange for outstanding notes where those outstanding notes were acquired as a result of market-making activities or other trading activities. Mrs. Fields has agreed that, for a period of 120 days after the consummation of the exchange offer, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any resale. In addition, until , 1999, all dealers effecting transactions in the notes issued in the exchange offer may be required to deliver a prospectus. Mrs. Fields will not receive any proceeds from any sale of notes issued in the exchange offer by broker-dealers. Notes issued in the exchange offer received by broker-dealers for their own account under the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the notes issued in the exchange offer or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer or the purchasers of any of the notes issued in the exchange offer. Any broker-dealer that resells notes that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of those notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any resale of notes issued in the exchange offer and any commission or concessions received by those persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 117

For a period of 120 days after the consummation of the exchange offer, Mrs. Field will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests those documents in the letter of transmittal or agent's message. Mrs. Fields has agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the notes in an amount up to $50,000) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealer) against some related liabilities, including liabilities under the Securities Act. 118

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a general summary of U.S. federal income tax consequences associated with the exchange of the outstanding notes for the notes issued in the exchange offer. The summary is based upon current laws, regulations, rulings and judicial decisions all of which are subject to change, possibly with retroactive effect. The discussion below does not address all aspects of U.S. federal income taxation that may be relevant to particular holders of outstanding notes or notes issued in the exchange offer. In addition, the discussion does not address any aspect of state, local or foreign taxation. The exchange of the outstanding notes for the notes issued in the exchange offer should not be treated as an "exchange" for U.S. federal income tax purposes because the notes issued in the exchange offer should not be considered to differ materially in kind or extent from the outstanding notes. Rather, the notes issued in the exchange offer received by a holder should be treated as a continuation of the outstanding notes in the hands of such holder. As a result there should be no U.S. federal income tax consequences to holders exchanging the outstanding notes for the notes issued in the exchange offer, and any exchanging holder of outstanding notes should have the same tax basis and holding period in, and income in respect of, the notes as such holder had in the outstanding notes immediately prior to the exchange. Prospective holders of the notes being issued in the exchange offer are being urged to consult their tax advisors concerning the particular tax consequences of exchanging such holders' outstanding notes for the notes being issued in the exchange offer including the applicability and effect of any state, local or foreign income and other tax laws. LEGAL MATTERS The validity of the notes and the guarantees of Mrs. Fields' Brand and Great American offered in this prospectus will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP. The validity of the guarantee of Pretzelmaker will be passed upon by Smith, McCullough, P.C. and Skadden, Arps, Slate, Meagher & Flom LLP. The validity of the guarantee of Pretzel Time will be passed upon by Mette, Evans & Woodside and Skadden, Arps, Slate, Meagher & Flom LLP. EXPERTS The historical consolidated financial statements of Mrs. Fields' Original Cookies, Inc. and subsidiaries as of January 3, 1998 and January 2, 1999, and for the period from inception (September 18, 1996) to December 28, 1996 and for the years ended January 3, 1998 and January 2, 1999; the historical financial statements of Mrs. Fields Inc. and subsidiaries as of September 17, 1996 and for the period from December 31, 1995 to September 17, 1996; the historical combined financial statements of The Original Cookie Company, Incorporated and the Carved-Out Portion of Hot Sam Company, Inc. as of September 17, 1996 and for the year ended December 30, 1995 and for the period ended September 17, 1996; the historical financial statements of Chocolate Chip Cookies of Texas, Inc. as of September 30, 1996 and 1997 and for the years ended September 30, 1995, 1996 and 1997; the historical financial statements of the Combined Karp Entities as of December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997 included in this prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect to it, and are included in this prospectus in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The financial statements of Mrs. Fields Inc. and subsidiaries for the year ended December 30, 1995 included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing in this prospectus, and is included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 119

The financial statements of Deblan Corporation as of December 31, 1996 and 1997, and for the years ended December 31, 1995, 1996 and 1997 included in this prospectus, have been audited by Weinstein Spira & Company, P.C., independent auditors, as stated in their report appearing in this prospectus. The financial statements of Cookies USA, Inc. and subsidiary as of June 29, 1997 and June 28, 1998 and for each of the three years in the period ended June 28, 1998 included in this prospectus, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing in this prospectus. The financial statements of Cookie Conglomerate, Inc. as of December 31, 1997 and 1996, and for the years ended December 31, 1997 and 1996 included in this prospectus, have been audited by Habif, Arogeti & Wynne, P.C., independent auditors, as stated in their report appearing in this prospectus. The financial statements of Pretzelmaker Holdings, Inc. and subsidiaries as of December 31, 1997 and for the year ended December 31, 1997 included in this prospectus, has been audited by AJ. Robbins, PC, independent public accountants as stated in their report appearing in this prospectus. The financial statements of Pretzelmaker Holdings, Inc. as of December 31, 1996 and for the period from inception (February 24, 1995) to December 31, 1995 and for the year ended December 31, 1996 included in this prospectus, have been audited by BDO Seidman, LLP, independent public accountants, as stated in their report appearing in this prospectus. 120

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS On August 24, 1998, Mrs. Fields sold $40,000,000 in total principal amount of Series C Senior Notes due 2004. The net proceeds of the Mrs. Field's offering and the capital contribution of the net proceeds of the offering of units consisting of notes and warrants of Mrs. Fields' Holding to Mrs. Fields, together with existing Mrs. Field's cash were used to: (i) finance the acquisition of all of the outstanding capital stock of Great American; (ii) finance the tender offer to repurchase all of Great American's $40,000,000 total principal amount of 10 7/8% Senior Secured Notes due 2001, including accrued but unpaid interest and a premium of $1,600,000; (iii) finance the repayment of all of Great American's $10,000,000 total principal amount of 12.5% Subordinated Notes, including accrued but unpaid interest; (iv) finance the retirement of Great American's Senior Redeemable Preferred Stock and Junior Redeemable Preferred Stock at an total discounted purchase price of $8,400,000; (v) finance the acquisition of all of the outstanding capital stock of Deblan and Chocolate Chip, two franchisees of Great American, including the repayment of assumed debt; and (vi) finance the asset purchase of eight stores controlled by another Great American franchisee, defined as the Combined Karp Entities. On October 5, 1998, Mrs. Fields purchased all of the retail cookie and related business and operations of Cookie Conglomerate for an total purchase price of $2,800,000. The Cookie Conglomerate acquisition was funded with financing provided by T&W Financial Services, L.L.C. and such funding is secured by the assets of the acquired stores. On November 19, 1998, Mrs. Fields acquired all of the outstanding capital stock of Pretzelmaker for $5,739,000, including $5,419,000 related to outstanding capital stock and $320,000 related to severance payments in lieu of outstanding stock options, and assumed liabilities totaling $1,299,000. The transaction was financed with notes issued to the sellers that were paid by Mrs. Fields in installments through January 4, 1999. Of the assumed indebtedness, $722,000 was paid by Mrs. Fields in installments through January 4, 1999. The unaudited pro forma condensed combined statements of operations for the 52 weeks ended January 2, 1999 are based upon the historical financial statements of Mrs. Fields, Great American, Deblan, Chocolate Chip, the Combined Karp Entities, Cookie Conglomerate and Pretzelmaker, and should be read in conjunction with the audited and unaudited financial statements and related notes of these entities included elsewhere in this Registration Statement. The unaudited pro forma condensed combined financial statements have been prepared using the purchase method of accounting for the acquisitions of Great American, Deblan, Chocolate Chip, the Combined Karp Entities, Cookie Conglomerate and Pretzelmaker. Mrs. Fields operates using a 52/53-week year ending near December 31. Great American operates using a 52/53-week year ending near June 30. Deblan, Cookie Conglomerate and Pretzelmaker operate using a year ending December 31, Chocolate Chip operates using a year ending September 30, and the Combined Karp Entities operate using a year ending December 31. We have recast the historical financial statements for those entities that did not operate using a year ending near December 31 to be comparable for the 52 weeks ended January 2, 1999. None of the revenues and income (loss) of any entity has been excluded or included more than once in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined statements of operations for the 52 weeks ended January 2, 1999 assumes that the above transactions occurred as of January 4, 1998 (the first day of fiscal 1998) and combine the historical results of operations of the entities for those periods with pro forma adjustments to give effect to Mrs. Fields' offering in August 1998, the capital contribution of the net proceeds of the offering of units consisting of notes and warrants of Mrs. Fields' Holding to Mrs. Fields and the acquisitions. The unaudited pro forma condensed combined financial statements included in this Registration Statement are for illustrative purposes only. Such information does not purport to be indicative of the results which would actually have been effected on the date and for the periods indicated, nor is it indicative of actual or future operating results or financial position that may occur. See also "Risk Factors" included elsewhere in this Registration Statement. P-1

MRS. FIELDS PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the 52 Weeks Ended January 2, 1999 (unaudited) <TABLE> <CAPTION> Combined Great Chocolate Karp American Deblan Chip Entities Mrs. Fields (See Note 2) (See Note 3) (See Note 4) (See Note 5) ----------- ------------ ------------ ------------ ------------ (dollars in thousands) <S> <C> <C> <C> <C> <C> REVENUES: Net store and food sales................ $140,235 $18,932 $6,370 $1,873 $1,489 Franchising, net...... 12,464 3,531 -- -- -- Licensing, net........ 1,537 -- -- -- -- -------- ------- ------ ------ ------ Total revenues...... 154,236 22,463 6,370 1,873 1,489 -------- ------- ------ ------ ------ OPERATING COSTS AND EXPENSES: Selling and store occupancy costs...... 75,003 7,645 3,523 1,000 914 Cost of sales......... 38,482 6,428 1,108 454 373 General and administrative....... 19,017 5,288 1,067 421 141 Store closure provision 7,303 -- -- -- -- Depreciation and amortization......... 19,820 1,510 182 22 82 -------- ------- ------ ------ ------ Total operating costs and expenses........... 159,625 20,871 5,880 1,897 1,510 -------- ------- ------ ------ ------ Income (loss) from operations....... (5,389) 1,592 490 (24) (21) INTEREST EXPENSE........ (13,197) (4,077) (43) (2) (8) INTEREST INCOME......... 623 258 24 4 -- OTHER INCOME (EXPENSE), net.................... (409) (149) 40 11 -- -------- ------- ------ ------ ------ Income (loss) before provision for income taxes, preferred stock accretion and dividends of subsidi- aries and minority interest............. (18,372) (2,376) 511 (11) (29) PROVISION (BENEFIT) FOR INCOME TAXES........... 316 (38) 115 27 6 -------- ------- ------ ------ ------ Income (loss) before preferred stock ac- cretion and dividends of subsidiaries and minority interest.... (18,688) (2,338) 396 (38) (35) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES........ (444) -- -- -- -- MINORITY INTEREST....... (11) -- -- -- -- -------- ------- ------ ------ ------ Net income (loss)..... $(19,143) $(2,338) $ 396 $ (38) $ (35) ======== ======= ====== ====== ====== </TABLE> See accompanying notes to pro forma condensed combined financial statements. P-2

MRS. FIELDS PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued) For the 52 Weeks Ended January 2, 1999 (unaudited) <TABLE> <CAPTION> Pro Forma Cookie Conglomerate Pretzelmaker Adjustments Pro Forma (See Note 6) (See Note 7) (See Note 1) Combined ------------------- ------------ ------------ --------- <S> <C> <C> <C> <C> REVENUES: Net store and food sales................ $2,906 $1,222 $(1,338)(a) $171,689 Franchising, net...... -- 2,634 (609)(b) 18,020 Licensing, net........ -- -- -- 1,537 ------ ------ ------- -------- Total revenues...... 2,906 3,856 (1,947) 191,246 ------ ------ ------- -------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs...... 1,580 1,401 (609)(b) 90,457 Cost of sales......... 733 85 (1,338)(a) 46,325 General and administrative....... 303 2,085 (1,834)(c) 26,488 Store closure provision -- -- -- 7,303 Depreciation and amortization......... 118 657 3,191 (d) 25,582 ------ ------ ------- -------- Total operating costs and expenses........... 2,734 4,228 (590) 196,155 ------ ------ ------- -------- Income (loss) from operations....... 172 (372) (1,357) (4,909) INTEREST EXPENSE........ (17) (179) 400 (e) (17,123) INTEREST INCOME......... -- -- -- 909 OTHER INCOME (EXPENSE), net.................... 32 -- -- (475) ------ ------ ------- -------- Income (loss) before provision for income taxes, preferred stock accretion and dividends of subsidiaries and minority interest.... 187 (551) (957) (21,598) PROVISION (BENEFIT) FOR INCOME TAXES........... -- (8) -- 418 ------ ------ ------- -------- Income (loss) before preferred stock accretion and dividends of subsidiaries and minority interest.... 187 (543) (957) (22,016) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES........ -- -- -- (444) MINORITY INTEREST....... -- -- -- (11) ------ ------ ------- -------- Net income (loss)..... $ 187 $ (543) $ (957) $(22,471) ====== ====== ======= ======== </TABLE> See accompanying notes to pro forma condensed combined financial statements. P-3

MRS. FIELDS NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (unaudited) 1. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS (a) Adjustment to reflect the elimination of batter sales and batter cost of sales as a result of combining Great American, Deblan, Chocolate Chip, the Combined Karp Entities and Cookie Conglomerate. (b) Adjustment to reflect the elimination of franchise fees and related costs as a result of combining Great American, Deblan, Chocolate Chip, the Combined Karp Entities and Cookie Conglomerate. (c) Adjustment to reflect the impact of the reduction in salaries and payroll expenses related to employees of Great American, Deblan, Chocolate Chip, the Combined Karp Entities, Cookie Conglomerate and Pretzelmaker terminated at the date of the acquisitions assuming that the acquisitions were completed at January 4, 1998. The terminations were a contractual component of the acquisition agreements and occurred concurrent with and were a direct result of the acquisitions. These terminations will have a continuing impact, as the positions occupied by the terminated employees have been eliminated. The terminated employees will not be replaced as Mrs. Fields has sufficient resources with existing staff to fulfill the applicable responsibilities. Other costs will not be incurred that will offset these reductions. The impact is factually supportable as the employees were terminated at the time of the acquisitions. (d) Adjustment to reflect amortization of goodwill totaling $84,404,000 (including acquisition costs of $1,003,000), which was recorded in connection with the purchase of the net assets of Great American, Deblan, Chocolate Chip, the Combined Karp Entities, Cookie Conglomerate and Pretzelmaker. Goodwill is being amortized over a 15-year period. Also includes adjustment to reflect a reduction in depreciation expense as a result of reducing Great American, Deblan, Chocolate Chip and the Combined Karp Entities property and equipment and increasing Cookie Conglomerate's property and equipment to estimated fair market value in connection with each respective acquisition. The average estimated depreciable lives for these assets is seven years. (e) Adjustment to reflect the reduction in interest expense related to: (i) the retirement of $40,000,000 of Great American 10.875% Senior Secured Notes; (ii) the retirement of $10,000,000 of Great American 12.5% Subordinated Notes; (iii) the elimination of Great American's original issue discount; (iv) the elimination of Great American's deferred loan costs; (v) the additional interest expense related to approximately $5,007,000 of new deferred loan costs amortized over a seven-year period; and (vi) the additional interest expense on the $40,000,000 of Series C Senior Notes and amortization of $600,000 of assumed discount; (vii) the interest expense on $2,800,000 of financing related to the acquisition of Cookie Conglomerate, and (viii) the interest expense on $4,682,000 of financing related to the acquisition of Pretzelmaker. 2. GREAT AMERICAN ACQUISITION On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock and subordinated indebtedness of Great American for an total purchase price of $18,400,000. The purchase price was allocated based on the estimated fair values of the net assets acquired, as presented below: <TABLE> <S> <C> Current assets acquired........................................... $ 11,439,000 Fixed assets acquired............................................. 2,978,000 Other assets acquired............................................. 3,128,000 Current liabilities acquired...................................... (7,825,000) Other liabilities acquired........................................ (42,194,000) Goodwill acquired................................................. 50,874,000 ------------ Total purchase price............................................ $ 18,400,000 ============ </TABLE> P-4

In the accompanying pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999, Great American's results of operations from December 29, 1997 to August 23, 1998 are included under the "Great American" column heading. Great American's results of operations from August 24, 1998 to January 2, 1999 are included under the "Mrs. Fields" column heading. None of Great American's revenues and income (loss) has been excluded from or included more than once in the pro forma condensed combined statements of operations for the 52 weeks ended January 2, 1999. The following data reconciles the key components of Great American's results of operations in the pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999 with the key components of Great American's results of operations in its historical financial statements for the 52 weeks ended June 28, 1998: <TABLE> <CAPTION> Less Add 52 Weeks Ended 26 Weeks Ended June 29, 1998 To December 29, 1997 June 28, 1998 December 28, 1997 August 23, 1998 To August 23, 1998 -------------- ----------------- ---------------- ------------------ (Dollars in thousands) <S> <C> <C> <C> <C> Net store sales......... $18,854 $10,382 $2,753 $11,225 Batter sales to franchisees............ 12,214 6,140 1,633 7,707 Franchising, net........ 5,770 2,884 563 3,449 Other, net.............. 139 72 15 82 Operating costs and expenses............... 31,133 16,044 5,782 20,871 Income (loss) from operations............. 5,844 3,738 (514) 1,592 Net income (loss)....... (202) 1,182 (954) (2,338) </TABLE> 3. DEBLAN ACQUISITION On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock of Deblan for an total purchase price of $10,465,000. Accordingly, in the accompanying pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999, Deblan's results of operations from January 1, 1998 to August 23, 1998 are included under the "Deblan" column heading. Deblan's results of operations from August 24, 1998 to January 2, 1999 are included under the "Mrs. Fields" column heading. The purchase price was allocated based on the estimated fair values of the net assets acquired, as presented below: <TABLE> <S> <C> Current assets acquired............................................ $ 1,241,000 Fixed assets acquired.............................................. 1,649,000 Other assets acquired.............................................. 245,000 Current liabilities acquired....................................... (1,006,000) Other liabilities acquired......................................... (565,000) Goodwill acquired.................................................. 8,901,000 ----------- Total purchase price............................................. $10,465,000 =========== </TABLE> The following data reconciles the key components of Deblan's results of operations in the pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999 with the key components of Deblan's results of operations in its unaudited historical financial statements for the six months ended June 30, 1998: <TABLE> <CAPTION> Six Months Ended July 1, 1998 To January 1, 1998 To June 30, 1998 August 23, 1998 August 23, 1998 ---------------- --------------- ------------------ (Dollars in thousands) <S> <C> <C> <C> Net store sales........... $4,768 $1,602 $6,370 Operating costs and expenses................. 4,418 1,462 5,880 Income from operations.... 350 140 490 Net income................ 232 164 396 </TABLE> P-5

4. CHOCOLATE CHIP ACQUISITION On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock of Chocolate Chip for a total purchase price of $3,965,000. The purchase price was allocated based on the estimated fair values of the net assets acquired, as presented below: <TABLE> <S> <C> Current assets acquired............................................. $ 174,000 Fixed assets acquired............................................... 108,000 Other assets acquired............................................... 46,000 Current liabilities acquired........................................ (111,000) Goodwill acquired................................................... 3,748,000 ---------- Total purchase price.............................................. $3,965,000 ========== </TABLE> In the accompanying pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999, Chocolate Chip's results of operations from January 1, 1998 to August 23, 1998 are included under the "Chocolate Chip" column heading. Chocolate Chip's results of operations from August 24, 1998 to January 2, 1999 are included under the "Mrs. Fields" column heading. None of Chocolate Chip's revenues and income (loss) has been excluded or included more than once in the pro forma condensed combined statements of operations for the 52 weeks ended January 2, 1999. The following data reconciles the key components of Chocolate Chip's results of operations in the pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999 with the key components of Chocolate Chip's results of operations in its historical financial statements for the nine months ended June 30, 1998: <TABLE> <CAPTION> Less Nine Months Three Months Add Ended Ended July 1, 1998 To January 1, 1998 June 30, 1998 December 31, 1997 August 23, 1998 To August 23, 1998 ------------- ----------------- --------------- ------------------ (Dollars in thousands) <S> <C> <C> <C> <C> Net store sales......... $2,266 $803 $410 $1,873 Operating costs and expenses............... 2,100 646 443 1,897 Income (loss) from operations............. 166 157 (33) (24) Net income (loss)....... 116 155 1 (38) </TABLE> 5. COMBINED KARP ENTITIES ACQUISITION On September 9, 1998, Mrs. Fields acquired the Combined Karp Entities for a total purchase price of $1,888,000. Accordingly, in the accompanying pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999, the Combined Karp Entities' results of operations from January 1, 1998 to September 9, 1998 are included under the "Combined Karp Entities" column heading. The Combined Karp Entities' results of operations from September 10, 1998 to January 2, 1999 are included under the "Mrs. Fields" column heading. The purchase price was allocated based on the estimated fair values of the net assets acquired, as presented below: <TABLE> <S> <C> Current assets acquired............................................. $ 54,000 Fixed assets acquired, net.......................................... 1,054,000 Goodwill acquired................................................... 780,000 ---------- Total purchase price.............................................. $1,888,000 ========== </TABLE> P-6

The following data reconciles the key components of the Combined Karp Entities' results of operations in the pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999 with the key components of the Combined Karp Entities' results of operations in its historical financial statements for the six months ended June 30, 1998: <TABLE> <CAPTION> Six Months Ended July 1, 1998 To January 1, 1998 To June 30, 1998 September 9, 1998 September 9, 1998 ---------------- ----------------- ------------------ (Dollars in thousands) <S> <C> <C> <C> Net store sales......... $1,181 $308 $1,489 Operating costs and expenses............... 1,259 251 1,510 Income (loss) from operations............. (78) 57 (21) Net income (loss)....... (91) 56 (35) </TABLE> 6. COOKIE CONGLOMERATE ACQUISITION On October 5, 1998, Mrs. Fields acquired Cookie Conglomerate for a total purchase price of $2,800,000. Accordingly, in the accompanying pro forma condensed combined statement of operations for the 52 weeks ended January 2, 1999, Cookie Conglomerate's results of operations from January 1, 1998 to September 30, 1998 are included under the "Cookie Conglomerate" column heading. The purchase price was allocated based on the estimated fair values of the net assets acquired, as presented below: <TABLE> <S> <C> Fixed assets acquired............................................... $1,270,000 Other intangibles acquired.......................................... 100,000 Goodwill acquired................................................... 1,430,000 ---------- Total purchase price.............................................. $2,800,000 ========== </TABLE> 7. PRETZELMAKER ACQUISITION On November 19, 1998, Mrs. Fields acquired all of the outstanding capital stock of Pretzelmaker for $5,419,000 and assumed liabilities of $320,000 related to severance payments in lieu of outstanding stock options to be paid at closing. Mrs. Fields paid $1,100,000 in cash upon closing of the acquisition and signed a promissory note for $4,319,000, which was paid in three installments through January 4, 1999. Accordingly, in the accompanying pro forma condensed combined financial statements of operations for the 52 weeks ended January 2, 1999, Pretzelmaker's results of operations from January 1, 1998 to November 19, 1998 are included under the "Pretzelmaker" column heading. The purchase price was allocated based on the estimated fair values of the net assets (liabilities) acquired, as presented below: <TABLE> <S> <C> Current assets acquired............................................ $ 577,400 Fixed assets acquired.............................................. 248,700 Other assets acquired.............................................. 50,000 Current liabilities acquired....................................... (1,991,700) Other liabilities acquired......................................... (1,108,400) Goodwill acquired.................................................. 7,643,000 ----------- Total purchase price............................................. $ 5,419,000 =========== </TABLE> P-7

INDEX TO HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> Page ---- <S> <C> Mrs. Fields' Original Cookies, Inc. and Subsidiaries Report of Independent Public Accountants................................. F-4 Consolidated Balance Sheets as of January 3, 1998 and January 2, 1999 ... F-5 Consolidated Statements of Operations for the period from inception (September 18, 1996) to December 28, 1996, for the 53 weeks ended January 3, 1998 and for the 52 weeks ended January 2, 1999 ............. F-7 Consolidated Statements of Stockholder's Equity for the period from inception (September 18, 1996) to December 28, 1996, for the 53 weeks ended January 3, 1998 and for the 52 weeks ended January 2, 1999........ F-8 Consolidated Statements of Cash Flows for the period from inception (September 18, 1996) to December 28, 1996, for the 53 weeks ended January 3, 1998 and for the 52 weeks ended January 2, 1999.............. F-9 Notes to Consolidated Financial Statements............................... F-12 Unaudited Condensed Consolidated Balance Sheets as of January 2, 1999 and July 3, 1999............................................................ F-43 Unaudited Condensed Consolidated Statements of Operations for the 26 weeks ended July 4, 1998 and July 3, 1999............................... F-45 Unaudited Condensed Consolidated Statements of Cash Flows for the 26 weeks ended July 4, 1998 and July 3, 1999............................... F-46 Unaudited Notes to Condensed Consolidated Financial Statements........... F-47 Mrs. Fields Inc. and Subsidiaries Report of Independent Public Accountants (Arthur Andersen LLP)........... F-56 Independent Auditors' Report (Deloitte & Touche LLP)..................... F-57 Consolidated Balance Sheet as of September 17, 1996...................... F-58 Consolidated Statements of Operations for the year ended December 30, 1995 and for the period ended September 17, 1996........................ F-60 Consolidated Statements of Stockholders' Deficit for the year ended December 30, 1995 and for the period ended September 17, 1996........... F-61 Consolidated Statements of Cash Flows for the year ended December 30, 1995 and for the period ended September 17, 1996........................ F-62 Notes to Consolidated Financial Statements............................... F-64 The Original Cookie Company, Incorporated and the Carved-out Portion of Hot Sam Company, Inc. (Combined) Report of Independent Public Accountants................................. F-72 Combined Balance Sheet as of September 17, 1996.......................... F-73 Combined Statements of Operations for the year ended December 30, 1995 and for the period ended September 17, 1996............................. F-75 Combined Statements of Stockholders' Equity for the year ended December 30, 1995 and for the period ended September 17, 1996.................... F-76 Combined Statements of Cash Flows for the year ended December 30, 1995 and for the period ended September 17, 1996............................. F-77 Notes to Combined Financial Statements................................... F-78 Cookies USA, Inc. and Subsidiary Report of Independent Accountants........................................ F-82 Consolidated Balance Sheets as of June 29, 1997 and June 28, 1998........ F-83 Consolidated Statements of Operations for the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998.................... F-85 Consolidated Statements of Changes in Stockholders' Deficit for the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998.................................................................... F-86 Consolidated Statements of Cash Flows for the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998.................... F-87 Notes to Consolidated Financial Statements............................... F-89 </TABLE> F-1

INDEX TO HISTORICAL FINANCIAL STATEMENTS--(Continued) <TABLE> <CAPTION> Page ----- <S> <C> Deblan Corporation Independent Auditors' Report............................................ F-101 Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998 (unaudited)............................................................ F-102 Statements of Earnings for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited)............................................................ F-104 Statements of Shareholders' Equity for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1998 (unaudited)............................................................ F-105 Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited)............................................................ F-106 Notes to Financial Statements........................................... F-108 Chocolate Chip Cookies of Texas, Inc. Report of Independent Public Accountants................................ F-114 Balance Sheets as of September 30, 1996 and 1997 and June 30, 1998 (unaudited)............................................................ F-115 Statements of Operations for the years ended September 30, 1995, 1996 and 1997 and for the nine months ended June 30, 1997 (unaudited) and 1998 (unaudited)....................................................... F-117 Statements of Stockholders' Equity for the years ended September 30, 1995, 1996, and 1997 and for the nine months ended June 30, 1998 (unaudited)............................................................ F-118 Statements of Cash Flows for the years ended September 30, 1995, 1996 and 1997 and for the nine months ended June 30, 1997 (unaudited) and 1998 (unaudited)....................................................... F-119 Notes to Financial Statements........................................... F-121 The Combined Karp Entities Report of Independent Public Accountants................................ F-126 Combined Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998 (unaudited)....................................................... F-127 Combined Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited)................................................... F-129 Combined Statements of Stockholders' Equity for the years ended December 31, 1995, 1996, and 1997 and for the six months ended June 30, 1998 (unaudited)............................................................ F-130 Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited)................................................... F-131 Notes to Combined Financial Statements.................................. F-133 The Cookie Conglomerate Independent Auditors' Report............................................ F-140 Combined Balance Sheets as of December 31, 1997 and 1996................ F-141 Combined Statements of Operations for the years ended December 31, 1997 and 1996............................................................... F-143 Combined Statements of Changes in Equity for the years ended December 31, 1997 and 1996...................................................... F-144 Combined Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................................... F-145 Notes to Combined Financial Statements.................................. F-146 Combined Balance Sheet as of September 30, 1998 (unaudited)............. F-150 Combined Statements of Operations for the nine month periods ended September 30, 1998 and 1997 (unaudited)................................ F-151 Combined Statements of Cash Flows for the nine month periods ended September 30, 1998 and 1997 (unaudited)................................ F-152 Notes to Combined Financial Statements.................................. F-153 Pretzelmaker Holdings, Inc. Report of Independent Certified Public Accountants (AJ. Robbins, PC).... F-154 Report of Independent Certified Public Accountants (BDO Seidman, LLP)... F-155 Consolidated Balance Sheets as of December 31, 1996 and 1997 and September 30, 1998 (unaudited)......................................... F-156 </TABLE> F-2

INDEX TO HISTORICAL FINANCIAL STATEMENTS--(Continued) <TABLE> <CAPTION> Page ----- <S> <C> Consolidated Statements of Operations For the Period from February 24 (Inception) to December 31, 1995 and the Years Ended December 31, 1996 and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and 1998 (unaudited)........................................................ F-158 Consolidated Statements of Stockholders' Equity For the Period from February 24 (Inception) to December 31, 1995 and the Years Ended December 31, 1996 and 1997 and the Nine Months Ended September 30, 1998 (unaudited)............................................................. F-159 Consolidated Statements of Cash Flows For the Period from February 24 (Inception) to December 31, 1995 and the Years Ended December 31, 1996 and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and 1998 (unaudited)........................................................ F-160 Notes to the Consolidated Financial Statements........................... F-161 </TABLE> F-3

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Mrs. Fields' Original Cookies, Inc.: We have audited the accompanying consolidated balance sheets of Mrs. Fields' Original Cookies, Inc. (a Delaware corporation) and subsidiaries as of January 3, 1998 and January 2, 1999, and the related consolidated statements of operations, stockholder's equity and cash flows for the period from inception (September 18, 1996) to December 28, 1996 and for each of the two years in the period ended January 2, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mrs. Fields' Original Cookies, Inc. and subsidiaries as of January 3, 1998 and January 2, 1999, and the consolidated results of their operations and their cash flows for the period from inception (September 18, 1996) to December 28, 1996 and for each of the two years in the period ended January 2, 1999 in conformity with generally accepted accounting principles. Arthur Andersen LLP Salt Lake City, Utah April 1, 1999 F-4

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS <TABLE> <CAPTION> January 3, January 2, 1998 1999 ---------- ---------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents............................. $ 16,287 $ 4,751 Accounts receivable, net of allowance for doubtful accounts of $32 and $74, respectively................ 1,535 3,208 Amounts due from franchisees and licensees, net of allowance for doubtful accounts of $582 and $1,078, respectively......................................... 2,176 6,003 Inventories........................................... 3,100 5,503 Prepaid rent and other................................ 2,960 4,017 Deferred income tax assets............................ 2,765 861 -------- -------- Total current assets................................ 28,823 24,343 -------- -------- PROPERTY AND EQUIPMENT, at cost: Leasehold improvements................................ 21,099 29,914 Equipment and fixtures................................ 14,100 17,108 Land.................................................. 128 240 -------- -------- 35,327 47,262 Less accumulated depreciation and amortization........ (6,125) (15,465) -------- -------- Net property and equipment.......................... 29,202 31,797 -------- -------- DEFERRED INCOME TAX ASSETS.............................. 734 2,638 -------- -------- GOODWILL, net of accumulated amortization of $4,980 and $11,231, respectively.................................. 68,501 145,782 -------- -------- TRADEMARKS AND OTHER INTANGIBLES, net of accumulated amortization of $1,409 and $2,615, respectively........ 15,193 14,296 -------- -------- DEFERRED LOAN COSTS, net of accumulated amortization of $70 and $1,320, respectively........................... 5,906 11,718 -------- -------- OTHER ASSETS............................................ 1,325 1,332 -------- -------- $149,684 $231,906 ======== ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-5

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in thousands, except per share data) LIABILITIES AND STOCKHOLDER'S EQUITY <TABLE> <CAPTION> January 3, January 2, 1998 1999 --------- ---------- <S> <C> <C> CURRENT LIABILITIES: Current portion of long-term debt....................... $ 472 $ 8,046 Current portion of capital lease obligations............ 142 299 Accounts payable........................................ 3,805 10,723 Bank overdraft.......................................... -- 4,133 Accrued liabilities..................................... 2,826 3,597 Current portion of store closure reserve................ 3,664 4,577 Accrued salaries, wages and benefits.................... 1,891 3,155 Accrued interest payable................................ 1,082 1,260 Sales taxes payable..................................... 937 962 Deferred credits........................................ 871 318 -------- -------- Total current liabilities............................. 15,690 37,070 LONG-TERM DEBT, net of current portion and discount....... 100,284 141,647 STORE CLOSURE RESERVE, net of current portion............. 1,802 10,134 CAPITAL LEASE OBLIGATIONS, net of current portion......... 183 997 -------- -------- Total liabilities..................................... 117,959 189,848 -------- -------- COMMITMENTS AND CONTINGENCIES (Notes 3, 7 and 8) MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of Pretzel Time (a wholly owned subsidiary), aggregate liquidation preference of $1,437 and $1,495, respectively............................................. 902 1,261 -------- -------- MINORITY INTEREST......................................... 58 119 -------- -------- STOCKHOLDER'S EQUITY: Common stock, $.01 par value; 1,000 shares authorized and 400 shares outstanding............................. -- -- Additional paid-in capital.............................. 30,843 59,899 Accumulated deficit..................................... (78) (19,221) -------- -------- Total stockholder's equity............................ 30,765 40,678 -------- -------- $149,684 $231,906 ======== ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-6

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) <TABLE> <CAPTION> Inception 53 52 (September 18, Weeks Weeks 1996) to Ended Ended December 28, January 3, January 2, 1996 1998 1999 -------------- ---------- ---------- <S> <C> <C> <C> REVENUES: Net store and food sales................ $40,849 $127,845 $140,235 Franchising, net........................ 503 4,535 12,464 Licensing, net.......................... 764 2,028 1,537 ------- -------- -------- Total revenues........................ 42,116 134,408 154,236 ------- -------- -------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs....... 19,492 66,832 75,003 Cost of sales........................... 10,596 32,028 38,482 General and administrative.............. 4,035 16,192 19,017 Store closure provision................. -- 538 7,303 Depreciation and amortization........... 2,344 10,403 19,820 ------- -------- -------- Total operating costs and expenses.... 36,467 125,993 159,625 ------- -------- -------- Income (loss) from operations....... 5,649 8,415 (5,389) ------- -------- -------- OTHER INCOME (EXPENSE), net: Interest expense........................ (1,867) (7,830) (13,197) Interest income......................... 74 246 623 Other expense........................... -- (368) (409) ------- -------- -------- Total other expense, net.............. (1,793) (7,952) (12,983) ------- -------- -------- Income (loss) before provision for income taxes, preferred stock accretion and dividends of subsidiaries and minority interest...................... 3,856 463 (18,372) PROVISION FOR INCOME TAXES................ (1,798) (655) (316) ------- -------- -------- Income (loss) before preferred stock accretion and dividends of subsidiaries and minority interest.................. 2,058 (192) (18,688) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES............................. (97) (644) (444) MINORITY INTEREST......................... -- (138) (11) ------- -------- -------- Net income (loss)..................... $ 1,961 $ (974) $(19,143) ======= ======== ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. F-7

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (Dollars in thousands) <TABLE> <CAPTION> Retained Common Stock Additional Earnings ------------- Paid-in (Accumulated Shares Amount Capital Deficit) Total ------ ------ ---------- ------------ ------- <S> <C> <C> <C> <C> <C> BALANCE, September 18, 1996..... -- $-- $ -- $ -- $ -- Issuance of common stock for cash......................... 400 -- 15,000 -- 15,000 Net income.................... -- -- -- 1,961 1,961 --- ---- ------- -------- ------- BALANCE, December 28, 1996...... 400 -- 15,000 1,961 16,961 Parent contribution of investment in Pretzel Time... -- -- 4,200 -- 4,200 Parent contribution of note receivable due from Pretzel Time's minority stockholder and founder.................. -- -- 500 -- 500 Parent contribution of investment in Mrs. Fields' Brand........................ -- -- 6,500 -- 6,500 Conversion to equity of note payable to parent............ -- -- 4,643 -- 4,643 Dividend paid to parent....... -- -- -- (1,065) (1,065) Net loss...................... -- -- -- (974) (974) --- ---- ------- -------- ------- BALANCE, January 3, 1998........ 400 -- 30,843 (78) 30,765 Parent equity infusion........ -- -- 29,056 -- 29,056 Net loss...................... -- -- -- (19,143) (19,143) --- ---- ------- -------- ------- BALANCE, January 2, 1999........ 400 $-- $59,899 $(19,221) $40,678 === ==== ======= ======== ======= </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. F-8

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) <TABLE> <CAPTION> Inception (September 18, 53 Weeks 52 Weeks 1996) to Ended Ended December 28, January 3, January 2, 1996 1998 1999 -------------- ---------- ---------- <S> <C> <C> <C> INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................ $ 1,961 $ (974) $(19,143) Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of effects from acquisitions: Depreciation and amortization............ 2,344 10,403 19,820 Amortization of discount on notes........ -- -- 32 Amortization of deferred loan costs...... -- -- 1,250 Loss on disposition of assets............ -- 368 409 Deferred income taxes.................... 1,511 210 -- In-kind interest expense on note payable to stockholder.......................... 97 338 -- Preferred stock accretion and dividends of subsidiaries......................... 97 644 444 Minority interest........................ -- 234 11 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable..................... (294) (353) (1,673) Amounts due from franchisees and licensees.............................. (339) (514) (866) Inventories............................. (159) 136 (822) Prepaid rent and other.................. (31) (895) 932 Other assets............................ 39 427 1,437 Accounts payable and accrued liabilities............................ 239 (6,651) 2,769 Store closure reserve................... (305) (1,666) 5,196 Accrued salaries, wages and benefits.... 212 80 1,264 Accrued interest payable................ 1,668 (586) (713) Sales taxes payable..................... 542 261 (80) Deferred credits........................ 27 (543) (838) -------- -------- -------- Net cash provided by operating activities............................ 7,609 919 9,429 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisitions and related costs........................... (19,508) (10,949) (32,835) Purchase of property and equipment, net of effects from acquisitions............ (1,638) (4,678) (8,235) Proceeds from the sale of assets......... 15 122 176 -------- -------- -------- Net cash used in investing activities.. (21,131) (15,505) (40,894) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt.................................... -- 108,250 39,400 Principal payments on long-term debt..... (1,769) (77,009) (41,257) Payment of debt financing costs.......... -- (5,976) (7,062) Cash advance from Mrs. Fields' Holding... -- 1,500 -- Repayment of cash advance to Mrs. Fields' Holding................................. -- (1,500) -- Payment of cash dividend to Mrs. Fields' Holding................................. -- (1,065) -- Equity infusion from Mrs. Fields' Holding................................. -- -- 29,056 Principal payments on capital lease obligations............................. -- (36) (123) Proceeds from the issuance of common stock................................... 15,000 -- -- Proceeds from the issuance of mandatorily redeemable cumulative preferred stock of subsidiary.............................. 3,500 -- -- Reduction in preferred stock of Pretzel Time.................................... -- -- (85) Proceeds from the issuance of note payable to related party................ 3,500 -- -- -------- -------- -------- Net cash provided by financing activities............................ 20,231 24,164 19,929 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. 6,709 9,578 (11,536) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD............................... -- 6,709 16,287 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD................................... $ 6,709 $ 16,287 $ 4,751 ======== ======== ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. F-9

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) (Dollars in thousands) Supplemental Disclosure of Cash Flow Information: Cash paid for interest was approximately $28, $8,416, and $12,440 for the period ended December 28, 1996, and for the years ended January 3, 1998 and January 2, 1999, respectively. Cash paid for income taxes was approximately $0, $217, and $209 for the period ended December 28, 1996, and for the years ended January 3, 1998 and January 2, 1999, respectively. Supplemental Disclosure of Noncash Investing and Financing Activities: On September 18, 1996, the Company acquired certain assets and assumed certain liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation, Mrs. Fields Cookies, The Original Cookie Company, Incorporated and Hot Sam Company, Inc. In conjunction with the acquisitions, the following net liabilities were assumed. Additionally, in connection with the purchase accounting, certain other accruals were recorded (see Note 1). <TABLE> <S> <C> Fair value of assets acquired.................................... $ 93,494 Net cash paid.................................................... (19,508) Notes payable issued............................................. (65,735) -------- Liabilities assumed............................................ $ 8,251 ======== On November 26, 1997, Mrs. Fields' Holding Company, Inc. ("Mrs. Fields' Holding") converted to common equity of the Company $4,643 total principal amount of convertible subordinated notes and contributed to the Company all of the common equity of Mrs. Fields' Brands after converting its preferred stock interests totaling $3,935 to common equity. On July 25, 1997, certain assets were acquired and certain liabilities were assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc. ("Pretzel Concepts") as follows. Additionally, in connection with the purchase accounting, certain other accruals were recorded (see Note 1). Fair value of assets acquired.................................... $ 15,780 Net cash paid.................................................... (5,750) Notes payable issued............................................. (8,000) -------- Liabilities assumed............................................ $ 2,030 ======== On September 2, 1997, 56 percent of the shares of common stock of Pretzel Time, Inc. ("Pretzel Time") were acquired by Mrs. Fields' Holding as follows. Additionally, in connection with the purchase accounting, certain other accruals were recorded (see Note 1). Fair value of assets acquired.................................... $ 8,311 Net cash paid.................................................... (4,200) -------- Liabilities assumed............................................ $ 4,111 ======== </TABLE> On November 26, 1997, Mrs. Fields' Holding contributed all of the assets and liabilities of Pretzel Concepts, Mrs. Fields' Holding's 56 percent of the shares of common stock of Pretzel Time and a $500 note receivable from Pretzel Time's founder and minority stockholder to the Company. Mrs. Fields' Holding also contributed all of the common stock of Mrs. Fields' Brands to Mrs. Fields. F-10

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) (Dollars in thousands) During the period from the acquisition of the majority ownership of Pretzel Time (September 2, 1997) to January 2, 1999, Pretzel Time increased its mandatorily redeemable cumulative preferred stock liquidation preference by approximately $212, in lieu of paying cash dividends. In addition, for the same period, Pretzel Time's mandatorily redeemable cumulative preferred stock was increased by approximately $538 for the accretion required over time to amortize the original issue discount. In August 1998, the Company acquired all of the outstanding capital stock and subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for a total purchase price of approximately $18,400. During August and September 1998, the Company also entered into agreements with three franchisees of Cookies USA (the "Great American Franchisees") under which the Company purchased a total of 37 Great American Cookies franchises for a total purchase price of $16,328. The total purchase price for all of these acquisitions of $34,728 was allocated, on a preliminary basis, as follows. Additionally, in connection with the purchase accounting, certain other accruals were recorded (see Note 1). <TABLE> <S> <C> Fair value of assets acquired.................................... $ 77,410 Net cash paid.................................................... (27,771) -------- Liabilities assumed............................................ $ 49,639 ======== In October 1998, the Company acquired the assets of the Cookie Conglomerate, Inc. ("Cookie Conglomerate") for a total purchase price of $2,800. The total purchase price was allocated as follows: Fair value of assets acquired.................................... $ 2,800 Net cash paid.................................................... -- -------- Liabilities assumed............................................ $ 2,800 ======== In November 1998, the Company acquired all of the outstanding stock of Pretzelmaker Holdings, Inc. ("Pretzelmaker") for $5,419. The total purchase price was allocated as follows: Fair value of assets acquired.................................... $ 8,519 Net cash paid.................................................... (1,100) -------- Liabilities assumed............................................ $ 7,419 ======== </TABLE> F-11

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation, is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc. Mrs. Fields' Holding is a majority owned subsidiary of Capricorn Investors II, L.P. ("Capricorn"). The Company has eight wholly owned operating subsidiaries; namely, Great American Cookie Company, Inc., The Mrs. Fields' Brand, Inc., Pretzel Time, Inc., Pretzelmaker Holdings, Inc., Mrs. Fields' Cookies Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of Canada; and three partially owned subsidiaries. The Company primarily operates retail stores which sell freshly baked cookies, brownies, pretzels and other food products through six specialty retail chains. As of January 2, 1999, the Company owned and operated 147 Mrs. Fields Cookies stores, 120 Original Cookie Company stores, 119 Great American Cookies stores, 77 Hot Sam Pretzels stores, 93 Pretzel Time stores, 9 Pretzelmaker stores in the United States and one Pretzel Time store in Canada. Additionally, the Company has franchised or licensed 859 stores in the United States and 113 stores in several other countries. As of January 2, 1999, the Company owned and operated 437 core stores and 129 stores which are in the process of being closed or franchised. All of the stores in the process of being closed or franchised are expected to be closed or franchised by the end of fiscal year 2000. The Company holds legal title to certain trademarks for the "Mrs. Fields" name and logo and licenses the uses of these trademarks to third parties for the establishment and operation of Mrs. Fields' cookie and bakery operations and other merchandising activities. In connection with these licensing activities, the Company authorizes third-party licensees to use certain business formats, systems, methods, procedures, designs, layouts, specifications, trade names and trademarks in the United States and other countries. Additionally, the Company markets and distributes its products through catalogs, other print media and mail order. The Company's business follows seasonal trends and is also affected by climate and weather conditions. The Company experiences its highest revenues in the fourth quarter. Because the Company's stores are heavily concentrated in shopping malls, the Company's sales performance is significantly dependent on the performance of those malls. Business Combinations Mrs. Fields, Inc. and Affiliates and Original Cookie Company and Affiliates The Company began operations on September 18, 1996, following the completion of two simultaneous but separate asset purchase transactions wherein the Company (i) acquired certain assets and assumed certain liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation and Mrs. Fields Cookies in accordance with two Asset Purchase Agreements dated August 7, 1996, among these parties and Capricorn, and (ii) acquired certain assets and assumed certain liabilities of The Original Cookie Company, Incorporated and Hot Sam Company, Inc. in accordance with an Asset Purchase Agreement dated August 7, 1996, as amended by the First Amendment dated as of September 17, 1996, among these parties and Capricorn. The combined purchase price for the acquired net assets was approximately $85,243,000. The Company paid net cash of $19,508,000 and issued approximately $65,735,000 in senior and subordinated notes to the selling shareholders. The acquisitions were accounted for as purchases. The total purchase price was allocated to the net assets acquired, based on their estimated fair values. The organization of the Company and the acquisitions resulted in the recording of intangible assets of approximately $49,942,000 principally made up of goodwill, trademarks and organization costs. An additional $17,680,000 of goodwill and $4,520,000 of deferred income tax assets (net of valuation allowances) were recorded in connection with the Company recording certain other accruals totaling $11,300,000 and providing reserves totaling $10,921,000 for impaired property F-12

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and equipment (see Note 5) at Company-owned stores the Company intends to exit through closing or franchising. Goodwill and trademarks are amortized using the straight-line method over 15 years. The $11,300,000 of accruals established at the date of the acquisitions consisted of $5,060,000 for obligations incident to store closures (see Note 5), $2,450,000 for contingent legal and lease obligations that were firmed up before December 28, 1996, $3,135,000 for transaction and finders' fees and $655,000 for severance and related costs. The Company terminated all of the Original Cookie Company and Affiliates corporate employees as planned. As of January 2, 1999, approximately $2,068,000 of the $2,450,000 accrual for legal and lease obligations has been utilized. The remaining amount as of January 2, 1999 of approximately $382,000 is expected to be utilized by the end of 1999. All of the $3,135,000 accrual established for transaction and finders' fees and the $655,000 accrual for severance and related costs associated with the acquisitions were fully utilized for the purposes intended during fiscal 1997. H & M Concepts Ltd. Co. On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc., a wholly owned subsidiary of Mrs. Fields' Holding, acquired substantially all of the assets and assumed certain liabilities of H & M Concepts Ltd. Co. and subsidiaries ("H & M"). H & M owned and operated stores which engage in retail sales of pretzels, toppings and beverages under a franchise agreement with Pretzel Time, Inc. The total consideration of $13,750,000 consisted of (i) $5,750,000 of cash, financed through an advance from Mrs. Fields' Holding of $1,500,000 and a $4,250,000 bank loan to Pretzel Concepts, (ii) a $4,000,000 principal amount bridge note of Pretzel Concepts and (iii) a $4,000,000 principal amount subordinated note of Mrs. Fields' Holding retained by the sellers (all such debt collectively referred to as the "H & M Debt"). The acquisition was accounted for using the purchase method of accounting (based on the estimated fair values of the net assets acquired) and resulted in recording approximately $9,618,000 of goodwill that is being amortized using the straight-line method over 15 years. Effective November 26, 1997, Mrs. Fields' Holding contributed all of the assets and liabilities of Pretzel Concepts to the Company and, in consideration thereof, the Company assumed the H & M Debt, including all accrued but unpaid interest. Pretzel Concepts and the Company merged on the same date with the Company being the surviving entity. The contribution was accounted for in a manner similar to that of pooling-of-interests accounting. There was no step-up in the historical basis of Pretzel Concepts' assets or liabilities. Beginning with July 25, 1997, the Company has included Pretzel Concepts' results of operations in the Company's consolidated results of operations. Pretzel Time, Inc. On September 2, 1997, Mrs. Fields' Holding acquired 56 percent of the shares of common stock of Pretzel Time for a total cash purchase price of $4,200,000, $750,000 of which was paid to Pretzel Time for working capital purposes, and the balance of which was paid to the selling shareholders. In connection with the acquisition, Mrs. Fields' Holding extended a $500,000 loan to the founder of Pretzel Time who continued to own 44 percent of the shares of common stock of Pretzel Time. The note bears interest at an annual rate of ten percent (see Note 8). Pretzel Time is a franchisor of hand rolled soft pretzel outlets located in North America. The outlets are primarily located in shopping malls. The acquisition was accounted for using the purchase method of accounting (based on the estimated fair values of the net assets acquired) and resulted in recording approximately $5,882,000 of goodwill that is being amortized using the straight-line method over 15 years. The goodwill recorded was $1,682,000 more than the purchase price as the Company assumed more liabilities than it acquired in assets at their fair values. Additionally, severance and legal accruals were established in accordance with EITF 95-3. F-13

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Effective November 26, 1997, Mrs. Fields' Holding contributed its 56 percent of the shares of common stock of Pretzel Time to the Company. Mrs. Fields' Holding also contributed to the Company the $500,000 note due from Pretzel Time's founder and minority stockholder. The contribution was accounted for in a manner similar to that of pooling-of-interests accounting. There was no step- up in the book basis of Pretzel Time's assets or liabilities. On January 2, 1998, the Company purchased an additional four percent of the shares of common stock of Pretzel Time from the founder for $300,000 in cash. The purchase was accounted for using the purchase method of accounting (based on the estimated fair values of the net assets acquired) and resulted in recording approximately $311,000 of goodwill. In June 1998, the Company acquired an additional ten percent of the shares of common stock of Pretzel Time from the founder for $875,000 in cash. On December 9, 1998, Mrs. Fields purchased three shares of Pretzel Time common stock for $500,000 in cash. On December 30, 1998, Mrs. Fields completed the acquisition of the remaining outstanding common stock of Pretzel Time under a stock purchase agreement dated December 30, 1998, for a purchase price of approximately $4,700,000, $2,500,000 of which was paid in cash on January 5, 1999 and $2,000,000 of which is payable on or before December 30, 1999. The Company has included the appropriate percentage of Pretzel Time's results of operations for each respective period in its consolidated results of operations. The Mrs. Fields' Brand, Inc. Prior to November 26, 1997, Mrs. Fields' Holding owned 50.1 percent of the shares of the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand holds legal title to certain trademarks for the "Mrs. Fields" name and logo and licenses the use of these trademarks to third parties for the establishment and operation of Mrs. Fields' cookie and bakery operations and other merchandising activities. In connection with these licensing activities, Mrs. Fields' Brand authorizes third-party licensees to use certain business formats, systems, methods, procedures, designs, layouts, specifications, trade names and trademarks in the United States and other countries. On November 26, 1997, Mrs. Fields' Holding acquired the remaining 49.9 percent of the shares of the common stock of Mrs. Fields' Brand from Harvard Private Capital Holdings, Inc. for approximately $2,565,000. The consideration consisted of $1,065,000 in cash and $1,500,000 in rights to common equity of Mrs. Fields' Holding. Mrs. Fields' Holding's Board of Directors determined the value of Harvard's rights to the common equity based on a fair value analysis. This analysis appropriately considered a discount for lack of controlling interest and marketability as Mrs. Fields' Holding's common equity is not publicly traded. The acquisition was accounted for using the purchase method of accounting (based on the estimated fair values of the net assets acquired) and resulted in recording approximately $2,565,000 of intangible assets (primarily goodwill) that are being amortized using the straight-line method over 15 years. Effective November 26, 1997, Mrs. Fields' Holding contributed all of the common stock of Mrs. Fields' Brand to the Company. As a result of this capital contribution, Mrs. Fields' Brand became a wholly owned subsidiary of the Company. The contribution was accounted for in a manner similar to that of pooling-of-interests accounting. There was no step-up in the book basis of Mrs. Fields' Brand's assets or liabilities. Although the Company owned 50.1 percent of Mrs. Fields' Brand until November 25, 1997, the Company has included 100 percent of Mrs. Fields' Brand's results of operations with the Company's consolidated results of operations for all periods presented as a result of Mrs. Fields' Brand incurring net losses for these periods. Great American Cookie Company, Inc. On August 24, 1998, the Company acquired all of the outstanding capital stock and subordinated indebtedness of Cookies USA, Inc., the sole stockholder of Great American Cookie Company, Inc., for a total F-14

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) purchase price of $18,400,000. Great American is an operator and franchisor of mall-based specialty retail cookie outlets and a manufacturer of cookie batter which is distributed to Great American operated retail stores and sold to franchised retail stores. Concurrently with the acquisition of Cookies USA, the Company entered into agreements with two Great American franchisees under which the Company purchased a total of 29 Great American franchises for a total purchase price of $14,430,000. The Company acquired the franchises through the acquisition of 100 percent of the capital stock of the two corporations through which the franchises operated. On September 9, 1998, the Company acquired eight additional Great American franchised retail stores from a Great American franchisee, under an asset purchase agreement, for a total purchase price of $1,898,000. These acquisitions will be collectively referred to as the "Great American Acquisitions." The Great American Acquisitions have been accounted for using the purchase method of accounting (based on preliminary estimates of fair values of the net assets acquired) and resulted in recording approximately $69,390,000 of goodwill that is being amortized using the straight-line method over 15 years. Additionally, the Company caused Cookies USA to be merged with and into the Company and caused the acquired franchisees corporations and/or net assets to be merged with and into Great American. Great American became a wholly owned subsidiary of the Company. The acquired entities' results of operations have been included with those of the Company since the applicable dates of acquisition. The Great American Acquisitions were financed by (i) the net proceeds from the Company issuing $40,000,000 Series C Senior Notes; (ii) the contribution of the net proceeds totaling $29,056,000 from a Mrs. Fields' Holding offering to the Company; and (iii) existing cash of the Company. On October 5, 1998, Mrs. Fields purchased all of the retail cookie and related business and operations of eleven Great American stores for a total purchase price of $2,800,000 under an asset purchase agreement among The Cookie Conglomerate, Inc., The Cookie Conglomerate, LLP and two individuals who were the partners of Cookie Conglomerate, LLP and the shareholders of Cookie Conglomerate, Inc. The sellers were franchisees of Great American. The sellers' rights under franchise agreements and subleases with Great American were terminated upon closing of the transaction. The acquisition was funded through borrowings. Pretzelmaker Holdings, Inc. On November 19, 1998, Mrs. Fields purchased all of the outstanding capital stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields, Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding company for a pretzel retail company. The purchase price was approximately $5,400,000 and Mrs. Fields assumed indebtedness, including severance payments, totaling approximately $1,600,000. 1-800-Cookies On October 10, 1997, the Company acquired substantially all of the net assets of R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The acquisition was accounted for using the purchase method of accounting (based on the estimated fair values of the net assets acquired) and resulted in recording $600,000 of goodwill and $53,000 of other assets. The goodwill is being amortized using the straight-line method over 15 years. Pro Forma Acquisition Information (Unaudited) The following unaudited pro forma information for the period from inception (September 18, 1996) to December 28, 1996, and for the years ended January 3, 1998 and January 2, 1999, presents the results of operations of the Company assuming the H & M, Pretzel Time and Mrs. Fields' Brand acquisitions and the F-15

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Refinancing, as defined in Note 3, had occurred at the date of inception (September 18, 1996) and that the Great American Acquisitions, Cookie Conglomerate acquisition, Pretzelmaker acquisition and related financing had occurred at December 29, 1996. The results of operations give effect to certain adjustments, including amortization of intangible assets and interest expense on acquisition debt. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted or the results which may occur in the future. <TABLE> <CAPTION> Inception (September 18, 1996) to December 28, 53 Weeks Ended 52 Weeks Ended (Unaudited) 1996 January 3, 1998 January 2, 1999 ----------- -------------------- --------------- --------------- <S> <C> <C> <C> Total revenues........... $48,090,000 $200,574,000 $191,246,000 Store closure provision.. -- (538,000) (7,303,000) Depreciation and amortization............ (2,344,000) (19,405,000) (25,582,000) Income (loss) from operations.............. 6,718,000 12,738,000 (4,909,000) Net income (loss)........ 1,029,000 (3,638,000) (22,471,000) </TABLE> 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Periods The Company operates using a 52/53-week year ending near December 31. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Sources of Supply The Company currently buys a significant amount of its food products from four suppliers. Management believes that other suppliers could provide similar products with comparable terms. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of January 2, 1999, the Company had demand deposits at various banks in excess of the $100,000 limit for insurance by the Federal Deposit Insurance Corporation. As of January 2, 1999, the Company had restricted cash of $225,000. Inventories Inventories consist of food, beverages and supplies and are stated at the lower of cost (first-in, first-out method) or market value. F-16

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Pre-Opening Costs Pre-opening costs associated with new Company-owned stores are charged to expense as incurred. These amounts were not significant for the periods presented in the accompanying consolidated financial statements. Pre-opening costs associated with new franchised stores are the responsibility of the franchisee. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment, fixtures and leasehold improvements are depreciated or amortized over three to seven years using the straight-line method. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs and renewal costs are expensed as incurred. Gains or losses from the sale or retirement of property and equipment are recorded in current operations. Intangible Assets Intangible assets consist primarily of goodwill and trademarks and are amortized using the straight-line method over 15 years. Other intangible assets such as covenants not to compete are not significant and are being amortized using the straight-line method over two to five years. Deferred Loan Costs Deferred loan costs totaling $13,038,000 resulted from the sale of $100,000,000 total principal amount of 10 1/8 percent Series A Senior Notes (the "Series A Senior Notes") on November 26, 1997 and the sale of $40,000,000 total principal amount of 10 1/8 percent Series C Senior Notes (the "Series C Senior Notes") on August 24, 1998. These costs are being amortized to interest expense over the approximate seven-year life of the Series A Notes and the approximate six-year life of the Series C Senior Notes (see Note 3). Discount on Series C Senior Notes The Series C Senior Notes were issued at a discount which is being amortized to interest expense over the approximate six-year life of the related notes. Long-Lived Assets The Company reviews for impairment of long-lived assets when events or changes in circumstances indicate that the book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events and circumstances have occurred that indicate possible impairment. The Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the remaining life in measuring whether the assets are recoverable. The Company assesses impairment of long-lived assets at the lowest level for which there are identifiable cash flows that are independent of other groups of assets. During the year ended January 2, 1999, the Company wrote down approximately $4,131,000 of impaired long-lived assets. The write-down included approximately $3,098,000 of equipment and leasehold improvements at company-owned stores that the Company intends to close or franchise (see Note 5) and approximately $1,033,000 of goodwill that had been allocated to the impaired assets. These assets have been written-down to their estimated net realizable value. The impairment provision was included in depreciation and amortization in the accompanying fiscal year 1998 statement of operations. F-17

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Store Closure Reserve The Company accrues an estimate for the costs associated with closing a nonperforming store in the period the determination is made to close the store. The accruals are for estimated store lease termination costs (see Note 5). Revenue Recognition Revenues generated from company-owned stores are recognized at the point of sale. Initial franchising and licensing fee revenues are recognized when all material services or conditions relating to the sale have been substantially performed or satisfied. Franchise and license royalties, which are based on a percentage of gross store sales, are recognized as earned. Revenues from the sale of batter that the Company produces and sales to franchisees are recognized at the time of shipment and are classified in franchising revenue. The Company receives rebates or other payments from suppliers based (directly or indirectly) on sales to franchisees and company-owned stores. Rebates related to franchisees are recorded as franchising revenue when earned. Rebates related to company-owned stores are recorded as a reduction to cost of sales when earned. Leases The Company has various operating lease commitments on both company-owned and franchised store locations and equipment. Expenses of operating leases with escalating payment terms, including leases underlying subleases with franchisees, are recognized on a straight-line basis over the lives of the related leases. The Company accrues contingent rental expense on a monthly basis for those retail stores where contingent rental expense is probable. Income Taxes The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial and income tax bases of assets and liabilities using enacted tax rates expected to apply when differences are expected to be settled or realized. Foreign Currency Translation The balance sheet accounts of the Company's foreign subsidiaries are translated into U.S. dollars using the applicable balance sheet date exchange rates, while revenues and expenses are translated using the average exchange rates for the periods presented. Translation gains or losses are insignificant for the periods presented. Fair Value of Financial Instruments The Company estimates that the total fair market value of its Series A/B Senior Notes and Series C Senior Notes (see Note 3) was approximately $101,250,000 and $135,100,000 as of January 3, 1998 and January 2, 1999, respectively. These estimates are based on quoted market prices. The book values of the Company's other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other long-term debt obligations, approximate fair values at the respective balance sheet dates. Recent Accounting Pronouncement In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement established accounting and reporting standards requiring that every derivative F-18

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. This statement is effective for fiscal years beginning after June 15, 1999 and is not expected to have a material impact on the Company's consolidated financial statements. Reclassifications Certain reclassifications have been made to the prior periods' consolidated financial statements to conform with the current period presentation. 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-Term Debt Long-term debt consists of the following: <TABLE> <CAPTION> January 3, January 2, 1998 1999 ------------ ------------ <S> <C> <C> Series A/B senior unsecured notes, interest at 10 1/8 percent payable semi-annually in arrears on June 1 and December 1, commencing June 1, 1998, due December 1, 2004............................. $100,000,000 $100,000,000 Series C senior unsecured notes, interest at 10 1/8 percent payable semi-Annually in arrears on June 1 and December 1, commencing December 1, 1998, due December 1, 2004....................... -- 40,000,000 Discount related to the issuance of $40,000,000 Series C senior unsecured notes, net of accumulated amortization of $0 and $33,000, respectively..................................... -- (566,000) Notes payable to individuals or corporations with interest terms ranging from non-interest bearing to 15 percent, due at various dates from 1999 through 2001, requiring monthly payments......... 756,000 10,259,000 ------------ ------------ 100,756,000 149,693,000 Less current portion.............................. (472,000) (8,046,000) ------------ ------------ $100,284,000 $141,647,000 ============ ============ </TABLE> On November 26, 1997, the Company issued $100,000,000 total principal amount of Series A Senior Notes due December 1, 2004 pursuant to an indenture between the Company and the Bank of New York (the "Indenture"). The Series A Senior Notes were issued pursuant to a private transaction that was not subject to the registration requirements of the Securities Act of 1933. On June 12, 1998, a majority of the Series A Senior Notes were exchanged for 10 1/8% Series B Senior Notes due December 1, 2004 (collectively, the "Series A/B Senior Notes"), which were registered under the Securities Act. On August 24, 1998, the Company issued $40,000,000 total principal amount of Series C Senior Notes due December 1, 2004 in connection with the Great American Acquisitions. The Series C Senior Notes were issued under the Indenture which also governs the terms of the Series A/B Senior Notes in a private transaction that was not subject to the registration requirements of the Securities Act. The Series A/B Senior Notes and the Series C Senior Notes will be collectively referred to as the "Senior Notes." In connection with the issuance of the Series C Senior Notes, the Company recorded a discount of approximately $600,000. This discount is being amortized to interest expense over the approximate six-year life of the Series C Senior Notes. F-19

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Senior Notes are general unsecured obligations of the Company, rank senior in right of payment to all subordinated indebtedness of the Company and rank pari passu in right of payment with all existing and future senior indebtedness of the Company. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after December 1, 2001 in cash at redemption prices defined in the Indenture, plus accrued and unpaid interest. In addition, at any time prior to December 1, 2001, the Company may redeem up to a total of 35 percent of the principal amount at a redemption price equal to 110.125 percent of the principal, plus accrued and unpaid interest. The Senior Notes contain certain covenants that limit, among other things, the ability of the Company and its subsidiaries to: (i) declare or pay dividends or make any other payment or distribution on account of the Company's or any of its subsidiaries' equity interest (including without limitation, any payment in connection with any merger or consolidation involving the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any equity interest of the Company or any direct or indirect parent of the Company or other affiliate of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any indebtedness that is subordinated to the Senior Notes, except as payment of interest or principal at stated maturity; or (iv) make any restricted investments except under conditions provided for in the Indenture. The total amount of principal maturities of debt at January 2, 1999 are as follows: <TABLE> <CAPTION> Fiscal Year ----------- <S> <C> 1999............................................................ $ 8,046,000 2000............................................................ 648,000 2001............................................................ 539,000 2002............................................................ 583,000 2003............................................................ 443,000 Thereafter...................................................... 140,000,000 ------------ $150,259,000 ============ </TABLE> Line of Credit On February 28, 1998, the Company entered into an amended and restated line of credit agreement with a commercial bank which provides for a maximum commitment of up to $15,000,000 secured by essentially all of the assets of the Company. The availability under the line of credit was limited by the Company's Indenture to $4,777,000 as of January 2, 1999. Borrowings under the agreement bear interest, at the Company's option, at either the bank's prime rate or the applicable LIBOR rate plus two percent, with interest payable monthly in arrears. The Company is also obligated to pay the bank a commitment fee in the amount of one quarter of one percent of the unused portion of the revolving loan commitment. As of January 2, 1999, the Company had no outstanding borrowings under the agreement, which expires March 31, 2001. The agreement requires the Company to maintain certain financial ratios including a minimum debt service coverage ratio. At January 2, 1999, the Company was in compliance with the terms of the agreement. F-20

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Capital Lease Obligations Future minimum lease payments for equipment held under capital lease arrangements as of January 2, 1999 are as follows: <TABLE> <CAPTION> Fiscal Year ----------- <S> <C> 1999............................................................. $ 415,000 2000............................................................. 357,000 2001............................................................. 358,000 2002............................................................. 287,000 2003............................................................. 182,000 ---------- Total future minimum lease payments............................ 1,599,000 Less amount representing interest................................ (303,000) ---------- 1,296,000 Less current portion........................................... (299,000) ---------- $ 997,000 ========== </TABLE> As of January 3, 1998 and January 2, 1999, total assets held under capital lease arrangements were approximately $376,000 and $1,024,000 with accumulated amortization of approximately $59,000 and $108,000, respectively. 4. INCOME TAXES The components of the provision for income taxes for the years ended January 3, 1998 and January 2, 1999 are as follows: <TABLE> <CAPTION> December 28, January 3, January 2, 1996 1998 1999 ------------ ---------- ----------- <S> <C> <C> <C> Current: Federal................... $ 207,000 $ 70,000 $ -- State..................... 75,000 228,000 245,000 Foreign................... 5,000 57,000 71,000 Deferred: Federal................... 1,112,000 367,000 (3,021,000) State..................... 277,000 55,000 (469,000) Change in valuation allowance................ 122,000 (122,000) 3,490,000 ---------- --------- ----------- Total provision for income taxes........... $1,798,000 $ 655,000 $ 316,000 ========== ========= =========== </TABLE> F-21

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The differences between income taxes at the statutory federal income tax rate and income taxes reported in the consolidated statements of operations are as follows for the period ended December 28, 1996 and for the year ended January 3, 1998: <TABLE> <CAPTION> December 28, January 3, 1996 1998 ------------ ---------- <S> <C> <C> Federal statutory income tax rate.................... 34.0% 34.0% Dividends paid by subsidiary....................... -- 34.5 Amortization of non-deductible goodwill............ -- 12.3 Net operating losses utilized...................... -- (3.9) State income taxes, net of federal benefit......... 5.3 5.3 State franchise minimum taxes...................... -- 44.0 Foreign taxes...................................... -- 12.3 Change in valuation allowance...................... 3.2 (26.3) Other.............................................. 4.1 29.3 ---- ----- Effective income tax rate............................ 46.6% 141.5% ==== ===== </TABLE> No rate reconciliation is provided for the year ending January 2, 1999 due to the fact that the Company incurred a net loss before income taxes but incurred a tax provision due to state franchise minimum taxes and foreign taxes. The significant components of the Company's deferred income tax assets and liabilities at January 3, 1998 and January 2, 1999 are as follows: <TABLE> <CAPTION> December 28, January 3, January 2, 1996 1998 1999 ------------ ----------- ------------ <S> <C> <C> <C> Deferred income tax assets: Property and equipment reserve....... $ 3,501,000 $ 2,014,000 $ 3,311,000 Store closure reserve................ 1,868,000 2,202,000 5,845,000 Transaction cost accrual............. 789,000 565,000 514,000 Net operating loss carryforward...... 782,000 4,875,000 12,268,000 Legal reserve........................ 470,000 302,000 150,000 Lease accrual........................ 403,000 92,000 -- Other reserves....................... -- 81,000 388,000 Accrued expenses..................... 334,000 230,000 529,000 Alternative minimum tax credit carryforward........................ 207,000 207,000 215,000 ----------- ----------- ------------ Total deferred income tax assets... 8,354,000 10,568,000 23,220,000 Valuation allowance.................. (4,482,000) (5,160,000) (15,560,000) ----------- ----------- ------------ Deferred income tax assets net of valuation allowance............... 3,872,000 5,408,000 7,660,000 ----------- ----------- ------------ Deferred income tax liabilities: Accumulated depreciation and amortization........................ (850,000) (1,548,000) (3,464,000) Other................................ (13,000) (361,000) (697,000) ----------- ----------- ------------ Total deferred income tax liabilities....................... (863,000) (1,909,000) (4,161,000) ----------- ----------- ------------ Net deferred income tax assets..... $ 3,009,000 $ 3,499,000 $ 3,499,000 =========== =========== ============ </TABLE> Management has provided valuation allowances on portions of the deferred income tax assets arising from the Company's business combinations. The valuation allowances established in connection with purchase F-22

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) accounting are not recorded through the provision for income taxes, but rather, as an increase to goodwill. During the years ended January 3, 1998 and January 2, 1999, valuation allowances of $800,000 and $6,910,000, respectively, were recorded in connection with accounting for business combinations. As of January 2, 1999, the Company had net operating losses of $31,232,000 that can be carried forward to reduce federal income taxes. If not utilized, the tax net operating loss carryforwards begin to expire in 2009. As defined in Section 382 of the Internal Revenue Code, the Company has acquired companies which have had a greater than 50 percent ownership change. Consequently, a certain amount of these companies' tax net operating loss carryforwards available to offset future taxable income in any one year may be limited. The maximum amount of carryforwards available in a given year is limited to the product of these companies' value on the date of ownership change and the federal long-term tax- exempt rate, plus any limited carryforwards not utilized in prior years. Although realization of the net deferred income tax assets of $3,499,000 is not assured, management believes that it is more likely than not that these assets will be realized. The amount of net deferred tax assets considered realizable, however, could be reduced in the near term based on changing conditions. 5. STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES The Company's management reviews the historical and projected operating performance of its stores on a periodic basis to identify underperforming stores for impairment of net property investment or for targeted closing. The Company's policy is to recognize a loss for that portion of the net property investment determined to be impaired. Additionally, when a store is identified for targeted closing, the Company's policy provides for the costs of closing the store, which are predominantly estimated lease termination costs. Lease termination costs include both one-time settlement payments and continued contractual payments over time under the original lease agreements where no settlement can be resolved with the landlord. No operating losses are accrued for. If and when a reserve that was established as part of purchase accounting is not fully utilized, the Company reduces the reserve to zero and goodwill is adjusted for the corresponding amount. Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates In connection with the Mrs. Fields Inc. and Original Cookie Company acquisitions (see Note 1), the Company formulated a plan to exit certain stores that did not meet certain financial and geographical criteria. In general the plan entailed closing stores that were not profitable and franchising stores that were profitable but contributed less than $50,000 in store annual cash contribution for cookie stores and less than $35,000 in annual store cash contribution for pretzel stores. Management identified 138 stores to be closed (13 of these stores were closed prior to the acquisition but had continuing lease obligations) and 64 stores to be franchised. As of January 2, 1999, there were 23 stores remaining to be exited. The timing to implement the plan was developed based on discussions and relationships with major shopping mall developers. At the date of the acquisitions, in accordance with Emerging Issues Task Force Issue 95-3 ("EITF 95-3"), the Company established a store closure reserve of $5,060,000 for the 138 stores the Company intended to close. The reserve was established to provide for estimated early lease termination costs and penalties. There was no reserve established related to the 64 stores to be franchised. Management continued to refine the plan for closing the stores after the date of the acquisitions which entailed further analysis of lease agreements and meeting with developers to assess timing and estimated lease termination costs. Management finalized the store closure plan in early September 1997, within one year of the date of the acquisitions. At that time, the Company recorded an additional $1,357,000 to the store closure reserve to reflect the finalized plan estimates of lease termination costs and adjusted goodwill by a comparable amount under the F-23

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) provisions of purchase accounting. The increase in the reserve related solely to the 138 stores originally identified to be closed. During the year ended January 2, 1999, the Company reassessed the adequacy of the store closure reserve related to the remaining stores left to be closed and recorded an additional $1,693,000 to the reserve. This portion of the store closure reserve was expensed in the Company's statement of operations for the fiscal year ended January 2, 1999 as the decision to increase the reserve was made subsequent to finalization of the original plan. No other significant changes have been made to the plan. Pursuant to the exit plan, at the date of the acquisitions, the Company established an impairment reserve of $10,921,000 against the property and equipment of the stores the Company planned to exit, in order to record those assets at net realizable value. The property and equipment of 117 of the total stores to be closed were recorded at net values of zero. The property and equipment of 54 of the total stores to be franchised were recorded at the estimated net realizable amount recoverable through a franchise sale. The property and equipment of the remainder of the stores to be closed or franchised had already been reduced to net realizable value prior to the acquisitions. H&M In connection with the H&M acquisition (see Note 1), the Company formulated a plan to exit certain pretzel stores that did not meet certain financial and geographical criteria. Management identified 11 stores to be closed. All of the stores identified for closure are planned to be closed by the end of fiscal year 1999. The timing to implement the plan was developed based on discussions and relationships with major shopping mall developers. At the date of the acquisition, in accordance with EITF 95-3, the Company established a store closure reserve of $1,000,000 for the 11 stores the Company intended to close. The reserve was established to provide for estimated early lease termination costs and penalties. Additionally, the Company established an impairment reserve of $2,500,000 against the property and equipment of the stores the Company planned to exit, in order to record those assets at net realizable value. Pretzel Time In connection with the Pretzel Time acquisition (see Note 1), the Company formulated a plan to exit certain pretzel stores that did not meet certain financial and geographical criteria. Management identified four stores to be closed. All of the stores identified for closure are planned to be closed by the end of fiscal year 1999. The timing to implement the plan was developed based on discussions and relationships with major shopping mall developers. At the date of the acquisition, in accordance with EITF 95-3, the Company established a store closure reserve of $500,000 for the four stores the Company intended to close. The reserve was established to provide for estimated early lease termination costs and penalties. Great American In connection with the Great American Acquisitions (see Note 1), the Company formulated a plan to exit certain cookie stores that did not meet certain financial and geographical criteria. Management identified 54 stores to be closed and 11 stores to be franchised. All of the stores identified for closure are planned to be closed by the end of fiscal year 2000. The timing to implement the plan was developed based on discussions and relationships with major shopping mall developers. F-24

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At the date of the acquisitions, in accordance with EITF 95-3, the Company established a store closure reserve of $3,548,000 for the 54 stores the Company intended to close. The reserve was established to provide for estimated early lease termination costs and penalties. There was no reserve established related to the 11 stores to be franchised. The Company established an impairment reserve of $2,150,000 against the property and equipment of the stores the Company planned to exit, in order to record those assets at net realizable value. Pretzelmaker In connection with the Pretzelmaker acquisition (see Note 1), the Company formulated a plan to exit certain pretzel stores that did not meet certain financial and geographical criteria. Management identified seven stores to be closed. All of the stores identified for closure are planned to be closed by the end of fiscal year 2000. The timing of implementation of the plan was developed based on discussion and relationships with major shopping mall developers. At the date of the acquisition, in accordance with EITF 95-3, the Company established a store closure reserve of $500,000 for the seven stores the Company intended to close. The reserve was established to provide for estimated early lease termination costs and penalties. Additionally, the Company established an impairment reserve of $327,000 against the property and equipment of the stores the Company planned to exit in order to record those assets at net realizable value. Store Closure Reserves Established for Continuing Company-Owned and Franchised Stores During the fiscal year ended January 3, 1998, the Company increased its store closure reserve by $538,000 for seven continuing company-owned stores that were closed during fiscal year 1997 and for three continuing company-owned stores targeted for closure. This portion of the store closure reserve was expensed in the Company's consolidated statement of operations for the year ended January 3, 1998, as these stores were not identified for closure as part of any of the Company's store closure plans associated with the business combinations. During the fourth quarter of fiscal year 1998, the Company's management approved and committed the Company to a plan to exit 41 stores across all concepts that are not meeting certain financial and geographical criteria. The plan also committed the Company to exit 13 underperforming franchised stores that the Company determined to disenfranchise as of January 2, 1999. The identified stores to be exited under this plan are not part of the stores in the process of being closed in connection with the various business combination exit plans discussed above. These stores were originally identified as continuing company-owned stores at the date of acquisition, however, the stores have not performed as expected. The Company intends to exit the stores primarily through closing and franchising. In connection with this plan, the Company increased the store closure reserve by $5,610,000. The charge was included in the store closure provision in the accompanying consolidated statement of operations for the year ended January 2, 1999. F-25

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Consolidated Analysis The following table presents a summary of the activity in the store closure reserve for the periods indicated for stores to be closed and franchised: <TABLE> <CAPTION> Mrs. Fields Inc. and Original Pretzel Great Cookie Co. H&M Time American Pretzelmaker Consolidated ----------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Inception, September 18, 1996................... $ 5,060,000 $ -- $ -- $ -- $ -- $ 5,060,000 Utilization from inception (September 18, 1996) to December 28, 1996............... (305,000) -- -- -- -- (305,000) ----------- ---------- -------- ---------- -------- ----------- Balance, December 28, 1996................... 4,755,000 -- -- -- -- 4,755,000 To record obligations related to stores identified for closure upon acquisition, July 25, 1997............... -- 1,000,000 -- -- -- 1,000,000 To record obligations related to stores identified for closure upon acquisition, September 2, 1997...... -- -- 500,000 -- -- 500,000 Finalization of store closure plan for obligations related to stores originally identified............. 1,357,000 -- -- -- -- 1,357,000 Provision for continuing company-owned operating stores targeted for closure................ 538,000 -- -- -- -- 538,000 Utilization from December 28, 1996 to January 3, 1998........ (2,683,000) -- (1,000) -- -- (2,684,000) ----------- ---------- -------- ---------- -------- ----------- Balance, January 3, 1998................... 3,967,000 1,000,000 499,000 -- -- 5,466,000 To record obligations related to stores identified for closure upon acquisition, August 24, 1998........ -- -- -- 3,548,000 -- 3,548,000 To record obligations related to stores identified for closure upon acquisition, November 19, 1999...... -- -- -- -- 500,000 500,000 Additional reserves for stores originally identified for closure, January 2, 1999........ 1,693,000 -- -- -- -- 1,693,000 Additional reserves for continuing company- owned and franchised stores targeted for closure, January 2, 1999................... 4,674,000 367,000 264,000 305,000 -- 5,610,000 Utilization for the 52 weeks ended January 2, 1999................... (1,932,000) (19,000) (6,000) (149,000) -- (2,106,000) ----------- ---------- -------- ---------- -------- ----------- Balance, January 2, 1999................... $ 8,402,000 $1,348,000 $757,000 $3,704,000 $500,000 $14,711,000 =========== ========== ======== ========== ======== =========== </TABLE> F-26

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents a summary of activity for stores originally identified to be closed or franchised in connection with the applicable business combination for the periods indicated: <TABLE> <CAPTION> Mrs. Fields Inc. and Original Cookie H&M Pretzel Time Great American Pretzelmaker Consolidated ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Stores identified for closure or franchise at inception, September 18, 1996........... 138 64 -- -- -- -- -- -- -- -- 138 64 Stores closed prior to Inception...... (13) -- -- -- -- -- -- -- -- -- (13) -- Stores closed or franchised from Inception (September 18, 1996) to December 28, 1996........... (17) (3) -- -- -- -- -- -- -- -- (17) (3) --- --- --- --- --- --- --- --- --- --- --- --- Balance, December 28, 1996........... 108 61 -- -- -- -- -- -- -- -- 108 61 Stores identified for Closure or franchise Upon acquisition, July 25, 1997.. -- -- 11 -- -- -- -- -- -- -- 11 -- Stores identified for Closure or franchise upon acquisition, September 2, 1997........... -- -- -- -- 4 -- -- -- -- -- 4 -- Stores closed or franchised from December 28, 1996 to January 3, 1998........ (70) (9) (3) -- -- -- -- -- -- -- (73) (9) --- --- --- --- --- --- --- --- --- --- --- --- Balance, January 3, 1998........ 38 52 8 -- 4 -- -- -- -- -- 50 52 Stores identified for closure or franchise upon acquisition, August 24, 1998........... -- -- -- -- -- -- 54 11 -- -- 54 11 Stores identified for closure or franchise upon acquisition, November 19, 1998........... -- -- -- -- -- -- -- -- 7 -- 7 -- Stores closed or franchised for the 52 weeks ended January 2, 1999........ (15) (16) (2) -- (1) -- (11) -- -- -- (29) (16) --- --- --- --- --- --- --- --- --- --- --- --- Balance, January 2, 1999........ 23 36 6 -- 3 -- 43 11 7 -- 82 47 === === === === === === === === === === === === </TABLE> F-27

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents a summary of changes in the property and equipment impairment reserves that were established in connection with the applicable business combination for the periods indicated for stores to be closed and franchised: <TABLE> <CAPTION> Mrs. Fields, Inc. and Original Great Cookie Co. H&M American Pretzelmaker Consolidated ------------ ---------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> Inception, September 18, 1996................... $10,921,000 $ -- $ -- $ -- $10,921,000 Utilization from inception (September 18, 1996) to December 28, 1996 related to stores to be closed.... (854,000) -- -- -- (854,000) Utilization from inception (September 18, 1996) to December 28, 1996 related to stores to be franchised............. (215,000) -- -- -- (215,000) ----------- ---------- ---------- -------- ----------- Balance, December 28, 1996................... 9,852,000 -- -- -- 9,852,000 To record property and equipment impairment upon acquisition, July 25, 1997............... -- 2,500,000 -- -- 2,500,000 Utilization from December 28, 1996 to January 3, 1998 related to stores to be closed................. (3,299,000) (208,000) -- -- (3,507,000) Utilization from December 28, 1996 to January 3, 1998 related to stores to be franchised............. (492,000) -- -- -- (492,000) ----------- ---------- ---------- -------- ----------- Balance, January 3, 1998................... 6,061,000 2,292,000 -- -- 8,353,000 To record property and equipment impairment upon acquisition, August 24, 1998........ -- -- 2,150,000 -- 2,150,000 To record property and equipment impairment upon acquisition, September 9, 1998...... -- -- 973,000 -- 973,000 To record property and equipment impairment upon acquisition, November 19, 1998...... -- -- -- 327,000 327,000 Utilization for the 52 weeks ended January 2, 1999 related to stores to be closed........... (1,782,000) (93,000) (246,000) -- (2,121,000) Utilization for the 52 weeks ended January 2, 1999 related to stores to be franchised....... (435,000) (819,000) -- -- (1,254,000) ----------- ---------- ---------- -------- ----------- Balance, January 2, 1999................... $ 3,844,000 $1,380,000 $2,877,000 $327,000 $ 8,428,000 =========== ========== ========== ======== =========== </TABLE> 6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC. The mandatorily redeemable cumulative preferred stock of Pretzel Time (the "Pretzel Time Preferred Stock") is nonvoting and the preferred stockholders are entitled to cumulative preferred dividends of ten percent for three years, accrued and payable upon redemption. The Pretzel Time Preferred Stock must be redeemed at $10,000 per share, plus unpaid and accumulated dividends, on September 1, 1999. The excess of the redemption price over the carrying value is being accreted over the period from issuance to September 1, 1999, using the effective interest method and is being charged to the accumulated deficit of Pretzel Time. In the event of a liquidation or sale of Pretzel Time, the preferred stockholders are entitled to receive payment of $10,000 per share, plus accumulated dividends. During the period from the acquisition of a majority ownership in Pretzel Time (September 2, 1997) to January 2, 1999, Pretzel Time increased the liquidation preference of the Pretzel Time Preferred Stock by $212,000, in lieu of paying cash dividends. In addition, the Pretzel Time Preferred Stock was increased by $538,000, for the accretion required over time to amortize the original issue discount incurred at the time of issuance. As of January 2, 1999, accrued dividends of $339,000, were unpaid. During the period from September 2, 1997 to January 2, 1999, Pretzel Time repurchased 17.5 shares of the Pretzel Time Preferred Stock for an total of $175,000 in cash, or $10,000 per share, plus accrued dividends totaling approximately $20,200. As of January 2, 1999, there are 127 shares of Pretzel Time Preferred Stock issued and outstanding with a total liquidation preference of approximately $1,495,000. F-28

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 7. COMMITMENTS AND CONTINGENCIES Stock Pledged as Collateral Mrs. Fields' Holding has pledged all of the Company's capital stock as collateral for Mrs. Fields' Holding's 14 percent Senior Secured Discount Notes due December 1, 2005 (the " Mrs. Fields' Holding Discount Notes"). Mrs. Fields' Holding issued the Mrs. Fields' Holding Discount Notes on August 24, 1998, in connection with the Great American Acquisitions and the Mrs. Fields' Holding Equity Infusion (see Note 1). In connection with the issuance of the $55,000,000 principal amount at maturity of Mrs. Fields' Holding Discount Notes, Mrs. Fields' Holding recorded an total original issue discount of approximately $24,136,000. The principal amount of the Mrs. Fields' Holding Discount Notes will accrete at a rate of 14 percent compounded semi-annually to a total principal amount of $55,000,000 at December 1, 2002. Thereafter, the Mrs. Fields' Holding Discount Notes will accrue interest at the annual rate of 14 percent, payable semi-annually on June 1 and December 1 of each year, commencing June 1, 2003. Mrs. Fields' Holding is a holding company and does not have separate operations from which it can generate cash flows. Under the circumstances, Mrs. Fields' Holding would likely be dependent on its owners' and the Company's cash flows to make principal and interest payments when due. Interest payments totaling $7,700,000 per year will commence in 2003. The Company has not guaranteed, nor is it obligated to make principal or interest payments related to the Mrs. Fields' Holding Discount Notes. However, in accordance with the Company's Indenture, the Company may pay dividends to Mrs. Fields' Holding, in order for Mrs. Fields' Holding to service the debt, if no default or event of default occurs under the Indenture and certain fixed charge coverage ratios and consolidated net income tests are met. The Mrs. Fields' Holding Discount Notes are effectively subordinated to the Company's Senior Notes. Legal Matters The Company is the subject of certain legal actions, which it considers routine to its business activities. Management, after consultation with legal counsel, believes that the potential liability to the Company under any such actions is adequately accrued for or will not materially affect the Company's consolidated financial position or results of operations. Operating Leases The Company leases retail store facilities, office space and equipment under long-term noncancelable operating lease agreements with remaining terms of one to ten years. Certain of the retail store leases provide for contingent rentals based on gross revenues. Additionally, as part of the Company's franchising program, certain locations have been subleased to franchisees. Rent expense was as follows for the periods presented: <TABLE> <CAPTION> Inception (September 18, 53 Weeks 52 Weeks 1996) to Ended Ended December 28, January 3, January 2, 1996 1998 1999 -------------- ----------- ------------ <S> <C> <C> <C> Minimum rentals....................... $ 8,216,000 $30,654,000 $ 36,834,000 Contingent rentals.................... 105,000 432,000 553,000 Sub-lease rentals..................... (2,220,000) (8,756,000) (12,550,000) ----------- ----------- ------------ $ 6,101,000 $22,330,000 $ 24,837,000 =========== =========== ============ </TABLE> F-29

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As of January 2, 1999, the future minimum lease payments due under operating leases (including future minimum lease payments for stores in the process of being closed or franchised), which include required lease payments for those stores that have been subleased, are as follows: <TABLE> <CAPTION> Fiscal Year ----------- <S> <C> 1999............................................................ $ 37,686,000 2000............................................................ 32,337,000 2001............................................................ 27,066,000 2002............................................................ 23,033,000 2003............................................................ 18,246,000 Thereafter...................................................... 33,504,000 ------------ $171,872,000 ============ As of January 2, 1999, the future minimum sublease payments due to the Company under these leases are as follows: <CAPTION> Fiscal Year ----------- <S> <C> 1999............................................................ $ 12,550,000 2000............................................................ 10,676,000 2001............................................................ 8,741,000 2002............................................................ 7,277,000 2003............................................................ 5,716,000 Thereafter...................................................... 8,717,000 ------------ $ 53,677,000 ============ </TABLE> Contractual Arrangements The Company entered into a supply agreement to buy frozen dough products through 2000. The agreement stipulates minimum annual purchase commitments of not less than 23,000,000 pounds of the products each year through the end of the contract. The Company also entered into two supply agreements to buy chocolate products through August 1999 and January 2000. The agreements stipulate minimum purchase commitments of which 1.9 million and 1.5 million pounds, respectively, had not been purchased as of January 2, 1999. The terms the frozen dough and chocolate purchase agreements include certain volume incentives and penalties. Under each, the Company and the supplier may terminate the supply agreement if the other party defaults on any of the performance covenants. The Company also entered into several other immaterial purchase agreements to buy products. The Company has assumed an agreement with a third-party lender to provide financing to franchisees for the purchase of existing Company stores. Under the terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender by franchisees of which the Company has agreed to guarantee a maximum of $2,000,000. Outstanding franchisee borrowings guaranteed by the Company under this agreement at January 3, 1998 and January 2, 1999 were approximately $550,000 and $295,000, respectively. Under the terms of the agreement, the Company is required to assume any franchisee obligations which are in default as defined. As of January 2, 1999, the Company has assumed obligations totaling approximately $54,000, respectively, which are included in capital lease obligations. The Company recorded deferred credits of approximately $1,204,000 as of September 18, 1996. The deferred credits represent volume rebates associated with the assumption of a long-term marketing and supply F-30

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) agreement with a supplier in connection with the Mrs. Fields Inc. and affiliates and Original Cookie Company and affiliates business combinations discussed in Note 1. Under terms of the agreement, the Company is obligated to purchase a minimum amount of product from the supplier. The supplier periodically prepays rebates to the Company for anticipated purchases. The Company records the prepayments as deferred credits and amortizes them ratably as purchases are made from the supplier. This agreement was amended in January 1997 and an additional $600,000 in deferred credits were recorded. The amended agreement expires on the later of December 31, 2003 or when the Company has met its revised purchase commitment. In conjunction with this amendment, certain minimum commitments from the previous agreement were carried forward and others were forgiven. Additionally, in November 1997, Pretzel Time entered into a long-term marketing and supply agreement with a supplier. Under terms of the agreement, the Company is obligated to purchase a minimum amount of product from the supplier. An additional $437,000 in deferred credits were recorded under this agreement. The termination date of this agreement will be the later of December 31, 2003 or when Pretzel Time has met its purchase commitment. Under these agreements, the Company recognized approximately $1,393,000, and $812,000 primarily as a reduction to food cost of sales during the years ended January 3, 1998 and January 2, 1999. In November 1996, the Company entered into a consulting agreement (the "Consulting Agreement") with Debbi Fields, a director of the Company, under which Debbi Fields travels and performs public relations and advertising activities on behalf of the Company for at least 50 days a year for a fee of $250,000 per year, with an option to perform these services for 20 additional days a year for additional pay of $5,000 per day. The compensation increases by 10 percent a year beginning on January 1, 1999. The Consulting Agreement expires on December 31, 1999. Under the Consulting Agreement, Debbi Fields may not disclose any confidential information of the Company, such as recipes and trade secrets, and may not, without the prior written consent of the Company, compete with the Company. The Company has entered into employment agreements with five key officers with terms of two to three years. The agreements are for a total annual base salary of $1,095,000. If the Company terminates employment without cause, or the employee terminates employment with good reason, the employee can receive in severance pay the amount equal to the product of his or her then current semi-monthly base salary by the greater of the number of semi-monthly periods from the notice of termination or 36 to 48 semi-monthly periods, plus a portion of any discretionary bonus that would otherwise have been payable. The agreements have customary provisions for other benefits and also include noncompetition clauses. 8. RELATED-PARTY TRANSACTIONS As of January 3, 1998 and January 2, 1999, the Company had receivables due from franchisees and licensees, primarily related to prepaid rent which the Company had paid on behalf of franchisees, totaling approximately $2,176,000 and $6,003,000, respectively. These amounts are included in amounts due from franchisees and affiliates and are net of allowance for doubtful accounts totaling $582,000 and $1,078,000, respectively. As of January 3, 1998 and January 2, 1999, the Company had net payables of approximately $105,000 and $150,000, respectively, due to Mrs. Fields' Holding. The amounts due to or from Mrs. Fields' Holding are recorded in prepaid rent and other in the accompanying consolidated balance sheets. During the years ended January 3, 1998 and January 2, 1999, the Company accrued approximately $441,000 and $0, respectively, of interest expense due to Mrs. Fields' Holding related to the convertible subordinated notes Mrs. Fields' Holding purchased. As part of the Refinancing, Mrs. Fields' Holding converted all of the $4,643,000 convertible subordinated notes to equity and the notes were cancelled (see Note 3). F-31

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company paid fees to Korn/Ferry International ("Korn/Ferry") totaling approximately $157,000 and $70,600, during the years ended January 3, 1998 and January 2, 1999, respectively. Korn/Ferry is an executive search firm of which one of the Company's directors is the Chairman. A director of the Company is a consultant and an advisor to Dillon Read & Co., Inc. ("Dillon Read"). In 1997, the Company paid to Dillon Read a fee of approximately $707,000 in connection with the restructuring of the Company in September 1996. The director's company did not receive a fee from the Company during the fiscal year ended January 2, 1999. The Company believes that the arrangements were on terms that could have been obtained from an unaffiliated third party. As of January 2, 1999, the Company has a loan due from the founder and minority stockholder of Pretzel Time totaling $567,000. The note bears interest at an annual rate of ten percent and is payable in monthly installments of principal and interest beginning January 1998 by setoff of, and to the extent of, the founder's bonus payments and dividends received by the founder in his Pretzel Time stock; provided that in any calendar year no more than $100,000 may be so offset. In addition, as of January 2, 1999, the Company is due approximately $451,000 from the founder in connection with certain lease payments related to the purchase of Pretzel Time for which the Company is indemnified. These amounts are recorded in accounts receivable and other assets in the accompanying consolidated balance sheets. The Company and Mrs. Fields' Holding expect to enter into a tax-sharing arrangement but as of the date of these financial statements no such agreement has been finalized. 9. EMPLOYEE BENEFIT PLAN The Company sponsors the Mrs. Fields' Original Cookies, Inc. 401(k) Retirement Savings Plan (the "Plan") for all eligible employees. Under the terms of the Plan, employees may make contributions to the Plan, a portion of which is matched by contributions from the Company. The total Company contributions to the Plan for the years ended January 3, 1998 and January 2, 1999 were approximately $97,900 and $171,000, respectively. 10. REPORTABLE SEGMENTS Operating segments are components of the Company for which separate financial information is available that is evaluated regularly by the Chief Operating decision maker in deciding how to allocate resources and in assessing performance. This information is reported on the basis that it is used internally for evaluating segment performance. Mrs. Fields has two reportable operating segments; namely, company-owned stores and related activity and franchising and licensing activity. The segments are determined by revenue source; direct sales or royalties and license fees. The company-owned stores segment consists of both cookie and pretzel stores owned and operated by Mrs. Fields. The franchising and licensing segment consists of cookie and pretzel stores, which are owned and operated by third parties who pay Mrs. Fields an initial franchise or license fee and monthly royalties based on a percentage of gross sales and other licensing activity not related to cookie or pretzel stores. The accounting policies for the segments are discussed in the summary of significant accounting policies (see Note 2). Sales and transfers between segments are eliminated in consolidation. F-32

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Mrs. Fields evaluates performance of each segment based on contribution margin. Mrs. Fields does not allocate any interest income, interest expense, depreciation and amortization or assets to its reportable operating segments. Segment revenue and contribution margin are presented in the following table. <TABLE> <CAPTION> Company-owned Franchising and Stores Licensing Total ------------- --------------- ----------- <S> <C> <C> <C> Period ended December 28, 1996 Revenue.............................. $40,849,000 $1,267,000 $42,116,000 Contribution Margin.................. 10,761,000 1,267,000 12,028,000 Year ended January 3, 1998 Revenue.............................. 127,845,000 6,563,000 134,408,000 Contribution Margin.................. 28,985,000 6,563,000 35,548,000 Year ended January 2, 1999 Revenue.............................. 140,235,000 14,001,000 154,236,000 Contribution Margin.................. 30,337,000 10,414,000 40,751,000 </TABLE> The reconciliation of contribution margin to net income (loss) is as follows: <TABLE> <CAPTION> Period Ended December 28, 1996 Fiscal 1997 Fiscal 1998 ----------------- ------------ ------------ <S> <C> <C> <C> Contribution margin............. $12,028,000 $ 35,548,000 $ 40,751,000 General and administrative expense........................ (4,035,000) (16,192,000) (19,017,000) Store closure provision......... -- (538,000) (7,303,000) Depreciation and amortization... (2,344,000) (10,403,000) (19,820,000) Interest expense................ (1,793,000) (7,584,000) (12,574,000) Other expense, net.............. (1,895,000) (1,805,000) (1,180,000) ----------- ------------ ------------ Net income (loss)............... $ 1,961,000 $ (974,000) $(19,143,000) =========== ============ ============ </TABLE> Geographic segment information is as follows: <TABLE> <CAPTION> Domestic International Domestic International Company-owned Company-owned Franchising Franchising Stores Stores and Licensing and Licensing ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Revenue Period ended December 28, 1996............... $ 40,849,000 $ -- $ 1,158,000 $109,000 Fiscal 1997............. 127,736,000 109,000 6,150,000 413,000 Fiscal 1998............. 140,018,000 217,000 13,738,000 263,000 </TABLE> Revenues from international franchising and licensing are secured from Canada and Australia with no other countries having material representation. Revenues from international company-owned stores are immaterial. There were no customers who accounted for more than 10% of Mrs. Fields' total revenue or either segment's revenue. F-33

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Company's obligation related to its $140,000,000 total principal amount of Senior Notes due 2004 (see Note 3) is guaranteed on a joint and several basis and on a senior basis by four of the Company's wholly owned subsidiaries (the "Guarantors"). These guarantees are general unsecured obligations of the Guarantors, rank senior in right of payment to all subordinated indebtedness of the Guarantors and rank pari passu in right of payment with all existing and future senior indebtedness of the Guarantors. There are no restrictions on the Company's ability to obtain cash dividends or other distributions of funds from the Guarantors, except those imposed by applicable law. The following supplemental financial information sets forth, on a condensed consolidating basis, balance sheets, statements of operations and statements of cash flows for Mrs. Fields' Original Cookies, Inc. (the "Parent Company"), Great American Cookie Company, Inc., The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., which are Guarantors, and Pretzel Time, Inc., which will become a Guarantor (collectively, the "Guarantor Subsidiaries") and Mrs. Fields' Cookies Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of Canada, and three partially owned subsidiaries, (collectively, the "Non- guarantor Subsidiaries"). The Company has not presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries because management has determined that such information is not material to investors. F-34

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996 (Dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET REVENUES............ $41,557 $ 559 $-- $-- $42,116 ------- ----- ---- ---- ------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs...... 19,492 -- -- -- 19,492 Cost of sales......... 10,596 -- -- -- 10,596 General and administrative....... 3,871 146 18 -- 4,035 Depreciation and amortization......... 2,027 317 -- -- 2,344 ------- ----- ---- ---- ------- Total operating costs and expenses........... 35,986 463 18 -- 36,467 ------- ----- ---- ---- ------- Income (loss) from operations......... 5,571 96 (18) -- 5,649 INTEREST EXPENSE AND OTHER, net............. (1,410) (383) -- -- (1,793) ------- ----- ---- ---- ------- Income (loss) before provision for income taxes, preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries......... 4,161 (287) (18) -- 3,856 PROVISION FOR INCOME TAXES.................. (1,798) -- -- -- (1,798) ------- ----- ---- ---- ------- Income (loss) before preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries......... 2,363 (287) (18) -- 2,058 PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES........ -- (97) -- -- (97) EQUITY IN NET LOSS OF CONSOLIDATED SUBSIDIARIES........... (402) -- -- 402 -- ------- ----- ---- ---- ------- NET INCOME (LOSS)....... $ 1,961 $(384) $(18) $402 $ 1,961 ======= ===== ==== ==== ======= </TABLE> F-35

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996 (Dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated -------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET CASH PROVIDED BY OPERATING ACTIVITIES.. $ 6,990 $ 589 $ 30 $-- $ 7,609 -------- ------- ---- ---- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisitions and related expenses.... (12,508) (7,000) -- -- (19,508) Purchase of property and equipment, net.. (1,622) (1) -- -- (1,623) -------- ------- ---- ---- -------- Net cash used in investing activities........ (14,130) (7,001) -- -- (21,131) -------- ------- ---- ---- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock............... 15,000 -- -- -- 15,000 Proceeds from the issuance of mandatorily redeemable cumulative preferred stock of subsidiary.......... -- 3,500 -- -- 3,500 Proceeds from the issuance of note payable............. -- 3,500 -- -- 3,500 Principal payments on long-term debt...... (1,769) -- -- -- (1,769) -------- ------- ---- ---- -------- Net cash provided by financing activities.......... 13,231 7,000 -- -- 20,231 -------- ------- ---- ---- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS.. 6,091 588 30 -- 6,709 CASH AND CASH EQUIVALENTS, beginning of period............. -- -- -- -- -- -------- ------- ---- ---- -------- CASH AND CASH EQUIVALENTS, end of period................ $ 6,091 $ 588 $ 30 $-- $ 6,709 ======== ======= ==== ==== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid........ $ 28 $ -- $-- $-- $ 28 </TABLE> F-36

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET AS OF JANUARY 3, 1998 (Dollars in Thousands) ASSETS <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated -------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> CURRENT ASSETS: Cash and cash equivalents.......... $ 14,270 $ 725 $1,292 $ -- $ 16,287 Accounts receivable, net.................. 1,388 -- 147 -- 1,535 Amounts due from (to) franchisees and licensees, net....... 1,517 659 -- -- 2,176 Inventories........... 3,094 -- 6 -- 3,100 Other current assets.. 6,593 (615) (253) -- 5,725 -------- ------- ------ -------- -------- Total current assets............. 26,862 769 1,192 -- 28,823 PROPERTY AND EQUIPMENT, net.................... 28,907 1 294 -- 29,202 INTANGIBLES, net........ 59,928 17,725 6,041 -- 83,694 INVESTMENT IN SUBSIDIARIES........... 23,089 -- -- (23,089) -- OTHER ASSETS............ 7,902 -- 63 -- 7,965 -------- ------- ------ -------- -------- $146,688 $18,495 $7,590 $(23,089) $149,684 -------- ------- ------ -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations.......... $ -- $ -- $ 614 $ -- $ 614 Accounts payable...... 3,621 36 148 -- 3,805 Accrued liabilities... 10,499 25 747 -- 11,271 -------- ------- ------ -------- -------- Total current liabilities........ 14,120 61 1,509 -- 15,690 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion..... 100,000 -- 467 -- 100,467 OTHER ACCRUED LIABILITIES............ 1,802 -- -- -- 1,802 MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK.................. -- -- 902 -- 902 MINORITY INTEREST....... -- -- -- 58 58 STOCKHOLDER'S EQUITY.... 30,766 18,434 4,712 (23,147) 30,765 -------- ------- ------ -------- -------- $146,688 $18,495 $7,590 $(23,089) $149,684 ======== ======= ====== ======== ======== </TABLE> F-37

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 3, 1998 (Dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated -------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET REVENUES............ $125,991 $ 2,004 $7,077 $ (664) $134,408 -------- ------- ------ ------ -------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs...... 63,765 -- 3,731 (664) 66,832 Cost of sales......... 31,173 -- 855 -- 32,028 General and administrative....... 14,215 1,066 911 -- 16,192 Store closure provision............ 538 -- -- -- 538 Depreciation and amortization......... 8,745 1,125 533 -- 10,403 -------- ------- ------ ------ -------- Total operating costs and expenses........... 118,436 2,191 6,030 (664) 125,993 -------- ------- ------ ------ -------- Income (loss) from operations......... 7,555 (187) 1,047 -- 8,415 INTEREST EXPENSE AND OTHER, net............. (6,329) (1,230) (393) -- (7,952) -------- ------- ------ ------ -------- Income (loss) before provision for income taxes, preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries......... 1,226 (1,417) 654 -- 463 PROVISION FOR INCOME TAXES.................. (535) (25) (95) -- (655) -------- ------- ------ ------ -------- Income (loss) before preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries......... 691 (1,442) 559 -- (192) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES........ -- (338) (306) -- (644) EQUITY IN NET LOSS OF CONSOLIDATED SUBSIDIARIES........... (1,665) -- -- 1,527 (138) -------- ------- ------ ------ -------- NET INCOME (LOSS)....... $ (974) $(1,780) $ 253 $1,527 $ (974) ======== ======= ====== ====== ======== </TABLE> F-38

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 3, 1998 (Dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES............. $ (766) $387 $1,298 $-- $ 919 ------- ---- ------ ---- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisitions and related expenses..... (10,949) -- -- -- (10,949) Purchase of property and equipment, net... (4,556) -- -- -- (4,556) ------- ---- ------ ---- ------- Net cash used in investing activities......... (15,505) -- -- -- (15,505) ------- ---- ------ ---- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt.... 108,250 -- -- -- 108,250 Principal payments on long-term debt and capital lease obligations.......... (76,759) (250) (36) -- (77,045) Payment of debt financing costs...... (5,976) -- -- -- (5,976) Payment of cash dividend to Mrs. Fields' Holding...... (1,065) -- -- -- (1,065) ------- ---- ------ ---- ------- Net cash provided by (used in) financing activities......... 24,450 (250) (36) -- 24,164 ------- ---- ------ ---- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS....... 8,179 137 1,262 -- 9,578 CASH AND CASH EQUIVALENTS, beginning of year................ 6,091 588 30 -- 6,709 ------- ---- ------ ---- ------- CASH AND CASH EQUIVALENTS, end of year................... $14,270 $725 $1,292 $-- $16,287 ======= ==== ====== ==== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid....... $ 7,607 $789 $ 20 $-- $ 8,416 Taxes paid.......... 181 25 11 -- 217 </TABLE> F-39

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET AS OF JANUARY 2, 1999 (Dollars in Thousands) ASSETS <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> CURRENT ASSETS: Cash and cash equivalents.......... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751 Accounts receivable, net.................. 2,860 304 44 -- 3,208 Amounts due from franchisees and licensees, net....... 1,297 4,706 -- -- 6,003 Inventories........... 4,631 863 9 -- 5,503 Other current assets and amounts due from (to) affiliates, net.................. 39,368 (33,898) (592) -- 4,878 -------- ------- ---- -------- -------- Total current assets............. 51,695 (26,891) (461) -- 24,343 PROPERTY AND EQUIPMENT, net.................... 29,900 1,654 243 -- 31,797 INTANGIBLES, net........ 75,875 95,601 320 -- 171,796 INVESTMENT IN SUBSIDIARIES........... 66,484 -- -- (66,484) -- OTHER ASSETS............ 3,688 252 30 -- 3,970 -------- ------- ---- -------- -------- $227,642 $70,616 $132 $(66,484) $231,906 ======== ======= ==== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations.......... $ 7,141 $ 1,204 $-- $ -- $ 8,345 Accounts payable...... 14,223 564 69 -- 14,856 Accrued liabilities... 10,956 2,895 18 -- 13,869 -------- ------- ---- -------- -------- Total current liabilities........ 32,320 4,663 87 -- 37,070 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion........ 142,367 216 61 -- 142,644 OTHER ACCRUED LIABILITIES............ 10,134 -- -- -- 10,134 MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK.................. -- 1,261 -- -- 1,261 MINORITY INTEREST....... -- -- -- 119 119 STOCKHOLDERS' EQUITY.... 42,821 64,476 (16) (66,603) 40,678 -------- ------- ---- -------- -------- $227,642 $70,616 $132 $(66,484) $231,906 ======== ======= ==== ======== ======== </TABLE> F-40

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 2, 1999 (Dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET REVENUES........... $144,057 $13,939 $377 $(4,137) $154,236 -------- ------- ---- ------- -------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs..... 76,437 -- 334 (1,768) 75,003 Cost of sales........ 37,165 3,587 99 (2,369) 38,482 General and administrative...... 21,213 5,107 -- -- 26,320 Depreciation and amortization........ 16,624 3,196 -- -- 19,820 -------- ------- ---- ------- -------- Total operating costs and expenses.......... 151,439 11,890 433 (4,137) 159,625 -------- ------- ---- ------- -------- (Loss) income from operations.......... (7,382) 2,049 (56) -- (5,389) INTEREST EXPENSE AND OTHER, net............ (13,064) 81 -- -- (12,983) -------- ------- ---- ------- -------- (Loss) income before provision for income taxes, preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries........ (20,446) 2,130 (56) -- (18,372) PROVISION FOR INCOME TAXES................. (197) (119) -- -- (316) -------- ------- ---- ------- -------- (Loss) income before preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries........ (20,643) 2,011 (56) -- (18,688) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES.......... -- (444) -- -- (444) EQUITY IN NET LOSS OF CONSOLIDATED SUBSIDIARIES.......... 1,500 -- -- (1,511) (11) -------- ------- ---- ------- -------- NET (LOSS) INCOME...... $(19,143) $ 1,567 $(56) $(1,511) $(19,143) ======== ======= ==== ======= ======== </TABLE> F-41

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE 52 WEEKS ENDED JANUARY 2, 1999 (Dollars In thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............. $(23,820) $ 33,382 $(133) $-- $ 9,429 -------- -------- ----- ---- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisitions and related expenses..... $(39,873) 7,038 -- -- $(32,835) Purchase of property and equipment, net... (8,228) (7) -- -- (8,235) Proceeds for asset sales................ 176 -- -- -- 176 -------- -------- ----- ---- -------- Net cash (used in) provided by investing activities......... (47,925) 7,031 -- -- (40,894) -------- -------- ----- ---- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long- term debt............ 39,400 -- -- -- 39,400 Payment of debt financing costs...... (7,062) -- -- -- (7,062) Equity infusion from Mrs. Fields' Holding.............. 29,056 -- -- -- 29,056 Principal payments on long-term debt and capital lease obligations.......... (257) (41,000) -- -- (41,257) Capital lease repayments........... (123) -- -- -- (123) Reduction in preferred stock of Pretzel Time................. -- (85) -- -- (85) -------- -------- ----- ---- -------- Net cash provided by (used in) financing activities......... 61,014 (41,085) -- -- 19,929 -------- -------- ----- ---- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS....... (10,731) (672) (133) -- (11,536) CASH AND CASH EQUIVA- LENTS, beginning of pe- riod................... 14,270 1,806 211 -- 16,287 -------- -------- ----- ---- -------- CASH AND CASH EQUIVA- LENTS, end of Period... $ 3,539 $ 1,134 $ 78 $-- $ 4,751 ======== ======== ===== ==== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMA- TION: Interest paid......... $ 12,405 $ 35 $ -- $-- $ 12,440 Taxes paid............ 141 68 -- -- 209 </TABLE> F-42

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) ASSETS <TABLE> <CAPTION> January 2, July 3, 1999 1999 ---------- ------- (Unaudited) <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents............................... $ 4,751 $ 4,645 Accounts receivable, net of allowance for doubtful accounts of $74 and $69, respectively.................. 3,208 1,570 Amounts due from franchisees and licensees, net of allowance for doubtful accounts of $1,078 and $897 respectively........................................... 6,003 4,808 Inventories............................................. 5,503 4,913 Prepaid rent and other.................................. 4,017 3,868 Deferred income tax assets, current portion............. 861 861 -------- -------- Total current assets.................................. 24,343 20,665 -------- -------- PROPERTY AND EQUIPMENT, at cost: Leasehold improvements.................................. 29,914 32,889 Equipment and fixtures.................................. 17,108 11,913 Land.................................................... 240 240 -------- -------- 47,262 45,042 Less accumulated depreciation and amortization.......... (15,465) (15,487) -------- -------- Net property and equipment............................ 31,797 29,555 -------- -------- DEFERRED INCOME TAX ASSETS, net of current portion........ 2,638 2,638 -------- -------- GOODWILL, net of accumulated amortization of $11,231 and $16,446, respectively.................................... 145,782 140,417 -------- -------- TRADEMARKS AND OTHER INTANGIBLES, net of accumulated amortization of $2,615 and $3,239, respectively.......... 14,296 13,772 -------- -------- DEFERRED LOAN COSTS, net of accumulated amortization of $1,320 and $2,341, respectively.......................... 11,718 11,852 -------- -------- OTHER ASSETS.............................................. 1,332 414 -------- -------- $231,906 $219,313 ======== ======== </TABLE> The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. F-43

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (dollars in thousands, except share data) LIABILITIES AND STOCKHOLDER'S EQUITY <TABLE> <CAPTION> January 2, July 3, 1999 1999 --------- -------- (Unaudited) <S> <C> <C> CURRENT LIABILITIES: Bank overdraft........................................... $ 4,133 $ 2,902 Current portion of long-term debt........................ 8,046 929 Current portion of capital lease obligations............. 299 444 Line of credit........................................... -- 7,000 Accounts payable......................................... 10,723 10,436 Accrued liabilities...................................... 3,597 2,878 Current portion of store closure reserve................. 4,577 4,577 Accrued salaries, wages and benefits..................... 3,155 3,065 Accrued interest payable................................. 1,260 1,298 Sales taxes payable...................................... 962 378 Deferred income.......................................... 318 192 -------- -------- Total current liabilities.............................. 37,070 34,099 LONG-TERM DEBT, net of current portion..................... 141,647 141,424 STORE CLOSURE RESERVE, net of current portion.............. 10,134 8,419 CAPITAL LEASE OBLIGATIONS, net of current portion.......... 997 1,229 -------- -------- Total liabilities...................................... 189,848 185,171 -------- -------- MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of PTI (a wholly owned subsidiary), aggregate liquidation preference of $1,495 and $1,525, respectively........................ 1,261 1,440 -------- -------- MINORITY INTEREST.......................................... 119 123 -------- -------- STOCKHOLDER'S EQUITY: Common stock, $.01 par value; 1,000 shares authorized and 400 shares outstanding.................................. -- -- Additional paid-in capital............................... 59,899 61,899 Accumulated deficit...................................... (19,221) (29,320) -------- -------- Total stockholder's equity............................. 40,678 32,579 -------- -------- $231,906 $219,313 ======== ======== </TABLE> The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. F-44

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands) <TABLE> <CAPTION> 26 Weeks Ended 26 Weeks Ended July 4, 1998 July 3, 1999 -------------- -------------- (Unaudited) <S> <C> <C> REVENUES: Net store and food sales....................... $58,687 $ 71,915 Franchising, net............................... 2,971 11,562 Licensing, net................................. 683 688 ------- -------- Total revenues............................... 62,341 84,165 ------- -------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs.............. 33,908 41,118 Cost of sales.................................. 15,185 21,856 General and administrative..................... 8,587 10,873 Depreciation and amortization.................. 6,197 11,263 ------- -------- Total operating costs and expenses........... 63,877 85,110 ------- -------- Loss from operations........................... (1,536) (945) ------- -------- OTHER INCOME (EXPENSE), net: Interest expense............................... (5,626) (8,686) Interest income................................ 417 78 Other expense.................................. (144) (110) ------- -------- Total other expense, net..................... (5,353) (8,718) ------- -------- Loss before provision for income taxes, preferred stock accretion and dividends of subsidiaries and minority interest............ (6,889) (9,663) PROVISION FOR INCOME TAXES....................... (14) (210) ------- -------- Loss before preferred stock accretion and dividends of subsidiaries and minority interest...................................... (6,903) (9,873) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES.................................... (222) (222) MINORITY INTEREST................................ (176) (4) ------- -------- Net loss....................................... $(7,301) $(10,099) ======= ======== </TABLE> The accompanying notes to condensed consolidated financial statements are an integral part of these statements. F-45

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) <TABLE> <CAPTION> 26 Weeks Ended 26 Weeks Ended July 4, 1998 July 3, 1999 -------------- -------------- (Unaudited) <S> <C> <C> INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................ $(7,301) $(10,099) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.................. 6,197 11,263 Amortization of deferred loan costs............ 427 1,021 Loss on sale of assets......................... 144 117 Preferred stock accretion and dividends of subsidiaries.................................. 222 222 Minority interest.............................. 176 4 Changes in assets and liabilities: Accounts receivable, net...................... 387 1,638 Amounts due from franchisees and licensees, net.......................................... 181 1,195 Inventories................................... 240 590 Prepaid rent and other........................ 523 149 Other assets.................................. 261 918 Accounts payable and accrued liabilities...... (2,518) (1,006) Bank overdraft................................ -- (1,231) Store closure reserve......................... (946) (1,311) Accrued salaries, wages and benefits.......... 32 (90) Accrued interest payable...................... (171) 38 Sales taxes payable........................... (562) (584) Deferred income............................... (598) (126) ------- -------- Net cash provided by (used in) operating activities.................................. (3,306) 2,708 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisition expenses.......... (928) (100) Purchase of property and equipment.............. (3,342) (2,604) ------- -------- Net cash used in investing activities........ (4,270) (2,704) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long-term debt..................... -- (5,340) Payment of debt financing costs................. -- (1,155) Borrowings under line of credit................. -- 7,000 Collection of common stock subscriptions receivable..................................... (265) -- Principal payments on capital lease obligations.................................... (138) (572) Reduction in preferred stock.................... (42) (43) ------- -------- Net cash used in financing activities........ (445) (110) ------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... (8,021) (106) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD.......................................... 16,287 4,751 ------- -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD... $ 8,266 $ 4,645 ======= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest......................... $ 5,370 $ 7,588 ======= ======== Cash paid for income taxes..................... $ 36 $ 164 ======= ======== </TABLE> The accompanying notes to condensed consolidated financial statements are an integral part of these statements. F-46

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by Mrs. Fields' Original Cookies, Inc. and subsidiaries ("Mrs. Fields") in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q, and accordingly, do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, which consist only of normal recurring adjustments necessary to present fairly the financial position of Mrs. Fields as of July 3, 1999 and January 2, 1999, and the results of its operations and its cash flows as of and for the periods presented herein. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended January 2, 1999 contained in Mrs. Fields' Annual Report on Form 10-K. The results of operations for the 26 weeks ended July 3, 1999 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending January 1, 2000. Loss per share is not presented as Mrs. Fields is wholly owned by Mrs. Fields' Holding Company, Inc. ("Mrs. Fields' Holding") and therefore, its shares are not publicly traded. (2) RECLASSIFICATIONS Certain reclassifications have been made to the prior period's condensed consolidated financial statements to conform with the current period's presentation. (3) PRO FORMA RESULTS OF OPERATIONS The following unaudited pro forma information presents a summary of the consolidated results of operations of Mrs. Fields assuming the Great American, Deblan, Chocolate Chip, Karp, Cookie Conglomerate and Pretzelmaker acquisitions and related financings had occurred at the beginning of the 26 weeks ended July 4, 1998. Pro forma adjustments have been made to give effect to amortization of goodwill, interest expense on acquisition debt and certain other adjustments. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions been consummated at the beginning of the 26 weeks ended July 4, 1998. <TABLE> <CAPTION> 26 Weeks Ended July 4, 1998 -------------- (Unaudited) <S> <C> Total revenues........................................... $92,640 Income from operations................................... 630 Net loss................................................. (8,064) </TABLE> (4) REPORTABLE SEGMENTS Management evaluates performance at Mrs. Fields using two reportable operating segments, namely, (1) company-owned stores and related activity and (2) franchising and licensing activity. The segments are determined by revenue source; direct sales or royalties and license fees. The company-owned stores segment consists of both cookie and pretzel stores owned and operated by Mrs. Fields. The franchising and licensing segment consists of cookie and pretzel stores, which are owned and operated by third parties who pay Mrs. Fields an initial franchise fee and monthly royalties based on a percentage of gross sales and other licensing activity not related to cookie or pretzel stores. Sales and transfers between segments are eliminated in consolidation. F-47

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) Mrs. Fields evaluates performance of each segment based on contribution margin. Mrs. Fields does not allocate any interest income, interest expense, depreciation and amortization or assets to its reportable operating segments. Segment revenue and contribution margin are presented in the following table. <TABLE> <CAPTION> Company- Franchising owned and Stores Licensing Total -------- ----------- ------- <S> <C> <C> <C> 26 weeks ended July 4, 1998 Total revenues................................. $58,687 $ 3,654 $62,341 Contribution margin............................ 9,594 3,654 13,248 26 weeks ended July 3, 1999 Total revenues................................. $71,915 $12,250 $84,165 Contribution margin............................ 13,404 7,787 21,191 </TABLE> The reconciliation of contribution margin to net loss is as follows: <TABLE> <CAPTION> 26 Weeks Ended 26 Weeks Ended July 4, 1998 July 3, 1999 -------------- -------------- <S> <C> <C> Contribution margin............................ $13,248 $ 21,191 General and administrative expense............. (8,587) (10,873) Depreciation and amortization.................. (6,197) (11,263) Interest expense............................... (5,626) (8,686) Other income (expense), net.................... (139) (468) ------- -------- Net loss....................................... $(7,301) $(10,099) ======= ======== </TABLE> Geographic segment information is as follows: <TABLE> <CAPTION> Domestic Domestic Company- International Franchising International owned Company-owned and Franchising Total revenues Stores Stores Licensing and Licensing -------------- -------- ------------- ----------- ------------- <S> <C> <C> <C> <C> 26 weeks ended July 4, 1998..................... $58,609 $78 $ 3,467 $187 26 weeks ended July 3, 1999..................... 71,894 21 12,050 200 </TABLE> Revenues from international franchising and licensing are generated from Canada and Australia with no other countries having material representation. Revenues from international company-owned stores are immaterial. As of July 3, 1999, there are no remaining international company-owned stores. There were no customers who accounted for more than 10% of Mrs. Fields' total revenues or either segment's revenues. (5) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION Mrs. Fields' obligation related to its $140,000,000 aggregate principal amount of 10 1/8 percent Series A, B and C Senior Notes due 2004 is fully and unconditionally guaranteed (the "Guarantee") on a senior basis by four of Mrs. Fields' wholly owned subsidiaries. The Guarantee is a general unsecured obligation of The Mrs. Fields' Brand, Inc., Great American Cookies, Inc., Pretzel Time, Inc. and Pretzelmaker Holdings, Inc. (the "Guarantors"), rank senior in right of payment to all subordinated indebtedness of the Guarantors and rank equal in right of payment with all existing and future senior indebtedness of the Guarantors. There are no restrictions on Mrs. Fields' ability to obtain cash dividends or other distributions of funds from the Guarantors, F-48

MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued) (Unaudited) except those imposed by applicable law. The following supplemental financial information sets forth, on a condensed consolidating basis, balance sheets, statements of operations and statements of cash flows for Mrs. Fields' Original Cookies, Inc. (the "Parent Company"), the Guarantor Subsidiaries and the Non- guarantor Subsidiaries (which include Mrs. Fields' Cookies Australia, Mrs. Fields' Cookies (Canada) Ltd., Pretzelmaker Canada, H & M Canada, and Fairfield Foods, Inc. and three partially owned subsidiaries). Mrs. Fields has not presented separate financial statements and other disclosures concerning the Guarantors because management has determined that such information is not material. (6) SUBSEQUENT EVENT On September 1, 1999, the Preferred Shareholders of Pretzel Time, Inc. agreed to extend the payment to retire the preferred stock to January 2000. F-49

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET AS OF JULY 3, 1999 (Unaudited) (dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents.......... $ 2,636 $ 1,892 $ 117 $ -- $ 4,645 Accounts receivable, net.................. 1,558 -- 12 -- 1,570 Amounts due from franchisees and licensees, net....... 996 3,812 -- -- 4,808 Inventories........... 3,957 950 6 -- 4,913 Other current assets and amounts due from (to) affiliates, net.................. 24,017 (18,561) (727) -- 4,729 -------- -------- ----- -------- -------- Total current assets............. 33,164 (11,907) (592) -- 20,665 PROPERTY AND EQUIPMENT, net.................... 27,923 1,462 170 -- 29,555 INTANGIBLES, net........ 80,878 84,865 298 -- 166,041 INVESTMENT IN SUBSIDIARIES........... 64,984 -- -- (64,984) -- OTHER ASSETS............ 2,895 125 32 -- 3,052 -------- -------- ----- -------- -------- $209,844 $ 74,545 $ (92) $(64,984) $219,313 ======== ======== ===== ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations.......... $ 8,105 $ 268 $ -- $ -- $ 8,373 Accounts payable...... 11,724 1,636 (22) -- 13,338 Accrued liabilities... 10,458 1,930 -- -- 12,388 -------- -------- ----- -------- -------- Total current liabilities........ 30,287 3,834 (22) -- 34,099 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion........ 142,539 114 -- -- 142,653 OTHER ACCRUED LIABILITIES............ 8,419 -- -- -- 8,419 MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK.................. -- 1,440 -- -- 1,440 MINORITY INTEREST....... -- -- 4 119 123 STOCKHOLDER'S EQUITY (DEFICIT).............. 28,599 69,157 (74) (65,103) 32,579 -------- -------- ----- -------- -------- $209,844 $ 74,545 $ (92) $(64,984) $219,313 ======== ======== ===== ======== ======== </TABLE> F-50

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE 26 WEEKS ENDED JULY 3, 1999 (Unaudited) (dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> TOTAL REVENUES.......... $ 74,365 $12,764 $104 $(3,068) $ 84,165 -------- ------- ---- ------- -------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs...... 41,634 -- 120 (636) 41,118 Cost of sales......... 19,787 4,463 38 (2,432) 21,856 General and administrative....... 10,819 54 -- -- 10,873 Depreciation and amortization......... 7,967 3,296 -- -- 11,263 -------- ------- ---- ------- -------- Total operating costs and expenses........... 80,207 7,813 158 (3,068) 85,110 -------- ------- ---- ------- -------- (Loss) income from operations......... (5,842) 4,951 (54) -- (945) INTEREST EXPENSE AND OTHER, net............. (8,638) (80) -- -- (8,718) -------- ------- ---- ------- -------- (Loss) income before provision for income taxes and equity in net loss of consolidated subsidiaries......... (14,480) 4,871 (54) -- (9,663) PROVISION FOR INCOME TAXES.................. (210) -- -- -- (210) -------- ------- ---- ------- -------- (Loss) income before preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries......... (14,690) 4,871 (54) -- (9,873) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES........ -- (222) -- -- (222) EQUITY IN NET LOSS OF CONSOLIDATED SUBSIDIARIES........... 4,595 -- -- (4,599) (4) -------- ------- ---- ------- -------- NET (LOSS) INCOME....... $(10,095) $ 4,649 $(54) $(4,599) $(10,099) ======== ======= ==== ======= ======== </TABLE> F-51

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE 26 WEEKS ENDED JULY 3, 1999 (Unaudited) (dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............ $ 1,138 $1,531 $ 39 $-- $ 2,708 ------- ------ ---- ---- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition Expenses............ (100) -- -- -- (100) Purchase of property and equipment, net.. (2,520) (84) -- -- (2,604) ------- ------ ---- ---- ------- Net cash used in investing activities........ (2,620) (84) -- -- (2,704) ------- ------ ---- ---- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long- term debt and capital lease obligations......... (5,291) (621) -- -- (5,912) Payment of debt financing fees...... (1,130) (25) -- -- (1,155) Reduction in preferred stock..... -- (43) -- -- (43) Proceeds from line of credit.............. 7,000 -- -- -- 7,000 ------- ------ ---- ---- ------- Net cash used in financing activities........ 579 (689) -- -- (110) ------- ------ ---- ---- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (903) 758 39 -- (106) CASH AND CASH EQUIVALENTS, beginning of the period......... 3,539 1,134 78 -- 4,751 ------- ------ ---- ---- ------- CASH AND CASH EQUIVALENTS, end of the period............ $ 2,636 $1,892 $117 $-- $ 4,645 ======= ====== ==== ==== ======= </TABLE> F-52

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET AS OF JANUARY 2, 1999 (Unaudited) (dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents.......... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751 Accounts receivable, net.................. 2,860 304 44 -- 3,208 Amounts due from franchisees and licensees, net....... 1,297 4,706 -- -- 6,003 Inventories........... 4,631 863 9 -- 5,503 Other current assets and amounts due from (to) affiliates, net.................. 39,368 (33,898) (592) -- 4,878 --------- -------- ----- -------- -------- Total current assets............. 51,695 (26,891) (461) -- 24,343 PROPERTY AND EQUIPMENT, net.................... 29,900 1,654 243 -- 31,797 INTANGIBLES, net........ 75,875 95,601 320 -- 171,796 INVESTMENT IN SUBSIDIARIES........... 66,484 -- -- (66,484) -- OTHER ASSETS............ 3,688 252 30 -- 3,970 --------- -------- ----- -------- -------- $ 227,642 $ 70,616 $ 132 $(66,484) $231,906 ========= ======== ===== ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations.......... $ 7,141 $ 1,204 $ -- $ -- $ 8,345 Accounts payable...... 14,223 564 69 -- 14,856 Accrued liabilities... 10,956 2,895 18 -- 13,869 --------- -------- ----- -------- -------- Total current liabilities........ 32,320 4,663 87 -- 37,070 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion........ 142,367 216 61 -- 142,644 OTHER ACCRUED LIABILITIES............ 10,134 -- -- -- 10,134 MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK.................. -- 1,261 -- -- 1,261 MINORITY INTEREST....... -- -- -- 119 119 STOCKHOLDER'S EQUITY (DEFICIT).............. 42,821 64,476 (16) (66,603) 40,678 --------- -------- ----- -------- -------- $227,642 $ 70,616 $ 132 $(66,484) $231,906 ========= ======== ===== ======== ======== </TABLE> F-53

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE 26 WEEKS ENDED JULY 4, 1998 (Unaudited) (dollars in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET REVENUES............ $60,370 $ 683 $1,867 $(579) $62,341 ------- ------ ------ ----- ------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs...... 34,309 -- 178 (579) 33,908 Food cost of sales.... 15,142 -- 43 -- 15,185 General and administrative....... 7,261 554 772 -- 8,587 Depreciation and amortization......... 5,331 640 226 -- 6,197 ------- ------ ------ ----- ------- Total operating costs and expenses........... 62,043 1,194 1,219 (579) 63,877 ------- ------ ------ ----- ------- (Loss) income from operations......... (1,673) (511) 648 -- (1,536) INTEREST EXPENSE AND OTHER, net............. (5,372) 14 5 -- (5,353) ------- ------ ------ ----- ------- (Loss) income before provision for income taxes and equity in net loss of consolidated subsidiaries......... (7,045) (497) 653 -- (6,889) PROVISION FOR INCOME TAXES.................. (14) -- -- -- (14) ------- ------ ------ ----- ------- (Loss) income before preferred stock accretion and dividends of subsidiaries and equity in net loss of consolidated subsidiaries......... (7,059) (497) 653 -- (6,903) PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES........ -- -- (222) -- (222) EQUITY IN NET (LOSS) INCOME OF CONSOLIDATED SUBSIDIARIES........... (242) -- (176) 242 (176) ------- ------ ------ ----- ------- NET (LOSS) INCOME....... $(7,301) $ (497) $ 255 $ 242 $(7,301) ======= ====== ====== ===== ======= </TABLE> F-54

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE 26 WEEKS ENDED JULY 4, 1998 (dollars in thousands) (Unaudited) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> NET CASH USED IN OPERATING ACTIVITIES.. $(2,824) $(379) $ (103) $-- $(3,306) ------- ----- ------ ---- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisitions........ (928) -- -- -- (928) Purchase of property and equipment, net.. (3,335) -- (7) -- (3,342) ------- ----- ------ ---- ------- Net cash used in investing activities........ (4,263) -- (7) -- (4,270) ------- ----- ------ ---- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long- term debt and capital lease obligations......... (138) -- (265) -- (403) Reduction in preferred stock..... -- -- (42) -- (42) ------- ----- ------ ---- ------- Net cash used in financing activities........ (138) -- (307) -- (445) ------- ----- ------ ---- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS.. (7,225) (379) (417) -- (8,021) CASH AND CASH EQUIVALENTS, beginning of period............. 14,270 725 1,292 -- 16,287 ------- ----- ------ ---- ------- CASH AND CASH EQUIVALENTS, end of period................ $ 7,045 $ 346 $ 875 $-- $ 8,266 ======= ===== ====== ==== ======= </TABLE> F-55

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Mrs. Fields Inc.: We have audited the accompanying consolidated balance sheet of Mrs. Fields Inc. (a Delaware corporation) and subsidiaries as of September 17, 1996, and the related consolidated statements of operations, stockholders' deficit and cash flows for the period from December 31, 1995 to September 17, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mrs. Fields Inc. and subsidiaries as of September 17, 1996, and the results of their operations and their cash flows for the period from December 31, 1995 to September 17, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Salt Lake City, Utah June 27, 1997 F-56

INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Mrs. Fields Inc. We have audited the accompanying consolidated statements of operations, stockholders' deficit, and cash flows of Mrs. Fields Inc. and subsidiaries for the year ended December 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Mrs. Fields Inc. and subsidiaries for the year ended December 30, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Salt Lake City, Utah February 9, 1996 F-57

MRS. FIELDS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in thousands, except per share data) ASSETS <TABLE> <CAPTION> September 17, 1996 ------------- <S> <C> CURRENT ASSETS: Cash and cash equivalents...................................... $ 1,883 Accounts receivable, net of allowance for doubtful accounts of $269.......................................................... 1,611 Inventories.................................................... 1,296 Prepaid rent................................................... 420 Other prepaid expenses......................................... 1,042 -------- Total current assets......................................... 6,252 -------- PROPERTY AND EQUIPMENT, at cost: Leasehold improvements......................................... 23,223 Equipment and fixtures......................................... 18,422 -------- 41,645 Less accumulated depreciation and amortization................. (29,409) -------- Net property and equipment................................... 12,236 -------- DEPOSITS......................................................... 656 -------- Total assets..................................................... $ 19,144 ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of this balance sheet. F-58

MRS. FIELDS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED) (Dollars in thousands, except per share data) LIABILITIES AND STOCKHOLDERS' DEFICIT <TABLE> <CAPTION> September 17, 1996 ------------- <S> <C> CURRENT LIABILITIES: Notes payable.................................................. $ 18,352 Premium on restructured debt................................... 2,872 Accounts payable............................................... 3,708 Accrued liabilities............................................ 1,329 Current portion of store closure reserve....................... 1,270 Current portion of deferred credits............................ 425 --------- Total current liabilities.................................... 27,956 STORE CLOSURE RESERVE, net of current portion.................... 294 DEFERRED CREDITS, net of current portion......................... 1,212 --------- Total liabilities............................................ 29,462 --------- COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 8) MINORITY INTEREST IN MAJORITY OWNED SUBSIDIARY: 20,000,000 cumulative preferred stock; involuntary liquidation preference of $24,834, including $4,834 of unrecorded dividends in arrears.......................................... 20,000 --------- STOCKHOLDERS' DEFICIT: Cumulative preferred stock, $.001 par value; 21,885,000 shares authorized and issued, involuntary liquidation preference of $32,085, including $10,200 of unrecorded dividends in arrears....................................................... 22 Common stock, $.001 par value; 200,000,000 shares authorized and outstanding............................................... 200 Additional paid-in capital..................................... 83,863 Accumulated deficit............................................ (114,371) Cumulative translation adjustment.............................. (32) --------- Total stockholders' deficit.................................. (30,318) --------- Total liabilities and stockholders' deficit.................. $ 19,144 ========= </TABLE> The accompanying notes to consolidated financial statements are an integral part of this balance sheet F-59

MRS. FIELDS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands) <TABLE> <CAPTION> Year Ended Period Ended December 30, September 17, 1995 1996 ------------ ------------- <S> <C> <C> REVENUES: Net store sales.................................... $59,956 $29,674 Net franchising.................................... 1,870 1,793 Net licensing...................................... 2,031 892 Net other.......................................... 2,092 1,101 ------- ------- Total revenues................................... 65,949 33,460 ------- ------- OPERATING COSTS AND EXPENSES: Selling and store occupancy costs.................. 36,965 17,782 Food cost of sales................................. 13,373 6,525 General and administrative......................... 12,612 7,984 Depreciation and amortization...................... 3,525 1,911 Provision for store closure costs.................. 3,000 1,000 ------- ------- Total operating costs and expenses............... 69,475 35,202 ------- ------- Loss from operations............................. (3,526) (1,742) INTEREST EXPENSE..................................... (51) (80) (LOSS) GAIN ON SALE OF ASSETS........................ 1,450 (277) ------- ------- Loss before provision for income taxes........... (2,127) (2,099) PROVISION FOR INCOME TAXES........................... (241) (205) ------- ------- Net loss......................................... $(2,368) $(2,304) ======= ======= </TABLE> The accompany notes to consolidated financial statements are an integral part of these statements. F-60

MRS. FIELDS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Dollars in Thousands) <TABLE> <CAPTION> Cumulative Preferred Stock Common Stock Additional Cumulative ----------------- ------------------ Paid-in Accumulated Translation Shares Amount Shares Amount Capital Deficit Adjustment Total ---------- ------ ----------- ------ ---------- ----------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> BALANCE, January 1, 1995................... 21,885,000 $22 200,000,000 $200 $83,863 $(109,699) $195 $(25,419) Foreign currency translation adjustment............ -- -- -- -- -- -- (230) (230) Net loss............... -- -- -- -- -- (2,368) -- (2,368) ---------- --- ----------- ---- ------- --------- ---- -------- BALANCE, December 30, 1995................... 21,885,000 22 200,000,000 200 83,863 (112,067) (35) (28,017) Foreign currency translation adjustment............ -- -- -- -- -- -- 3 3 Net loss............... -- -- -- -- -- (2,304) -- (2,304) ---------- --- ----------- ---- ------- --------- ---- -------- BALANCE, September 17, 1996................... 21,885,000 $22 200,000,000 $200 $83,863 $(114,371) $(32) $(30,318) ========== === =========== ==== ======= ========= ==== ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. F-61

MRS. FIELDS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS <TABLE> <CAPTION> Year Ended Period Ended December 30, September 17, 1995 1996 ------------ ------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.......................................... $(2,368) $(2,304) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................... 3,525 1,911 Amortization of premium on restructured debt.... -- (1,541) In-kind expense on note payable................. (1,610) 1,598 Provision for store closure costs............... 3,000 1,000 Net loss (gain) on asset sales, disposals and store closures................................. (1,450) 277 Changes in assets and liabilities: (Increase) Decrease in accounts receivable.... (163) 2,039 Decrease in inventories....................... 853 267 Increase in prepaid rent...................... -- (420) Increase in other prepaid expenses............ (337) (673) Increase in deposits.......................... -- (15) Decrease in accounts payable and accrued liabilities.................................. (5,821) (194) Decrease in store closure reserve............. -- (1,696) Decrease in deferred credits.................. (107) (696) ------- ------- Net cash used in operating activities....... (4,478) (447) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment................ (4,146) (1,054) Proceeds from the sale of assets.................. 6,672 669 ------- ------- Net cash provided by (used in) investing activities................................. 2,526 (385) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable............... (145) (58) Payments for debt restructuring................... (40) -- ------- ------- Net cash used in financing activities....... (185) (58) ------- ------- EFFECT OF FOREIGN EXCHANGE RATES.................... -- 3 ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS........... (2,137) (887) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD............................................. 4,907 2,770 ------- ------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD...... $ 2,770 $ 1,883 ======= ======= </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. F-62

MRS. FIELDS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) (Dollars in Thousands) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Supplemental Disclosure of Cash Flow Information: Cash paid for interest was approximately $1,661 and $24 for the year ended December 30, 1995 and for the period ended September 17, 1996, respectively. Cash paid for income taxes was approximately $128 and $39 for the year ended December 30, 1995 and for the period ended September 17, 1996, respectively. Supplemental Disclosure of Noncash Investing and Financing Activities: During the year ended December 30, 1995 and the period ended September 17, 1996, the Company, in accordance with the Amended and Restated Restructuring Agreement, entered into the following noncash financing activities: . The Company converted accrued interest payable incurred from January 1, 1995 through March 31, 1995 and from July 1, 1994 through December 31, 1994 into approximately $520 and $1,000 of Series A interest deferral notes, respectively. In addition, the Company amortized approximately $2,100 of its premium on restructured debt as a reduction to interest expense during the year ended December 30, 1995. . The Company converted accrued interest payable from December 31, 1995 through September 17, 1996 into $1,598 of 15 percent interest bearing Series A interest deferral notes. During the year ended December 30, 1995 and for the period ended September 17, 1996, the Company entered into the following noncash investing and financing activities: . In accordance with the Company's franchise financing arrangement, the Company assumed long-term debt of franchisees which was in default totaling approximately $132 and $0 during the year ended December 30, 1995 and the period ended September 17, 1996, respectively. . In connection with its sale of several cookie stores, the Company accepted notes receivable in the approximate amount of $305 during the year ended December 30, 1995. In addition, during the year ended December 30, 1995 and the period ended September 17, 1996, the Company charged off approximately $1,960 and $651 of assets against accrued expenses. The accompanying notes to consolidated financial statements are an integral part of these statements. F-63

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS Mrs. Fields Inc. ("MFI"), a Delaware corporation, was incorporated on May 2, 1986 and is a holding company for its wholly owned subsidiaries Mrs. Fields Cookies Australia, Mrs. Fields Cookies, Ltd. (Canada) plus other inactive subsidiaries (collectively termed "Mrs. Fields International") and its majority owned subsidiary, Mrs. Fields Development Corporation ("MFD") and MFD's wholly owned subsidiary, Mrs. Fields Cookies ("MFC"). Collectively, these entities are referred to in this prospectus as the "Company". Nature of Operations The most significant part of the Company's operations are its retail stores which sell freshly baked cookies, brownies and other food products. As of September 17, 1996, the Company operates 147 "Mrs. Fields Cookies" stores all of which are located in the United States. Additionally, the Company has franchised approximately 163 stores in the United States and approximately 55 stores in nine other countries. Additionally, the Company holds legal title to certain trademarks for the "Mrs. Fields" name and logo, and licenses the use of these trademarks to third parties for the establishment and operation of Mrs. Fields cookie and bakery operations and other merchandising activities. In connection with these licensing activities, the Company authorizes third-party licensees to use certain business formats, systems, methods, procedures, designs, layouts, specifications, trade names and trademarks in the United States and other countries. The Company's business follows seasonal trends and is also affected by climate and weather conditions. The Company usually experiences its highest revenues in the fourth calendar quarter. Because the Company's stores are heavily concentrated in shopping malls, the Company's sales performance is somewhat dependent on the performance of those malls. The results for the period ended September 17, 1996 presented in the accompanying consolidated financial statements may not be indicative of results that would have been achieved for an entire calendar year. Effective September 18, 1996, the Company sold substantially all of its net assets to Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc. (see Note 11). Subsequently, the Company has been solely involved in liquidating remaining assets and collecting certain outstanding notes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The Company operates using a 52/53-week year ending near December 31. Principles of Consolidation The consolidated financial statements include the accounts of MFI, Mrs. Fields International, MFD and MFC. All significant intercompany balances and transactions have been eliminated in consolidation. Sources of Supply The Company currently buys a significant amount of its food products from three suppliers. Management believes that other suppliers could provide similar products with comparable terms. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and F-64

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of September 17, 1996 and at various times during the period then ended, the Company had demand deposits at various banks in excess of the $100,000 limit for insurance by the Federal Deposit Insurance Corporation. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market value. Inventory consisted of the following at September 17, 1996: <TABLE> <CAPTION> 1996 ---------- <S> <C> Food and beverages............................................. $ 792,000 Smallwares..................................................... 504,000 ---------- $1,296,000 ========== </TABLE> Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment, fixtures and leasehold improvements are depreciated or amortized over three to seven years using the straight-line method. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs and renewal costs are expensed as incurred. Gains or losses from the sale or retirement of property and equipment are included in the determination of net income or loss. Accounting for the Impairment of Long-Lived Assets The Company accounts for impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events and circumstances have occurred that indicate possible impairment. In accordance with SFAS No. 121, the Company uses an estimate of future undiscounted net cash flows of the related asset over the remaining life in measuring whether the assets are recoverable. As of September 17, 1996, the Company has reserved for any of its long-lived assets that are considered to be impaired. Revenue Recognition The Company recognizes franchising and licensing revenues on an accrual basis as those revenues are earned. Product sales are recognized as the product is delivered or shipped to the customer. F-65

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Leases The Company has various operating lease commitments on both Company-owned and franchised store locations and equipment. Operating leases with escalating payment terms, including leases underlying subleases with franchisees, are expensed on a straight-line basis over the life of the related lease. Income Taxes The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial and income tax bases of assets and liabilities using enacted tax rates expected to apply when differences are expected to be settled or realized. Fair Value of Financial Instruments The notes payable and cumulative preferred stock (see Note 6) are presented in the accompanying consolidated balance sheet at a total of $60,237,000 as of September 17, 1996. All such obligations were subsequently settled in two sales transactions (see Note 11) for $41,800,000. Cumulative Foreign Currency Translation Adjustment The assets and liabilities of foreign operations are translated into United States dollars using exchange rates in effect at the end of the accounting period. Revenues and expenses are translated using the average exchange rate during the period. Differences in exchange rates arising from foreign currency translation are recorded as a separate component of stockholders' deficit. In connection with a sale or liquidation of an investment in a foreign subsidiary, the accumulated translation adjustment attributable to that subsidiary is transferred from stockholders' deficit and is reported as a gain or loss. 3. NOTES PAYABLE On June 30, 1994, the Company entered into the Amended and Restated Restructuring Agreement (the "Restructuring Agreement") with its lenders of long-term debt (the "Lenders"). In connection with the Restructuring Agreement, the Lenders exchanged approximately $56,900,000 of existing long-term notes payable for $15,000,000 of new Series A secured notes, 51,292,000 shares of the Company's common stock, 21,885,000 shares of cumulative preferred stock of MFI and 20,000,000 shares of cumulative preferred stock of MFD. After the issuances of common stock, the Lenders' total ownership interest in the Company's common stock was approximately 85 percent. Because the total estimated future cash payments (including interest and principal) required as of June 30, 1994 under the terms of the new Series A secured notes was less than the principal amount plus the previous carrying amount of the unamortized premium on restructured debt by approximately $25,200,000, the Company reduced the premium on restructured debt by that amount. The remaining unamortized premium on restructured debt is being amortized over the life of the Series A secured notes to produce an effective interest rate of zero percent. F-66

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Notes payable consist of the following as of September 17, 1996: <TABLE> <CAPTION> 1996 ------------ <S> <C> Series A secured notes, interest at 13 percent, payable quarterly, secured by all common stock and essentially all assets of the Company, principal due in varying installments through March 31, 1998...................................... $ 15,000,000 Series A interest deferral notes, interest at 13 percent, payable quarterly, secured by all common stock and essentially all assets of the Company, principal due March 31, 1998.................................................... 1,511,000 Series A interest deferral notes, interest at 15 percent, secured by all common stock and essentially all assets of the Company, principal and interest originally due August 15, 1996, subsequently extended through September 20, 1996.. 1,598,000 Other........................................................ 243,000 Premium on restructured debt................................. 2,872,000 21,224,000 Less current portion......................................... (21,224,000) ------------ $ -- ============ </TABLE> The Series A secured notes and the Series A interest deferral notes were paid by the Company on September 20, 1996 in connection with the receipt of proceeds from two simultaneous but separate asset sale transactions (see Note 11). As a result, all of the Series A notes referred to above are reflected as current liabilities in the accompanying September 17, 1996 consolidated balance sheet. 4. INCOME TAXES The components of the provision (benefit) for income taxes for the year ended December 30, 1995 and for the period ended September 17, 1996 are as follows: <TABLE> <CAPTION> 1995 1996 -------- ----------- <S> <C> <C> Current: Federal.............................................. $ -- $ -- State................................................ 241,000 205,000 Deferred: Federal.............................................. -- (1,125,000) State................................................ -- (109,000) Change in valuation allowance........................ -- 1,234,000 -------- ----------- Total provision for income taxes................... $241,000 $ 205,000 ======== =========== </TABLE> The Company incurred financial reporting losses for the year ended December 30, 1995 and for the period ended September 17, 1996 for which no benefits have been recorded in the accompanying consolidated statements of operations due to appropriate valuation allowances being provided. The provisions for income taxes are solely related to minimum state income tax requirements. Current deferred income tax assets relate to temporary differences between financial statement and income tax recognition of bad debts, unearned revenues, and the store closure reserve. Long-term deferred income tax assets relate to temporary differences between financial statement and income tax recognition of depreciation and write-downs of certain property and equipment, net operating losses and other income tax credit carryforwards. F-67

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Management has provided a valuation allowance equal to the amount of the deferred income tax assets arising from the Company's net operating loss carryforwards. As of September 17, 1996, the Company had net operating loss carryforwards for tax reporting purposes totaling approximately $90,900,000. These net operating loss carryforwards expire as follows: <TABLE> <CAPTION> Fiscal Year ----------- <S> <C> 2001......................................................... $ 214,000 2002......................................................... 4,600,000 2003......................................................... 19,993,000 2004......................................................... 7,693,000 2005......................................................... 9,143,000 Thereafter (through 2011).................................... 49,257,000 ----------- $90,900,000 =========== </TABLE> Subsequent to the sale of substantially all of its assets (see Note 1), the Company utilized certain of its net operating loss carryforwards to offset the related gain. The remainder of the net operating loss carryforwards may not be used. 5. STORE CLOSURE RESERVE As of December 30, 1995, the Company had a store closure reserve of approximately $2,510,000 for the anticipated costs to franchise or close 26 stores during 1996. During the period from December 31, 1995 to September 17, 1996, the Company closed 12 stores and provided for additional store closure expenses totaling $1,000,000. As of September 17, 1996, the remaining store closure reserve totaled approximately $1,564,000, of which approximately $1,270,000 is current and approximately $294,000 is long-term. In management's opinion, the store closure reserve is adequate for stores identified to be closed. The Company's management reviews the historic and projected operating performance of its stores on an annual basis to identify underperforming stores for impairment of property investment or targeted closing. The Company's policy is to write-off any net property investment for underperforming stores identified to have permanent impairment of investment. When a store is identified for targeted closing, the Company's policy is to provide for the costs of closing the store, which are predominantly estimated lease settlement costs. 6. CUMULATIVE PREFERRED STOCK In connection with the Restructuring Agreement, the Company issued 21,885,000 and 20,000,000 shares of cumulative preferred stock of MFI and MFD, respectively. The MFD preferred stock is reflected as "minority interest in majority owned subsidiary" in the accompanying consolidated balance sheet. The MFI and MFD cumulative preferred stocks have dividend rates of 18 percent and 10 percent, respectively, which accumulate on a semi-annual basis. The dividends are computed based upon the liquidation preference rates which are defined in the Restructuring Agreement as $1.00 per share plus any unrecorded dividends in arrears for each issue and are payable only as declared by the Board of Directors. As of September 17, 1996, the Board of Directors had not declared dividends for either series of preferred stock. Accordingly, dividends in arrears on the MFI and MFD preferred stocks which have not been recorded in the accompanying consolidated financial statements as of September 17, 1996 totaled $10,200,000 and $4,834,000, respectively. In the event of liquidation or dissolution of the Company, the holders of the cumulative preferred stocks of MFI and MFD will be entitled to receive from the assets of the Company available for distribution prior to any distribution to common stockholders an amount per share equal to the sum of (i) $1.00 for each outstanding F-68

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) preferred share and (ii) an amount equal to all unpaid dividends on such preferred shares through the distribution date. As of September 17, 1996, the distribution preference for the MFI and MFD preferred stockholders totaled $32,085,000 and $24,834,000, respectively. Also, if a change in control of the Company occurs, preferred stockholders shall have the right to convert all (but not less than all) of their preferred shares into notes payable in an amount equal to the liquidation preference value of their preferred shares. The Company also has the right at any time to redeem shares of the MFI and MFD preferred stocks at a price of $1.00 per share plus all accrued but unpaid dividends through the date of redemption. Subsequent to period end, the Company completed two sales transactions (see Note 11) wherein all of the cumulative preferred stock was redeemed at a discount. 7. OPTION AGREEMENT As part of the Restructuring Agreement, the Lenders granted two directors an option to acquire common stock from the Lenders which, if the option was exercised as of September 17, 1996, would constitute approximately 51 percent of the Company's issued common stock. The option is exercisable through September 30, 1999 in whole, but not in part, at a price approximating the amount of debt forgiven by the Lenders plus interest at nine percent from the date of the grant of the option. In the event the option is exercised, the directors are also required to offer other minority stockholders the same price per share for their common stock. In connection with the two sales transactions described in Note 11, the two directors waived their options to acquire common stock from the Lenders. 8. COMMITMENTS AND CONTINGENCIES Legal Matters The Company is the subject of certain legal actions, which it considers routine to its business activities. As of September 17, 1996, management, after consultation with legal counsel, believes that the potential liability to the Company under such actions is adequately accrued or insured for, or will not materially affect the Company's consolidated financial position or results of operations. Operating Leases The Company leases retail store facilities, office space and equipment under long-term noncancelable operating lease agreements with remaining terms of one to 10 years. The future minimum lease payments due under these operating leases, which include required lease payments for those stores that have been subleased, as of September 17, 1996 are as follows: <TABLE> <CAPTION> Fiscal Year ----------- <S> <C> 1997.......................................................... $12,395,000 1998.......................................................... 10,684,000 1999.......................................................... 8,376,000 2000.......................................................... 5,737,000 2001.......................................................... 3,757,000 Thereafter.................................................... 4,855,000 ----------- $45,804,000 =========== </TABLE> Certain of the leases provide for contingent rentals based on gross revenues. Total rental expense including contingent rentals and net of sublease rentals received, under the above operating leases for the year ended F-69

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 30, 1995 and for the period ended September 17, 1996 was approximately $13,697,000 and $7,405,000, respectively. As part of the Company's franchising program, certain leases have been subleased to franchisees. The future minimum sublease payments due to the Company under these leases as of September 17, 1996 are as follows: <TABLE> <CAPTION> Fiscal Year ----------- <S> <C> 1997.......................................................... $ 3,741,000 1998.......................................................... 3,119,000 1999.......................................................... 2,512,000 2000.......................................................... 1,776,000 2001.......................................................... 1,038,000 Thereafter.................................................... 374,000 ----------- $12,560,000 =========== </TABLE> Contractual Arrangements The Company has entered into a supply agreement to buy frozen dough products through 1998. The agreement stipulates minimum annual purchase commitments for 1997 and 1998. The Company and the supplier may terminate the supply agreement if the other party defaults on any of the performance covenants. The Company has assumed an agreement with a third-party lender to provide financing to franchisees for the purchase of existing Company stores. Under the terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender by franchisees of which the Company has agreed to guarantee a maximum of $2,000,000. Outstanding franchisee borrowings guaranteed by the Company under this agreement at September 17, 1996 were approximately $707,400. Under the terms of the agreement, the Company is required to assume any franchisee borrowings which are in default as defined. As of September 17, 1996, the Company has assumed loans totaling approximately $240,000, which are included in notes payable. As of December 30, 1995, the Company had recorded deferred credits, representing vendor rebates, of approximately $1,486,000 under a long-term marketing and supply agreement with a supplier. Under the terms of the agreement, the Company was obligated to purchase a minimum amount of product from the supplier. The supplier periodically prepays rebates to the Company for anticipated purchases. The Company records the prepayments as deferred credits and amortizes them ratably as purchases are made from the supplier. In April 1996, the Company and the supplier renegotiated the agreement whereby the supplier would reduce the unearned portion of the deferred credits to $504,000 and advance the Company a rebate of $800,000 in exchange for an extension of the termination date and a modification of the purchase commitment. The termination date of the renegotiated agreement will be the later of March 31, 2001 or when the Company has met its purchase commitment. The Company reduced food costs by approximately $1,082,000 during the period ended September 17, 1996 related to this arrangement and its renegotiation. The remaining balance of approximately $1,204,000 is included in deferred credits as of September 17, 1996. 9. RELATED-PARTY TRANSACTIONS Under the terms of a licensing agreement with an entity which is owned in part by a former director of the Company, the Company is required to pay an annual software maintenance fee. During the year ended December 30, 1995 and for the period ended September 17, 1996, the Company paid maintenance fees of approximately $100,000 and $17,000, respectively, which are included in general and administrative expenses. F-70

MRS. FIELDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company leases certain office space to an entity which is owned in part by a former director of the Company. Billings to the entity during the year ended December 30, 1995 and the period ended September 17, 1996 totaled approximately $152,000 and $136,000, respectively, of which approximately $9,000 is included in accounts receivable as of September 17, 1996. 10. EMPLOYEE BENEFIT PLAN The Company sponsors the Mrs. Fields 401(k) Plan (the "Plan") for all eligible employees. Under the terms of the Plan, employees can make contributions to the Plan, a portion of which is matched by contributions from the Company. The total Company contributions to the Plan for the year ended December 30, 1995 and for the period ended September 17, 1996 were approximately $42,000 and $23,000, respectively. 11. SUBSEQUENT EVENT On September 17, 1996, the Company completed two simultaneous but separate asset sale transactions wherein the Company (i) sold certain assets and relinquished certain liabilities of the Company in accordance with an Asset Purchase Agreement dated August 7, 1996, among the Company, Mrs. Fields' Original Cookies, Inc. and Capricorn Investors II, L.P., and (ii) sold certain assets of the Company in accordance with an Asset Purchase Agreement dated August 7, 1996, as amended by the First Amendment dated as of September 17, 1996, among the Company, The Mrs. Fields' Brand, Inc. and Capricorn Investors II, L.P. The combined sales price for the net assets sold was approximately $41,800,000. The Company received approximately $12,157,000 in cash and approximately $29,643,000 in senior and subordinated notes. The proceeds from these net asset sales were used in part to repay the Series A notes and the Series A interest deferral notes on September 20, 1996 (see Note 3). F-71

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Original Cookie Company, Incorporated and Hot Sam Company, Inc.: We have audited the accompanying combined balance sheet of The Original Cookie Company, Incorporated and the carved-out portion of Hot Sam Company, Inc., both Delaware corporations (subsidiaries of Chocamerican, Inc.), as of September 17, 1996, and the related combined statements of operations, stockholders' equity and cash flows for the year ended December 30, 1995, and for the period December 31, 1995 to September 17, 1996. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of The Original Cookie Company, Incorporated and the carved-out portion of Hot Sam Company, Inc. as of September 17, 1996, and the results of their operations and their cash flows for the year ended December 30, 1995, and for the period December 31, 1995 to September 17, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP Cleveland, Ohio July 11, 1997 F-72

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. COMBINED BALANCE SHEET (Dollars in Thousands) <TABLE> <CAPTION> September 17, 1996 ------------- <S> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents..................................... $ 655 Accounts receivable........................................... 340 Inventories................................................... 1,728 Prepaids and other............................................ 984 -------- Total current assets........................................ 3,707 -------- PROPERTY AND EQUIPMENT, at cost: Leasehold improvements........................................ 31,329 Furniture and fixtures........................................ 7,719 Buildings and improvements.................................... 639 Land.......................................................... 69 -------- 39,756 Accumulated depreciation and amortization..................... (22,687) -------- Net property and equipment.................................. 17,069 -------- OTHER ASSETS, net............................................... 256 -------- COST IN EXCESS OF FAIR VALUE OF NET ASSETS OF PURCHASED BUSINESS, net of accumulated amortization of $9,092............ 37,992 -------- $ 59,024 ======== </TABLE> The accompanying notes to combined financial statements are an integral part of this combined balance sheet. F-73

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. COMBINED BALANCE SHEET (CONTINUED) (Dollars in Thousands) <TABLE> <CAPTION> September 17, 1996 ------------- <S> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................................ $ 1,696 Accrued payroll and related expenses............................ 2,208 Accrued liabilities............................................. 3,443 ------- Total current liabilities..................................... 7,347 ------- LONG-TERM LIABILITIES: Deferred lease credit........................................... 1,653 Store closure reserve........................................... 1,002 Related-party notes payable..................................... 30,977 Other........................................................... 1,102 ------- Total long-term liabilities................................... 34,734 ------- COMMITMENTS (NOTE 9) STOCKHOLDERS' EQUITY: Common stock.................................................... 10,000 Additional paid-in capital...................................... 15,873 Accumulated deficit............................................. (8,930) ------- Total stockholders' equity.................................... 16,943 ------- Total liabilities and stockholders' equity.................... $59,024 ======= </TABLE> The accompanying notes to combined financial statements are an integral part of this combined balance sheet. F-74

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) <TABLE> <CAPTION> December 31, Year Ended 1995 to December 30, September 17, 1995 1996 ------------ ------------- <S> <C> <C> NET SALES............................................ $85,581 $54,366 ------- ------- OPERATING COSTS AND EXPENSES: Food cost of sales................................. 19,996 12,728 Selling and occupancy expenses..................... 47,032 31,935 General and administrative expenses................ 8,425 5,538 Severance and related expenses..................... -- 2,000 Depreciation and amortization...................... 6,902 4,937 Provision for store closure costs.................. 791 -- ------- ------- Total operating costs and expenses............... 83,146 57,138 ------- ------- INCOME (LOSS) FROM OPERATIONS........................ 2,435 (2,772) INTEREST EXPENSE, net................................ (4,268) (2,828) OTHER EXPENSE........................................ -- (45) ------- ------- LOSS BEFORE INCOME TAXES............................. (1,833) (5,645) PROVISION FOR INCOME TAXES........................... 263 -- ------- ------- NET LOSS............................................. $(2,096) $(5,645) ======= ======= </TABLE> The accompanying notes to combined financial statements are an integral part of these combined statements. F-75

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands) <TABLE> <CAPTION> Additional Retained Total Common Paid-in Earnings Stockholders' Stock Capital (Deficit) Equity ------- ---------- --------- ------------- <S> <C> <C> <C> <C> BALANCE, JANUARY 1, 1995............ $10,000 $15,873 $(1,189) $24,684 Net loss.......................... -- -- (2,096) (2,096) ------- ------- ------- ------- BALANCE, DECEMBER 30, 1995.......... 10,000 15,873 (3,285) 22,588 Net loss.......................... -- -- (5,645) (5,645) ------- ------- ------- ------- BALANCE, SEPTEMBER 17, 1996......... $10,000 $15,873 $(8,930) $16,943 ======= ======= ======= ======= </TABLE> The accompanying notes to combined financial statements are an integral part of these combined statements. F-76

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) <TABLE> <CAPTION> December 31, Year Ended 1995 to December 30, September 17, 1995 1996 ------------ ------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................... $(2,096) $(5,645) Adjustments to reconcile net loss to net cash provided by (used in) operating activities-- Depreciation and amortization...................... 6,902 4,937 Changes in assets and liabilities-- Increase in accounts receivable.................. (61) (279) Decrease (increase) in related-party receivables/payables............................ 18 (169) Decrease (increase) in inventories............... 461 (65) Decrease in prepaids and other................... 695 967 Decrease (increase) in other assets.............. 64 (60) (Decrease) increase in accounts payable.......... (476) 410 Decrease in accrued payroll and related expenses........................................ (331) (384) Increase (decrease) in accrued liabilities....... (1,196) 330 Increase in other long-term liabilities.......... 231 73 Increase (decrease) in deferred lease credit..... 38 (111) Increase (decrease) in store closure reserve..... 202 (382) ------- ------- Net cash provided by (used in) operating activities.................................... 4,451 (378) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net........... (568) (1,200) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments to related party........................ (4,599) (1,380) ------- ------- CASH AND CASH EQUIVALENTS: Net decrease during the period..................... (716) (2,958) Balance, beginning of the period................... 4,329 3,613 ------- ------- Balance, end of the period......................... $ 3,613 $ 655 ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: State and local income taxes paid.................. $ 234 $ 82 ======= ======= </TABLE> The accompanying notes to combined financial statements are an integral part of these combined statements. F-77

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS The Original Cookie Company, Incorporated ("OCCI") and Hot Sam Company, Inc. ("HSCI") (collectively, the "Companies") are wholly owned subsidiaries of Chocamerican, Inc., which is a wholly owned subsidiary of Midial S.A., a French company (collectively, the "Parent"). The Companies operated specialty retailing outlets providing prepared goods. OCCI operated approximately 240 stores in over 35 states, offering a variety of fresh baked cookies and brownies and beverages. HSCI operated approximately 190 stores in over 30 states providing a variety of fresh baked pretzels and pretzel sticks, toppings and beverages. On September 17, 1996, all of the operations of the Companies including certain assets and liabilities were sold to a nonrelated party (the "Buyer") who assumed responsibility for all retail locations as of that date. Except for approximately $2,000,000 of payments to employees for severance and related costs which is included in the operating results for the period December 31, 1995 to September 17, 1996, these combined financial statements do not reflect any effect of such sale. The Companies traditionally experienced their highest revenues in the fourth calendar quarter. Because the Companies' stores were heavily concentrated in shopping malls, the Companies' sales performance was somewhat dependent on the performance of those malls. Because of such seasonality and the extra payroll costs noted above, the results for the period December 31, 1995 to September 17, 1996 are not necessarily indicative of results that would have been achieved for an entire calendar year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The Companies' fiscal year ends on the Saturday closest to December 31, which results in a 52 or 53-week year. Basis of Presentation The combined financial statements include the accounts of OCCI and HSCI except that these statements do not reflect the results of the operations and the related assets and liabilities of a group of retail food locations owned and operated by HSCI primarily under the name of Corn Dog. The Corn Dog operations were sold to a nonrelated entity in April 1996 and the accompanying combined financial statements exclude these operations and net assets, as well as the results of the sale. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-78

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Inventories The Companies' inventories were stated at the lower of cost (first-in, first- out method) or market value. Inventories consisted of the following at September 17, 1996: <TABLE> <CAPTION> 1996 ---------- <S> <C> Food and beverages................................................ $1,215,000 Small wares....................................................... 513,000 ---------- $1,728,000 ========== </TABLE> Property and Equipment The Companies' policy is to provide depreciation using the straight-line method over a period which is sufficient to amortize the cost of the asset during its useful life. The estimated useful lives for depreciation purposes are: <TABLE> <S> <C> Leasehold improvements........................................ 5 to 10 years Furniture and fixtures........................................ 3 to 10 years Buildings and improvements.................................... 10 to 50 years </TABLE> Intangible Assets Cost in excess of fair value of net assets of purchased business which was recorded as part of the acquisition of the Companies by the Parent was amortized on a straight-line basis over 40 years. Management evaluated the expected cash flows of such assets periodically and determined no adjustments were appropriate. Subsequent to September 17, 1996, the Companies expensed all such intangibles in connection with recording the effects of the sales of the operations. Cash and Cash Equivalents For purposes of the statements of cash flows, the Companies consider all temporary cash investments purchased with an original maturity of three months or less to be cash equivalents. Leases The Companies have various operating lease commitments on their retail store locations. Operating leases with escalating payment terms are expensed on a straight-line basis over the life of the related lease. Asset Impairment The Companies adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" for the period December 31, 1995 to September 17, 1996. SFAS No. 121 requires the Companies to evaluate the recoverability of long-lived assets based on expected future cash flows. Prior to the adoption of SFAS No. 121, the Companies accounted for long-lived operating assets as discussed both above and in Note 6. The adoption of this standard did not have a material impact on the Companies' financial position or results of operations. Revenue Recognition Revenues from product sales are recognized at the point of sale to the customer. F-79

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Income Taxes The Companies recognize deferred income tax assets or liabilities for expected future income tax consequences of events that have been recognized in the financial statements or income tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial and income tax bases of assets and liabilities using enacted tax rates expected to apply when differences are expected to be settled or realized. 3. STOCKHOLDERS' EQUITY The Companies' common stock at December 30, 1995 and September 17, 1996 is comprised of the following: OCCI has common stock with a par value $1 per share, 10,000,000 shares authorized, issued and outstanding. HSCI has common stock with a par value $1 per share, 10 shares authorized, issued and outstanding. 4. RELATED-PARTY NOTES PAYABLE In addition to debt incurred as part of the purchase by the Parent, the Companies' cash requirements were provided for by the Parent. These amounts were evidenced by notes, bearing interest rates ranging from 8% to 12%, and consisted of $30,977,000 as of September 17, 1996. The notes were paid in part by the Companies subsequent to September 17, 1996 in connection with the receipt of proceeds from the sale of certain assets and liabilities to the Buyer. 5. INCOME TAXES The Companies have been included in the consolidated income tax returns of a subsidiary of the Parent which was in a cumulative loss carryforward position during all of the periods presented in the accompanying combined financial statements. The Companies incurred financial reporting losses for the year ended December 30, 1995 and the period December 31, 1995 to September 17, 1996 for which no benefits have been recorded in the accompanying combined statements of operations due to appropriate valuation allowances being provided. The provisions for income taxes are solely related to minimum state income tax requirements. Deferred income tax assets relate to temporary differences between financial statement and income tax recognition of depreciation, store closure reserve and other accrued liabilities. Management has provided a valuation allowance equal to the amount of the deferred income tax assets. 6. STORE CLOSURE RESERVE The Companies annually reviewed the historic and projected operating performance of their stores and identified underperforming stores for impairment of property investment and/or targeted closing. The Companies' policy was to write-off any net property investment for underperforming stores identified to have permanent impairment of investment. Additionally, when a store was identified for targeted closing, the Companies' policy was to provide for the costs of closing the store, which are predominantly estimated lease settlement costs and/or estimated lease payments after the date of the store closing. F-80

THE ORIGINAL COOKIE COMPANY, INCORPORATED AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) An analysis of the activity in the store closure reserve is as follows for the year ended December 30, 1995 and for the period December 31, 1995 to September 17, 1996: <TABLE> <CAPTION> 1995 1996 ---------- ---------- <S> <C> <C> Beginning Balance.................................... $1,182,000 $1,384,000 Provision............................................ 791,000 -- Payments and Other Deductions........................ (589,000) (382,000) ---------- ---------- Ending Balance....................................... $1,384,000 $1,002,000 ========== ========== </TABLE> 7. EMPLOYEE BENEFIT PLANS The Companies' employees participate in a defined contribution saving plan which was funded by voluntary employee contributions and by contributions from the Companies. The Companies' expense for the year ended December 30, 1995, and for the period December 31, 1995 to September 17, 1996 was $143,000 and $106,000, respectively. The Companies do not provide for any other post-retirement benefits. 8. RELATED-PARTY TRANSACTIONS The Parent provides certain services to the Companies, such as human resources, accounting and legal, among others. Charges to the Companies for such administrative services totaled $520,000 for the year ended December 30, 1995 and $175,000 for the period December 31, 1995 to September 17, 1996. In management's opinion, these charges approximate the fair market value of such services. 9. COMMITMENTS Operating Leases The Companies leased all of their retail store locations. These leases typically had initial terms of up to 10 years. Certain leases provided for contingent rentals based on store sales. Generally, the Companies were required to pay taxes and normal expenses of operating the premises under retail store leases. Total rental expense was approximately $15,038,000 for the year ended December 30, 1995. Total rental expense for the period ended September 17, 1996 was approximately $11,165,000. The minimum rentals under operating leases subsequent to September 17, 1996 are as follows: <TABLE> <CAPTION> Fiscal Year ----------- <S> <C> Remaining 1996................................................... $ 5,346,000 1997............................................................. 15,886,000 1998............................................................. 13,763,000 1999............................................................. 11,691,000 2000............................................................. 9,712,000 Thereafter....................................................... 20,190,000 ----------- $76,588,000 =========== </TABLE> Effective September 17, 1996, the Buyer assumed responsibility for all open store leases but the Companies remain contingently liable under certain of these leases. However, management is not aware of any actual or threatened claims under these leases. F-81

REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cookies USA, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' deficit, and of cash flows present fairly, in all material respects, the financial position of Cookies USA, Inc. and its subsidiary at June 29, 1997 and June 28, 1998, and the results of their operations and their cash flows for each of the three fifty-two week periods in the period ended June 28, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia August 24, 1998 F-82

COOKIES USA, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) <TABLE> <CAPTION> June 29, June 28, 1997 1998 -------- -------- <S> <C> <C> ASSETS Current assets: Cash and cash equivalents.................................. $ 4,885 $ 8,382 Accounts receivable--trade................................. 1,702 2,042 Inventory (Notes 1 and 2).................................. 1,292 1,212 Prepaid expenses (Note 3).................................. 1,227 1,245 Current deferred income tax benefit (Notes 1 and 10)....... 392 872 Current portion of notes receivable (Note 4)............... 867 88 Other receivables.......................................... 8 8 ------- ------- Total current assets..................................... 10,373 13,849 ------- ------- Property and equipment, net of accumulated depreciation (Note 5).......................................................... 6,304 4,916 Construction in progress, net of construction deposits received from franchisees................................... 92 163 ------- ------- 6,396 5,079 ------- ------- Other assets: Deferred loan costs, net of accumulated amortization of $2,050 and $2,626, respectively (Note 1).................. 2,050 1,474 Notes receivable, net of current portion (Note 4).......... 302 352 Deferred income tax benefit (Notes 1 and 10)............... 2,372 1,438 Deposits................................................... 50 49 Accrued straight-line minimum rent receivable for subleases to franchisees (Note 1)................................... 1,267 1,388 ------- ------- 6,041 4,701 ------- ------- Cost in excess of fair value of net assets acquired (goodwill), net of accumulated amortization of $3,104 and $3,975, respectively (Note 1)............................... 31,848 30,977 ------- ------- $54,658 $54,606 ======= ======= </TABLE> The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-83

COOKIES USA, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in thousands, except per share data) <TABLE> <CAPTION> June 29, June 28, 1997 1998 -------- -------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable......................................... $ 376 $ 913 Sales taxes payable...................................... 105 102 Accrued interest payable................................. 2,202 2,202 Accrued expenses (Note 6)................................ 1,568 1,075 Deposits................................................. 673 727 -------- -------- Total current liabilities.............................. 4,924 5,019 -------- -------- Capital lease obligations (Note 9)......................... 62 36 -------- -------- Accrued straight-line minimum rent payable (Note 1)........ 2,113 2,164 -------- -------- Long-term debt (Note 7): Senior secured notes..................................... 40,000 40,000 Original issue discount, net of accumulated amortization of $102 and $131, respectively.......................... (98) (69) Subordinated unsecured notes payable..................... 10,000 10,000 -------- -------- Total long-term debt................................... 49,902 49,931 -------- -------- Commitments and contingencies (Note 9) Mandatorily redeemable preferred stock (Note 11): Senior cumulative (6.00%) convertible; $1.00 par value; 10,500 shares authorized, issued and outstanding........ 12,739 13,369 Junior Class A cumulative ($50 per annum); $1.00 par value; 2,500 shares authorized, issued and outstanding.. 2,944 3,069 Junior Class B cumulative ($50 per annum); $1.00 par value; 750 shares authorized, issued and outstanding.... 883 921 -------- -------- Total mandatorily redeemable preferred stock........... 16,566 17,359 -------- -------- Common stock and other stockholders' deficit: Common stock, $.01 par value; 115,000 shares authorized; 82,800 shares issued and outstanding.................... 1 1 Additional paid-in capital............................... 449 449 Excess of purchase price over predecessor basis.......... (10,164) (10,164) Accumulated deficit...................................... (9,195) (10,189) -------- -------- Total stockholders' deficit............................ (18,909) (19,903) -------- -------- $ 54,658 $ 54,606 ======== ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-84

COOKIES USA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands) <TABLE> <CAPTION> For the Fifty-Two For the Fifty-Two For the Fifty-Two Week Period Week Period Week Period Ended Ended Ended June 30, 1996 June 29, 1997 June 28, 1998 ----------------- ----------------- ----------------- <S> <C> <C> <C> Revenues: Cookie and beverage sales................ $24,719 $22,375 $18,854 Batter sales to franchisees.......... 10,104 11,270 12,214 Franchise royalties... 4,289 4,729 5,267 Franchise license fees--existing and new stores........... 521 675 503 Other, net............ 115 66 139 ------- ------- ------- Total revenue....... 39,748 39,115 36,977 ------- ------- ------- Operating expenses: Cost of sales......... 19,523 18,615 17,056 Retail store occupancy............ 7,379 7,055 5,737 Other retail store expenses............. 1,316 1,019 870 Selling, general and administrative expenses............. 7,309 7,619 7,220 Management fee expense (Note 14)............ 250 250 250 ------- ------- ------- Total operating expenses........... 35,777 34,558 31,133 ------- ------- ------- Income from operations.. 3,971 4,557 5,844 ------- ------- ------- Other (income) expenses, net: Interest income....... (56) (251) (346) Interest expense...... 5,646 5,634 5,635 Amortization of deferred loan costs.. 572 586 576 Gain on sale of existing stores...... (636) (927) (370) ------- ------- ------- Total other expenses, net...... 5,526 5,042 5,495 ------- ------- ------- Income (loss) before income taxes............ (1,555) (485) 349 State and federal income tax expense (benefit) (Note 10).............. (194) 261 551 ------- ------- ------- Net loss.......... $(1,361) $ (746) $ (202) ======= ======= ======= </TABLE> The accompanying notes to consolidated financial statement are an integral part to these statements. F-85

COOKIES USA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Dollars in Thousands) <TABLE> <CAPTION> Excess of Purchase Common Stock Additional Price Over Total ------------- Paid-in Predecessor Accumulated Stockholders' Shares Amount Capital Basis Deficit Deficit ------ ------ ---------- ----------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> Balance at June 29, 1995................... 82,800 $ 1 $449 $(10,164) $ (5,503) $(15,217) Net loss for the fifty-two week period ended June 30, 1996.. -- -- -- -- (1,361) (1,361) Redeemable preferred stock accretion...... -- -- -- -- (792) (792) ------ ---- ---- -------- -------- -------- Balance at June 30, 1996................... 82,800 1 449 (10,164) (7,656) (17,370) Net loss for the fifty-two week period ended June 29, 1997.. -- -- -- -- (746) (746) Redeemable preferred stock accretion...... -- -- -- -- (793) (793) ------ ---- ---- -------- -------- -------- Balance at June 29, 1997................... 82,800 1 449 (10,164) (9,195) (18,909) Net loss for the fifty-two week period ended June 28, 1998.. -- -- -- -- (202) (202) Redeemable preferred stock accretion...... -- -- -- -- (792) (792) ------ ---- ---- -------- -------- -------- Balance at June 28, 1998................... 82,800 $ 1 $449 $(10,164) $(10,189) $(19,903) ====== ==== ==== ======== ======== ======== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. F-86

COOKIES USA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) <TABLE> <CAPTION> For the Fifty- For the Fifty- For the Fifty- Two Week Two Week Two Week Period Ended Period Ended Period Ended June 30, 1996 June 29, 1997 June 28, 1998 -------------- -------------- -------------- <S> <C> <C> <C> Cash flows from operating activities: Net loss......................... $(1,361) $ (746) $ (202) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation..................... 1,854 1,940 1,604 Amortization of cost in excess of fair value of net assets acquired (goodwill)............. 870 871 871 Amortization of deferred loan costs........................... 572 586 576 Amortization of original issue discount........................ 29 29 29 Net gain on sales and disposals of property, equipment and inventory....................... (402) (550) (247) Net (decrease) increase in accrued straight-line minimum rent receivable and payable..... 86 (29) (70) Changes in assets and liabilities: Decrease (increase) in accounts receivable.................... (550) (195) (340) Decrease (increase) in inventory..................... (140) 95 80 Decrease (increase) in prepaid expenses...................... (100) (52) (18) Decrease (increase) in current deferred tax benefit.......... (50) (195) (480) Decrease (increase) in other receivables................... 165 56 -- Decrease (increase) in deferred tax benefit................... (186) 348 934 Decrease (increase) in other assets........................ (7) 11 1 Increase (decrease) in accounts payable....................... (462) (456) 538 Increase (decrease) in sales taxes payable................. 2 (25) (3) Increase (decrease) in accrued interest payable.............. -- (3) -- Increase (decrease) in accrued expenses...................... (913) 172 (493) Increase (decrease) in deposits...................... (22) (66) 54 ------- ------- ------- Net cash provided by (used for) operating activities.... (615) 1,791 2,834 ------- ------- ------- Cash flows from investing activities: Acquisitions of property and equipment, including net increase in construction in progress, net of construction deposits received from franchisees..................... (1,913) (1,084) (1,263) Proceeds from sales and disposals of property and equipment....... 1,146 453 1,005 Proceeds from collection of notes receivable...................... 448 474 947 ------- ------- ------- Net cash provided by (used for) investing activities.... (319) (157) 689 ------- ------- ------- Cash flows from financing activities: Payments of deferred loan costs.. -- (27) -- Principal repayments under capital lease obligations....... (15) (25) (26) ------- ------- ------- Net cash used for financing activities................... (15) (52) (26) ------- ------- ------- Net increase (decrease) in cash and cash equivalents during period........................... (949) 1,582 3,497 Cash and cash equivalents, beginning of period.............. 4,252 3,303 4,885 ------- ------- ------- Cash and cash equivalents, end of period........................... $ 3,303 $ 4,885 $ 8,382 ======= ======= ======= </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. F-87

COOKIES USA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: <TABLE> <CAPTION> For the Fifty- For the Fifty- For the Fifty- Two Week Two Week Two Week Period Ended Period Ended Period Ended June 30, 1996 June 29, 1997 June 28, 1998 -------------- -------------- -------------- (Dollars in Thousands) <S> <C> <C> <C> Cash paid for: Interest......................... $5,617 $5,609 $5,606 State and federal income taxes... $ 119 $ 91 $ 286 </TABLE> Cash paid for state and federal income taxes represents payments made to government authorities during the periods presented. SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: During the fifty-two weeks ended June 30, 1996, June 29,1997 and June 28, 1998, the Company recorded accretion on mandatorily redeemable preferred stock totaling $792,000, $793,000 and $793,000, respectively. During the fifty-two weeks ended June 30, 1996, the Company exchanged accounts receivable from unrelated franchisees totaling $156,000 for fixtures and equipment and leasehold improvements representing retail cookie stores previously licensed by franchisees. During the fifty-two weeks ended June 30, 1996, notes receivable with face amounts totaling $296,000 were received from unrelated franchisees in connection with the sale of two Company-operated stores. During the fifty-two weeks ended June 29, 1997, notes receivable with face amounts totaling $1,353,000 were received from unrelated franchisees in connection with the sale of eight Company-operated stores. During the fifty-two weeks ended June 29, 1997, the Company exchanged accounts receivable from unrelated franchisees totaling $91,000 for fixtures and equipment and leasehold improvements representing retail cookie stores previously licensed by the franchisees. During the fifty-two weeks ended June 28, 1998, notes receivable with face amounts totaling $217,000 were received from unrelated franchisees in connection with the sale of five Company-operated stores. The accompanying notes to consolidated financial statements are an integral part of these statements. F-88

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS Cookies USA, Inc. ("Cookies USA") was incorporated in December 1993 and was formed by the Jordan Company to acquire 100% of the common stock of The Original Great American Chocolate Chip Cookie Company, Inc. ("Great American Cookies"). Great American Cookies is in the business of franchising cookie stores and manufacturing cookie batter which is sold to Company-operated and franchised retail stores. The financial statements include the consolidated accounts of Cookies USA and Great American Cookies (the "Company"). On December 10, 1993, Cookies USA acquired Great American Cookies in several transactions. Immediately following the acquisition, Great American Cookies changed its name from The Original Great American Chocolate Chip Cookie Company, Inc. to Great American Cookie Company, Inc. Due to the 22% interest retained by the selling stockholders of Great American Cookies via their common and convertible preferred stock interest in Cookies USA, the excess of purchase price over predecessor basis as reflected in the stockholders' deficit section of the accompanying consolidated balance sheets represents the limitation on the write-up of the assets acquired. The Company's business follows seasonal trends and experiences its highest revenues in the fourth calendar quarter. Because the Company's stores are heavily concentrated in shopping malls, the Company's sales performance is significantly dependent on the performance of those malls. Consolidation The consolidated financial statements include the accounts of Cookies USA and its subsidiary, Great American Cookies. All significant intercompany transactions and accounts have been eliminated in consolidation. Accounting Periods During the fiscal year ended June 30, 1996, the Company changed its year end from the last Thursday in the month of June to the last Sunday in the month of June. As a result, three days were added to the fifty-two week period ended Thursday, June 27, 1996 to effectively change the Company's fiscal year end to Sunday, June 30, 1996. This change does not materially impact the comparability of the years presented in these financial statements. Use of Estimates in Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying amounts of financial instruments including cash, accounts receivable, accounts payable and accrued expenses approximate fair value at the respective balance sheet dates due to the relatively short period to maturity of these instruments. The long-term notes payable with fixed interest rates are recorded at face values of $50.0 million at June 29, 1997 and June 28, 1998; however, the fair values of such long-term notes, based on quoted market values, are approximately $50.5 million and $51.4 million at June 29, 1997 and June 28, 1998, respectively. F-89

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Revenue Recognition Revenues from the Company-operated stores are recognized in the period the related cookies and beverages are sold. Revenues from the sale of batter are recognized at the time of shipment. Franchise royalties, which are based on a percentage of franchised store sales, are recognized in the same period related franchise store revenues are generated. Franchise license fee revenues are recognized at the time that all Company obligations regarding the franchise sale have been met. Fees received under development agreements which grant the right to develop franchised units in future periods in specific geographic areas are deferred and recognized as income on a pro rata basis as the Company's obligations regarding the franchised units subject to the development agreements are met. Cash Equivalents The Company considers all highly liquid, short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents at June 29, 1997 and June 28, 1998 consist of short-term commercial paper. These investments are stated at cost, which approximates market. Inventories Inventories of cookie and brownie products, beverage products, paper and supplies and smallwares are stated at the lower of cost or market with cost determined based on the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost. Expenditures for repairs and maintenance are expensed in the year incurred, while renewals and betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired, or otherwise disposed, and the related accumulated depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized in the statement of operations. Depreciation is provided using straight-line and accelerated methods over the estimated lives of the assets which are as follows: <TABLE> <S> <C> Building................ 20 years Furniture, fixtures and equipment.............. 3-7 years Building and leasehold improvements........... Lesser of 8 years or the life of the related lease </TABLE> During fiscal year 1996, the Company revised its estimate of the useful life of certain leasehold improvements. The Company began amortizing leasehold improvements using accelerated methods over an average of eight years instead of using the straight-line method over an average of ten years. The effect of this change in estimate was to increase fiscal year 1996 pre-tax loss by $214,000. During fiscal year 1998, the Company revised its estimate of the useful life of certain computer equipment from five to three years. The effect of this change in estimate was to decrease fiscal 1998 pre-tax income by $111,000. Store Opening and Closing Costs Non-capital expenditures incurred in opening new stores or remodeling existing stores are expensed in the year incurred. When a store is closed, the store's unamortized investment in leasehold improvements and fixtures and equipment is recorded as a loss on store closing. F-90

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deferred Loan Costs Debt issue costs of approximately $4.0 million were incurred in connection with the issuance of the 10.875% senior secured notes payable due 2001 (see Note 7). Deferred loan costs are being amortized over the life of the related notes (85 months), with annual charges to income of approximately $576,000. Cost in Excess of Fair Value of Net Assets Acquired (Goodwill) Cost in excess of fair value of net assets acquired (goodwill) is being amortized over a forty-year period, with annual charges to income of approximately $870,000. The carrying value of goodwill is periodically evaluated for indications of possible impairment. The review is based on comparing the carrying amount to the undiscounted estimated cash flows from continuing operations over the remaining amortization period. Operating Leases The Company has various operating lease commitments on both Company-operated and franchised store locations and equipment. Operating leases with escalating payment terms, including those subleased to franchisees, are recorded on a straight-line basis over the life of the related lease. Original Issue Discount The Company has issued warrants to the holders of the senior secured notes. The value of the warrants has been accounted for as an original issue discount and is being amortized over the life of the related notes (85 months), with annual charges to income of approximately $29,000. Advertising Costs Advertising costs are expensed as incurred. Income Taxes Concurrent with the acquisition and its termination of the S Corporation status (see Note 10), the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). In accordance with the provisions of SFAS 109, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws. Earnings Per Share Earnings per share is not presented, as the Company is a non-public entity that is closely held. Reclassifications Certain reclassifications have been made in the prior period consolidated financial statements to conform with the current period presentation. F-91

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. INVENTORY The major components of inventory are as follows: <TABLE> <CAPTION> June 29, June 28, 1997 1998 ---------- ---------- <S> <C> <C> Raw ingredients...................................... $ 237,000 $ 279,000 Batter, including retail stores...................... 368,000 254,000 Beverage syrup....................................... 56,000 43,000 Paper goods and packaging supplies................... 168,000 149,000 Purchased icing and decorative toppings held for resale.............................................. 52,000 57,000 Equipment held for resale............................ 75,000 43,000 Marketing and miscellaneous supplies held for resale.............................................. 336,000 387,000 ---------- ---------- $1,292,000 $1,212,000 ========== ========== </TABLE> 3. PREPAID EXPENSES Prepaid expenses consist of the following: <TABLE> <CAPTION> June 29, June 28, 1997 1998 ---------- ---------- <S> <C> <C> Rent................................................... $1,158,000 $1,178,000 Other.................................................. 69,000 67,000 ---------- ---------- $1,227,000 $1,245,000 ========== ========== </TABLE> 4. NOTES RECEIVABLE Notes receivable consist of the following: <TABLE> <CAPTION> June 29, June 28, 1997 1998 ---------- -------- <S> <C> <C> Notes receivable....................................... $1,169,000 $440,000 Less current portion................................... (867,000) (88,000) ---------- -------- Notes receivable, net of current portion............... $ 302,000 $352,000 ========== ======== </TABLE> Notes receivable are due from various franchisees and principally result from the sale of existing Company-operated stores to franchisees. Each note is guaranteed by the purchaser and collateralized by the assets sold. Short-term notes generally carry an interest rate of 15% per annum and are intended to serve as interim financing until the franchisee can secure long-term financing from a third-party lender. Notes classified as non-current are generally due in monthly installments of principal and interest, with the interest rates ranging from between 9% and 12.5% per annum. The total maturities of the notes receivable are as follows: <TABLE> <S> <C> Fiscal Year Ending June 1999................................................................. $ 88,000 2000................................................................. 140,000 2001................................................................. 94,000 2002................................................................. 41,000 2003................................................................. 8,000 Thereafter........................................................... 69,000 -------- $440,000 ======== </TABLE> F-92

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following: <TABLE> <CAPTION> June 29, June 28, 1997 1998 ----------- ----------- <S> <C> <C> Land................................................ $ 240,000 $ 240,000 Building............................................ 761,000 761,000 Building and leasehold improvements................. 6,829,000 6,189,000 Furniture, fixtures and equipment................... 3,228,000 3,067,000 ----------- ----------- 11,058,000 10,257,000 Less accumulated depreciation....................... (4,754,000) (5,341,000) ----------- ----------- Property and equipment, net......................... $ 6,304,000 $ 4,916,000 =========== =========== 6. ACCRUED EXPENSES Accrued expenses consist of the following: <CAPTION> June 29, June 28, 1997 1998 ----------- ----------- <S> <C> <C> Employee compensation including payroll taxes....... $ 379,000 $ 388,000 Bonuses payable..................................... 480,000 475,000 Construction expenses............................... 15,000 -- Professional fees................................... 293,000 88,000 Management fees..................................... 188,000 62,000 Other............................................... 213,000 62,000 ----------- ----------- $ 1,568,000 $ 1,075,000 =========== =========== 7. LONG-TERM DEBT Notes payable at June 29, 1997 and June 28, 1998 are described as follows: <CAPTION> June 29, June 28, 1997 1998 ----------- ----------- <S> <C> <C> 10.875% senior secured notes payable due January 15, 2001, Series B. Interest accrues daily and is payable semi-annually on January 15 and July 15. (The notes are secured by certain tangible and intangible assets, including, but not limited to, the equipment constituting Great American Cookies' batter production facility, the capital stock of all current and future subsidiaries of Great American Cookies, intellectual property rights and other intangible assets of Great American Cookies)................................ $40,000,000 $40,000,000 Original issue discount related to the issuance of 7,200 detachable warrants with the 10.875% senior secured notes.................................... (98,000) (69,000) 12.5% subordinated unsecured note payable due October 31, 2003 with initial annual prepayment thereof due October 31, 2001. Interest accrues daily and is payable semi-annually on April 30 and October 31................................... 10,000,000 10,000,000 ----------- ----------- $49,902,000 $49,931,000 =========== =========== </TABLE> F-93

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The $10 million of subordinated notes issued by Cookies USA have principal payments due as follows: $2.5 million due October 31, 2001; $2.5 million due October 31, 2002; and $5.0 million due October 31, 2003. As Great American Cookies is the sole operating unit of the consolidated entity, Great American Cookies is the sole source of any cash to be paid by Cookies USA as interest and principal payment on such debt. Such payments will be made primarily via dividends to Cookies USA. Such dividends are subject to certain covenants provided for under the senior secured notes (see Note 11). Great American Cookies is subject to certain covenants provided for under the indenture including limitations on restricted payments, incurrence of indebtedness and issuances of preferred stock, asset sales, granting of liens, restrictions on subsidiary dividends, mergers, consolidations, sale of assets, and on transactions with affiliates, various reporting requirements to the holders of the senior secured notes and the Securities and Exchange Commission and maintenance of a fixed charge coverage ratio. If a violation of a covenant occurs, the holders of at least 25% in principal amount of the then outstanding senior secured notes may declare all outstanding senior secured notes to be due and payable immediately (see Note 11). Upon the occurrence of a change of control as defined in the note agreements, the Company will be required to (i) offer to repurchase all of the 10.875% senior secured notes then outstanding at a purchase price equal to 101% of the total principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase and (ii) repurchase the 12.5% subordinated notes at par plus accrued and unpaid interest, if any, to the date of repurchase. 8. 401(K) PROFIT-SHARING PLAN The Company provides a defined contribution profit-sharing plan (the "Plan") for all employees meeting certain requirements. On February 14, 1997, the Company amended the Plan to include a pre-tax savings provision in accordance with Section 401(k) of the Internal Revenue Code. Under the Plan, eligible employees may contribute as much as 15% of compensation up to the federal statutory limit, with the Company matching 25% of the first 6% of compensation contributed by the employee. The Company's matching portion of the Plan contributions resulted in expense of $9,000 and $39,000 in fiscal years 1997 and 1998, respectively. During fiscal year 1996, no amounts were expensed for profit-sharing plan contributions. 9. COMMITMENTS AND CONTINGENCIES Operating Leases The Company has various operating lease commitments on both Company-operated and franchised store locations. These leases generally contain escalating rental payments and various provisions for contingent rental payments based on sales volume. Future minimum lease payments, including scheduled escalating rental payments, as of June 28, 1998 are as follows: <TABLE> <CAPTION> Subleases to Leases Franchises Net ----------- ------------ ----------- <S> <C> <C> <C> Fiscal Year Ending June 1999.................................. $ 9,796,000 $ 7,071,000 $ 2,725,000 2000.................................. 8,797,000 6,369,000 2,428,000 2001.................................. 7,586,000 5,589,000 1,997,000 2002.................................. 6,540,000 4,747,000 1,793,000 2003.................................. 5,368,000 3,909,000 1,459,000 Thereafter............................ 9,737,000 7,331,000 2,406,000 ----------- ----------- ----------- $47,824,000 $35,016,000 $12,808,000 =========== =========== =========== </TABLE> F-94

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Operating leases with escalating payment terms, including those subleased to franchisees, are expensed on a straight-line basis over the life of the related lease. For the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998, gross rent expense (including mall pass-through charges) was approximately $13,332,000, $14,135,000 and $13,593,000, respectively, while sublease income (including mall pass-through charges) was approximately $9,628,000, $10,533,000 and $10,571,000, respectively. Capital Leases The Company leases various office equipment under capital lease agreements expiring on various dates through 2000. The Company's total future obligation under these agreements, net of interest expense, is $62,000 as of June 29, 1997 and $36,000 as of June 28, 1998. Lease Guarantees In connection with the sale of existing Company-operated stores to franchisees, the Company has guaranteed certain lease renewals to the prospective franchisee. If such leases are not obtained, then predetermined payments shall be made to the franchisees as follows: <TABLE> <CAPTION> Number of Lease Amount of Renewals Guarantee -------- --------- <S> <C> <C> Fiscal Year of Lease Expiration 1999.................................................... 1 $ 75,000 2000.................................................... 1 24,000 2001.................................................... -- -- 2002.................................................... 1 60,000 -- -------- $159,000 ======== </TABLE> As of June 28, 1998, the Company has not recorded any liability with respect to these guarantees as these amounts represent loss contingencies which management believes are not probable. Purchase Commitments The Company is committed to purchase certain raw materials from various suppliers over the next year at fixed prices. As of June 28, 1998, such purchase commitments totaled approximately $1,750,000. Employment Agreements On December 10, 1993, the Company entered into annual renewable employment agreements with the founders of Great American Cookies ("Founders"), who are also directors of the Company. Under these employment agreements, each Founder receives a salary of $150,000 and a payment in connection with an agreement not to compete of $100,000 per year. Additionally, whether employed or not, each Founder is also entitled to receive an annual $100,000 bonus if Great American Cookies advances funds to Cookies USA to permit Cookies USA to pay interest on its subordinated notes. The Company's employment of the two Founders ended on December 7, 1995 and December 9, 1996. Under the above agreements, the Company made total payments to the Founders of $564,000, $285,000 and $200,000, during the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998, respectively. As of June 30, 1996, June 29, 1997 and June 28, 1998, $200,000 was due to the Founders and included in accrued liabilities in the accompanying consolidated balance sheets. F-95

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company has entered into employment agreements with its Executive Vice President of Development, Vice President of Operations and Director of Production with terms of one to two years. The agreements are for an total annual base salary of $355,000. The agreements have customary provisions for benefits and noncompetition. Incentive and Severance Agreements In connection with the Company's negotiations (see Note 15) with Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields"), the Company has entered into agreements with a number of employees incenting them to assist with the sale process and to stay until the closing of such sale. In addition, the Company has informed its home office employees of the severance payments to be paid to them in the event their employment is terminated without cause subsequent to the closing of the proposed sale. The total amount of these incentives and severance payments, as well as any severance payments to employees with employment agreements, is $1,623,000. These amounts are conditional upon the closing of the sale and no amounts will be due or paid if a sale to Mrs. Fields does not occur. Legal On September 22, 1997, nine Great American Cookies franchisees filed a lawsuit against Great American Cookies and certain other parties alleging certain anticipatory breaches of contract and violations of certain state, franchise and unfair trade practice laws. These allegations resulted from discussions held be Cookies USA and Mrs. Fields regarding the possibility of Mrs Fields acquiring all of the outstanding shares of Common Stock of Cookies USA, Inc. As of August 14, 1998, a settlement has been reached whereby the franchisees have been granted certain rights upon the sale of the Company to Mrs. Fields for a period of three years. In exchange, Cookies USA has been released from further legal action. 10. INCOME TAXES Cookies USA and Great American Cookies file consolidated federal income tax returns. The following information has been determined based upon the provisions of SFAS 109 for the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998. <TABLE> <CAPTION> Fifty-two Fifty-two Fifty-two Week Period Week Period Week Period Ended Ended Ended June 30, 1996 June 29, 1997 June 28, 1998 ------------- ------------- ------------- <S> <C> <C> <C> Income tax (benefit) provision: Current: Federal......................... -- -- -- State........................... $ 48,000 $107,000 $ 97,000 --------- -------- -------- 48,000 107,000 97,000 Deferred: Federal......................... (217,000) 131,000 386,000 State........................... (25,000) 23,000 68,000 --------- -------- -------- (242,000) 154,000 454,000 --------- -------- -------- Total (benefit) provision for income taxes................. $(194,000) $261,000 $551,000 ========= ======== ======== </TABLE> F-96

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The differences between income taxes at the statutory federal and state income tax rates and the income tax expense reported in the statements of operations for the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998 are as follows: <TABLE> <CAPTION> Fifty-Two Fifty-Two Fifty-Two Week Period Week Period Week Period Ended Ended Ended June 30, 1996 June 29, 1997 June 28, 1998 ------------- ------------- ------------- <S> <C> <C> <C> Federal statutory tax rate....... (34.0)% 34.0% 34.0% State income taxes, net of federal benefit................. (4.0)% 4.0% 4.0% Goodwill amortization and other.. 25.5 % 15.8% 119.9% ----- ---- ----- (12.5)% 53.8% 157.9% ===== ==== ===== </TABLE> Deferred income tax assets are comprised of the following: <TABLE> <CAPTION> June 29, June 28, 1997 1998 ---------- ---------- <S> <C> <C> Current: NOL carryforward..................................... $ 350,000 $ 872,000 Other................................................ 42,000 -- ---------- ---------- $ 392,000 $ 872,000 ========== ========== Non-current: NOL carryforward..................................... $1,079,000 $ -- Depreciation......................................... 841,000 1,191,000 Other................................................ 452,000 247,000 ---------- ---------- $2,372,000 $1,438,000 ========== ========== </TABLE> As of June 28, 1998, the Company had net operating loss carryforwards for income tax reporting purposes of approximately $2.2 million, which are scheduled to expire in varying amounts in the years 2009 to 2011. The Company's net operating loss carryforwards are limited under Section 382 of the Internal Revenue Code regarding changes in ownership. 11. PREFERRED STOCK In connection with Cookies USA's acquisition of Great American Cookies on December 10, 1993, Cookies USA issued $2.5 million of Junior Class A Preferred Stock and $750,000 of Junior Class B Preferred Stock. Additionally, Cookies USA issued $10.5 million of Senior Preferred Stock to the Founders of Great American Cookies in exchange for a portion of the stock of Great American Cookies ($3.5 million) and the assets of other entities owned by the Founders ($7.0 million). As Great American Cookies is a wholly owned subsidiary of Cookies USA and is the sole operating unit of the consolidated entity, Great American Cookies is the sole source of any cash to be paid by Cookies USA as dividends on such securities. The 10,500 shares of $1.00 par Senior Preferred Stock issued by Cookies USA on December 10, 1993 are 6% cumulative convertible shares. A share of the Senior Preferred Stock is convertible at any time at the option of the holder into 1.1308 shares of Cookies USA Common Stock. The holders of Senior Preferred Stock are entitled to certain antidilution protections to maintain their percentage of ownership in Cookies USA. Accumulated dividends on the Senior Preferred Stock have priority over any dividends of "Junior Securities" (Junior Class A and Class B Preferred and Common Stock), but are subordinate to any debt payments of F-97

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Cookies USA or the Company. Such preferred shares may be redeemed at any time for $1,000 per share plus accrued but unpaid dividends at the option of Cookies USA; however, all such shares not previously converted or redeemed shall be redeemed by payment in cash of $1,000 per share plus accrued but unpaid dividends on November 30, 2003. As of June 28, 1998, Cookies USA has accrued $2,869,000 for unpaid dividends due to the holders of the Senior Preferred Stock. The 2,500 shares of $1.00 par Junior Class A Preferred Stock and the 750 shares of $1.00 par Junior Class B Preferred Stock issued by Cookies USA are entitled to receive, when legally available and when declared, dividends at the rate of $50 per share per annum. Such shares may be redeemed by Cookies USA at any time for $1,000 per share plus all dividends accrued and unpaid; however, all such shares not previously redeemed shall be redeemed by payment of cash of $1,000 per share plus all accrued and unpaid dividends on the first business day of January 2004. The Junior Class A and B Preferred Stock have no conversion, preemptive, voting or subscription rights. As of June 28, 1998, Cookies USA has accrued $740,000 for unpaid dividends due to the holders of the Junior Class A and B Preferred Stock. Great American Cookies' debt covenants related to the senior secured notes limit the ability of Great American Cookies to pay dividends. Under the debt covenants, as outlined in the Indenture under which the Senior Secured Notes were issued, Great American Cookies may pay dividends if: (a) no Default or Event of Default has occurred and is continuing or would occur as a consequence thereof, (b) immediately after the dividend and after giving effect to it on a pro forma basis, the Company could incur at least $1.00 of additional indebtedness under the provisions of the debt covenants, and (c) such dividend, together with the total of all other "Restricted Payments" (as defined in the Indenture) made by Great American Cookies and its subsidiaries after the date of the Indenture, is less than the sum of (x) 50% of the Adjusted Consolidated Net Income of Great American Cookies for the period (taken as one accounting period) from the beginning of the first quarter commencing immediately after the date of the Indenture to the end of Great American Cookies' most recently ended first quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Adjusted Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (y) 100% of the total net cash proceeds received by Great American Cookies from the issue or sale of Equity Interest of Great American Cookies (other than Equity Interests sold to a subsidiary of Great American Cookies and other than Disqualified Stock) after the date of the Indenture and on or prior to the time of such Restricted Payment, plus (z) 100% of the net cash proceeds received by Great American Cookies from the issuance or sale, other than to a subsidiary of Great American Cookies, of any convertible or exchangeable debt security of Great American Cookies that has been converted or exchanged into equity interests of Great American Cookies under the terms thereof (other than Disqualified Stock) after the date of the Indenture and on or prior to the time of such dividend. The foregoing limitations on Restricted Payments do not prohibit, among other items, payments to Cookies USA under the Tax Sharing Agreement, payments to Cookies USA to permit payments of current interest then due on the Subordinated Debt or for any other purpose provided that certain fixed coverage ratio tests have been achieved, or making other Restricted Payments in the total amount not to exceed $1.5 million. 12. STOCK OPTION AGREEMENTS, WARRANTS AND OTHER STOCKHOLDERS' AGREEMENT As part of its acquisition of Great American Cookies, Cookies USA entered into Non-Qualified Stock Option Agreements (the "Stock Option Agreements") with the Founders. Under the Stock Option Agreements, each of the Founders is granted an option to purchase 5,600 shares of common stock of Cookies USA at an F-98

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) exercise price of $2.23 per share, which expires on December 10, 2003. The options will not be vested initially. The options will become vested at the rate of 20% per year for each fiscal year in which certain operating cash flow targets are achieved. Notwithstanding the foregoing, if Cookies USA's operating cash flow targets are achieved on a cumulative basis in subsequent years, then the options will be vested. As of June 28, 1998, none of the outstanding stock options were vested. If the employment with the Company of either of the Founders is terminated, each Founder will have the right to require Cookies USA to repurchase all of his shares of Common Stock, and all other securities of Cookies USA convertible into, exchangeable for or entitling the holder to acquire its Common Stock, at the appraised fair market value thereof. The purchase price will be paid with a subordinated note that will bear interest at 8% per annum until the fifth anniversary of the Stockholders' Agreement dated December 10, 1993 and at the prime rate plus 2% thereafter. The note will be secured by the Common Stock purchased by Cookies USA and will be payable in equal installments on each of the sixth through the tenth anniversaries of the Stockholders' Agreement. As of June 28, 1998, the employment of both of the Founders has been terminated and such Founders have not requested Cookies USA to repurchase their shares. At June 29, 1997 and June 28, 1998, the fair value of these options was de minimis. In connection with the issuance of the 10.875% senior secured notes payable (see Note 7), the Company issued 7,200 warrants to purchase common stock at a purchase price of $27.78 per warrant. The warrants expire on January 15, 2001 and have an exercise price of $0.01 per share subject to anti-dilution protection. Additionally, the warrants have certain rights related to the purchase of shares of common stock to a third party whereby the warrant holder may require the purchaser to purchase a determined number of warrants at the common stock purchase price less the exercise price per warrant. If the holders of at least 75% of the common stock agree to sell their shares to a third party, the warrants have certain obligations whereby the warrant holders may be required to sell their warrants for a price equal to the purchase price of the common stock less the exercise price per warrant. 13. COMPANY AND FRANCHISED STORES As of June 30, 1996, June 29, 1997 and June 28, 1998 there were 115, 100 and 81 Company-operated outlets and 253, 263 and 279 franchised outlets in operation, respectively. During the fifty-two week period ended June 30, 1996, the Company earned initial license fees of $275,000 from the sale of 11 new in-line stores to franchisees. Additionally, the Company earned $21,000 from license transfer, upgrade and other fees. During the fifty-two week period ended June 29, 1997, the Company earned initial license fees of $300,000 from the sale of 12 new in-line stores to franchisees. Additionally, the Company earned $75,000 from license transfer, upgrade and other fees. During the fifty-two week period ended June 28, 1998, the Company earned initial license fees of $125,000 from the sale of five new in-line stores to franchisees. Additionally, the Company earned $13,000 from license transfer, upgrade and other fees. 14. RELATED-PARTY TRANSACTIONS The majority shareholders of the Common Stock of Cookies, USA, Inc. are affiliated with the holders of the $10 million of Subordinated Notes issued by Cookies USA. The holders of the Senior Preferred Stock of Cookies USA are also holders of some of the Common Stock of Cookies USA. The holders of the Junior Class A and B Preferred Stock of Cookies USA are also affiliated with the majority of the holders of the Common Stock of Cookies USA (see Note 11). F-99

COOKIES USA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A franchisee who owns eight franchise outlets is related to one of the Company's directors. During the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998, the Company had sales of batter and supplies of approximately $497,000, $476,000 and $419,000, respectively, to this related party. The Company also received royalty revenues of approximately $202,000, $199,000 and $186,000 for the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998, respectively, from this franchisee. As of June 30, 1996, June 29, 1997 and June 28, 1998, this franchisee owed the Company approximately $91,000, $34,000 and $47,000, respectively. During the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28, 1998, the Company expensed $250,000 for management services provided by TJC Management Corp. ("TJC"), an affiliate of the majority shareholder of Cookies USA. Under the agreement with TJC, these fees are not to exceed $300,000 per year. Amounts due to TJC as of June 30, 1996, June 29, 1997 and June 28, 1998 were $375,000, $188,000 and $63,000, respectively, and are included in accrued liabilities in the accompanying consolidated balance sheets. 15. SUBSEQUENT EVENTS On August 24, 1998, Mrs. Fields, acquired 100% of the common stock, redeemable preferred stock and subordinated indebtedness of Cookies USA, Inc., for an total purchase price of approximately $18.4 million, under a Securities Purchase Agreement (the "Purchase Agreement"), dated as of August 13, 1998 among Mrs. Fields, Cookies USA, and the individuals and entities identified as sellers therein. In addition, Mrs Fields assumed all principal and accrued interest on the senior secured notes totaling approximately $42.4 million. Per the terms of the Purchase Agreement, the Stock Option Agreements and all other options and warrants, as discussed in Note 12, were cancelled. Mrs Fields also purchased eight stored from a related party franchise, as disclosed in Note 14, for a total purchase price of $1.75 million on September 9, 1998. The franchise was also a holder of Cookies USA securities and a party to the Purchase Agreement. The foregoing summary should be read in conjunction with and is qualified by reference to the Purchase Agreement, the stock purchase agreements between Mrs. Fields and the holders of the capital stock of Deblan and Chocolate Chip, the merger agreements between each of Deblan and Chocolate Chip, the Indenture, the First Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields, The Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, the Second Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields, The Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, and the Credit Agreement, which are described as exhibits hereto. The foregoing summary should be read in conjunction with and is qualified by reference to the Purchase Agreement, to the stock purchase agreements between Mrs. Fields and the holders of the capital stock of Deblan and Chocolate Chip, and to the merger agreements between each of Deblan and Chocolate Chip and the Company, which are described as exhibits to this report. In connection with the contemplated acquisition of Cookies USA, the Company commenced a tender offer on August 17, 1998 for all of the outstanding $40.0 million in total principal amount of Great American's 10 7/8% Senior Secured Notes due 2001 (the "Notes"). On August 24, 1998, the Company purchased approximately $33.5 million of the Notes that had been tendered through August 20, 1998 and an additional $5.4 million of the Notes that had been tendered through August 21, 1998. All remaining Notes outstanding were tendered as of the expiration of the tender offer at Midnight on September 14, 1998, and Mrs. Fields accepted and paid for the approximately $1.1 million of remaining Notes on September 16, 1998. F-100

INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Deblan Corporation Houston, Texas We have audited the accompanying Balance Sheets of Deblan Corporation as of December 31, 1996 and 1997 and the related Statements of Earnings, Shareholders' Equity and Cash Flows for the years ended December 31, 1995, 1996 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Deblan Corporation as of December 31, 1996 and 1997, and the results of its operations and its cash flows for the years ended December 31, 1995, 1996 and 1997, in conformity with generally accepted accounting principles. Weinstein Spira & Company, P.C. Houston, Texas August 17, 1998 F-101

DEBLAN CORPORATION BALANCE SHEETS (Dollars in Thousands, Except Per Share Data) <TABLE> <CAPTION> December 31, ------------- June 30, 1996 1997 1998 ------ ------ ----------- (Unaudited) <S> <C> <C> <C> ASSETS Current Assets: Cash and cash equivalents......................... $ 399 $ 689 $ 702 Temporary investment.............................. 50 50 50 Accounts receivable: Employees....................................... 12 10 12 Other........................................... 12 18 11 Inventory......................................... 161 145 180 Prepaid expenses.................................. 4 2 17 ------ ------ ------ Total Current Assets.......................... 638 914 972 ------ ------ ------ Property and Equipment: Machinery and equipment........................... 1,173 1,269 1,339 Furniture and fixtures............................ 62 75 81 Leasehold improvements............................ 1,531 1,721 1,721 Transportation equipment.......................... 21 80 55 ------ ------ ------ 2,787 3,145 3,196 Less: Accumulated depreciation and amortization... 1,319 1,417 1,520 ------ ------ ------ Net Property and Equipment...................... 1,468 1,728 1,676 ------ ------ ------ Deferred Federal Income Tax Asset................... 3 2 14 ------ ------ ------ Goodwill, net of accumulated amortization of $7, $8 and $8, respectively............................... 13 12 12 ------ ------ ------ Intangibles, net of accumulated amortization of $317, $325 and $347, respectively.................. 275 285 263 ------ ------ ------ Other Assets........................................ 185 181 181 ------ ------ ------ $2,582 $3,122 $3,118 ====== ====== ====== </TABLE> See notes to financial statements. F-102

DEBLAN CORPORATION BALANCE SHEETS--(Continued) (Dollars in Thousands, Except Per Share Data) <TABLE> <CAPTION> December 31, ------------- June 30, 1996 1997 1998 ------ ------ ----------- (Unaudited) <S> <C> <C> <C> LIABILITIES Current Liabilities: Current portion of long-term debt................. $ 278 $ 291 $ 244 Accounts payable.................................. 212 232 335 Accrued expenses.................................. 191 230 108 Accrued payroll................................... 143 190 137 Federal income tax payable........................ 95 44 44 ------ ------ ------ Total Current Liabilities..................... 919 987 868 Long-Term Debt, net of current portion.............. 299 479 362 ------ ------ ------ 1,218 1,466 1,230 ------ ------ ------ Commitments and Contingencies SHAREHOLDERS' EQUITY Common Stock--$.10 par, 110,000 shares authorized, 97,800 shares issued and outstanding............... 10 10 10 Additional Paid-In Capital.......................... 104 104 104 Retained Earnings................................... 1,250 1,542 1,774 ------ ------ ------ Total Shareholders' Equity.......................... 1,364 1,656 1,888 ------ ------ ------ $2,582 $3,122 $3,118 ====== ====== ====== </TABLE> See notes to financial statements F-103

DEBLAN CORPORATION STATEMENTS OF EARNINGS (Dollars in Thousands) <TABLE> <CAPTION> For the Six For the Year Ended Months Ended December 31, June 30, ---------------------- -------------- 1995 1996 1997 1997 1998 ------ ------ ------ ------ ------ (Unaudited) <S> <C> <C> <C> <C> <C> Revenues Store Sales.......................... $8,512 $8,572 $9,503 $4,342 $4,768 ------ ------ ------ ------ ------ Operating Costs and Expenses Selling and store occupancy costs.... 5,465 5,400 5,744 2,570 2,666 Food cost of sales................... 1,518 1,519 1,675 773 831 General and administrative........... 971 1,061 1,169 672 779 Depreciation and amortization........ 266 237 255 138 142 ------ ------ ------ ------ ------ Total operating costs and expenses.......................... 8,220 8,217 8,843 4,153 4,418 ------ ------ ------ ------ ------ Earnings From Operations............... 292 355 660 189 350 ------ ------ ------ ------ ------ Other Income (Expense) Interest income...................... 14 19 26 10 17 Gain (loss) on disposition of property and equipment.............. (124) 32 (147) -- (4) Interest expense..................... (109) (79) (73) (32) (34) Other................................ 21 13 21 22 18 ------ ------ ------ ------ ------ (198) (15) (173) -- (3) ------ ------ ------ ------ ------ Earnings Before Income Tax............. 94 340 487 189 347 ------ ------ ------ ------ ------ Federal and State Income Tax (Recovery) Current.............................. 52 145 194 82 127 Deferred............................. (9) (9) 1 (10) (12) ------ ------ ------ ------ ------ 43 136 195 72 115 ------ ------ ------ ------ ------ Net Earnings........................... $ 51 $ 204 $ 292 $ 117 $ 232 ====== ====== ====== ====== ====== </TABLE> See notes to financial statements. F-104

DEBLAN CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 1995, 1996, 1997 and For the Six Months Ended June 30, 1998 (Unaudited) (Dollars in Thousands) <TABLE> <CAPTION> Common Stock Additional ------------- Paid-In Retained Shares Amount Capital Earnings Total ------ ------ ---------- -------- ------ <S> <C> <C> <C> <C> <C> Balance--December 31, 1994............ 97,800 $10 $104 $ 995 $1,109 Net Earnings........................ -- -- -- 51 51 ------ --- ---- ------ ------ Balance--December 31, 1995............ 97,800 10 104 1,046 1,160 Net Earnings........................ -- -- -- 204 204 ------ --- ---- ------ ------ Balance--December 31, 1996............ 97,800 10 104 1,250 1,364 Net Earnings........................ -- -- -- 292 292 ------ --- ---- ------ ------ Balance--December 31, 1997............ 97,800 10 104 1,542 1,656 Net Earnings (unaudited)............ -- -- -- 232 232 ------ --- ---- ------ ------ Balance--June 30, 1998 (unaudited).... 97,800 $10 $104 $1,774 $1,888 ====== === ==== ====== ====== </TABLE> See notes to financial statements. F-105

DEBLAN CORPORATION STATEMENTS OF CASH FLOWS (Dollars in Thousands) <TABLE> <CAPTION> For the Six For the Year Ended Months Ended December 31, June 30, ------------------------- ---------------- 1995 1996 1997 1997 1998 ------- ------- ------- ------- ------- (Unaudited) <S> <C> <C> <C> <C> <C> Cash Flows From Operating Activities: Cash received from customers and employees...................... $ 8,506 $ 8,563 $ 9,500 $ 4,348 $ 4,773 Cash paid to vendors and employees...................... (7,777) (8,146) (8,442) (4,082) (4,389) Interest paid................... (109) (79) (73) (32) (34) Income tax paid................. (100) (9) (245) (165) (127) Interest received............... 14 19 26 10 17 Other income received........... 21 13 21 22 18 ------- ------- ------- ------- ------- Net Cash Provided by Operating Activities................... 555 361 787 101 258 ------- ------- ------- ------- ------- Cash Flows From Investing Activities: Purchase of property and equipment...................... (282) (203) (685) (348) (78) Purchase of license agreement... -- (59) (75) (50) -- Payment of store start-up costs.......................... (5) (13) (36) (21) -- Purchase of additional cash value of life insurance........ (18) (13) (19) (9) (9) Proceeds from sale of property and equipment.................. -- 226 125 -- 6 ------- ------- ------- ------- ------- Net Cash Used in Investing Activities................... (305) (62) (690) (428) (81) ------- ------- ------- ------- ------- Cash Flows From Financing Activities: Proceeds from long-term financing...................... 228 -- 482 284 -- Payment of debt................. (323) (306) (289) (147) (164) ------- ------- ------- ------- ------- Net Cash Provided by (Used in) Financing Activities......... (95) (306) 193 137 (164) ------- ------- ------- ------- ------- Net Increase (Decrease) in Cash and Cash Equivalents............. 155 (7) 290 (190) 13 Cash and Cash Equivalents-- Beginning of Period.............. 251 406 399 399 689 ------- ------- ------- ------- ------- Cash and Cash Equivalents--End of Period........................... $ 406 $ 399 $ 689 $ 209 $ 702 ======= ======= ======= ======= ======= </TABLE> See notes to financial statements. F-106

DEBLAN CORPORATION STATEMENTS OF CASH FLOWS--(Continued) (Dollars in Thousands) <TABLE> <CAPTION> For the Six For the Year Ended Months Ended December 31, June 30, ----------------- ------------- 1995 1996 1997 1997 1998 ---- ----- ---- ------ ------ (Unaudited) <S> <C> <C> <C> <C> <C> Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: Net earnings............................... $ 51 $ 204 $292 $ 117 $ 232 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization............ 266 237 255 138 142 (Gain) Loss on disposition of property and equipment........................... 124 (32) 147 -- 4 Deferred taxes (recovery)................ (9) (9) 1 (10) (12) (Increase) Decrease in: Accounts receivable.................... (5) (9) (4) 6 5 Inventory.............................. 25 (16) 16 (16) (35) Prepaid expenses....................... (2) 5 2 (11) (15) Prepaid federal income tax............. (41) 41 -- -- -- Deposits............................... 4 9 23 7 9 Accounts payable....................... 66 (109) 20 37 103 Accrued expenses....................... 84 (55) 86 (82) (175) Federal income tax payable............. (8) 95 (51) (85) -- ---- ----- ---- ----- ------ Net Cash Provided by Operating Activities.......................... $555 $ 361 $787 $ 101 $ 258 ==== ===== ==== ===== ====== </TABLE> See notes to financial statements. F-107

DEBLAN CORPORATION NOTES TO FINANCIAL STATEMENTS (Information at June 30, 1998 and for the Six Months Ended June 30, 1997 and June 30, 1998 is Unaudited) 1. ACCOUNTING POLICIES Doing business as The Great American Chocolate Chip Cookie Company, the Company operated twenty-three franchise locations at December 31, 1995, 1996 and 1997 and June 30, 1998, in various Texas, Louisiana, Colorado and Florida shopping malls. The Company maintains its accounts on the accrual method of accounting in accordance with generally accepted accounting principles. Accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations and cash flows are summarized below: Revenue Recognition Revenue is recognized at the time sales are made. Cash and Cash Equivalents The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. At all balance sheet dates, the Company had deposits in excess of federally insured limits. Inventory Inventory consists of packaging materials, beverages and baking ingredients for use in the ordinary course of business. All inventory is valued at the lower of cost (first-in, first-out method) or market. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line and accelerated methods over the following estimated useful lives: <TABLE> <S> <C> Machinery and equipment.......... 5-7 years Furniture and fixtures........... 5-7 years Leasehold improvements........... 10-20 years Transportation equipment......... 5 years </TABLE> Temporary Investment Temporary investment includes certificates of deposit with an original maturity of greater than three months. Federal and State Income Tax Federal and state income tax is provided at current prevailing rates. The Company records deferred tax liabilities and assets for the anticipated future tax effects of temporary differences that arise as a result of differences in the carrying amounts and tax bases of assets and liabilities. Licenses Fees paid in connection with obtaining operating licenses are amortized over the life of the license, ranging from 60 months to 360 months. F-108

DEBLAN CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information at June 30, 1998 and for the Six Months Ended June 30, 1997 and June 30, 1998 is Unaudited) Intangibles Intangibles consist of organization and store start-up costs which are amortized over a 60-month period, and store license fees which are amortized over periods ranging from 60 months to 360 months. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5 which requires store start-up expenses to be expensed as incurred. This SOP is effective for financial statements for fiscal years beginning after December 15, 1998. Goodwill Goodwill represents the excess of cost over book value of assets acquired. The Company amortizes goodwill using the straight-line method over twenty years. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Unaudited Interim Financial Statements In the opinion of management, the unaudited interim financial statements for the six months ended June 30, 1997 and 1998, presented in this prospectus, include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, shareholders' equity and cash flows for the interim period. The results of operations and cash flows for the six months ended June 30, 1997 and 1998 are not necessarily indicative of the results which would be expected for a full year. Long-Lived Assets The Company assesses and measures for impairment of all long-lived assets, including intangibles, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events and circumstances have occurred that indicate possible impairment. In accordance with SFAS No. 121, the Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the remaining life in measuring whether the assets are recoverable. The Company assesses impairment of long-lived assets at the store level which the Company believes is the lowest level for which there are identifiable cash flows that are independent of other groups of assets. As of December 31, 1996, December 31, 1997 and June 30, 1998, the Company does not consider any of its long-lived assets to be impaired. Fair Value of Financial Instruments The book value of the Company's financial instruments approximates fair value. The estimated fair values have been determined using appropriate market information and valuation methodologies. F-109

DEBLAN CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information at June 30, 1998 and for the Six Months Ended June 30, 1997 and June 30, 1998 is Unaudited) Recent Accounting Pronouncements The Company has not yet adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income." The Statement will be effective for the fiscal year 1998. It establishes standards for reporting and displaying of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company has not yet adopted Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information." The Statement will be effective for the fiscal year 1998. It establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. In the initial year of application, comparative information for earlier years is to be restated. The Company believes that adoption of these Statements will not have a material impact on its financial condition, results of operations or cash flows. Reclassifications Certain reclassifications have been made in the prior years' financial statements to conform with the presentation as of June 30, 1998. 2. INTANGIBLES Intangibles consist of the following (in thousands): <TABLE> <CAPTION> December 31, ------------ June 30, 1996 1997 1998 ---- ---- ----------- (Unaudited) <S> <C> <C> <C> License fees (net of accumulated amortization of $263, $270 and $285, respectively).................. $243 $237 $222 Organization and store start-up costs (net of accumulated amortization of $54, $55 and $62, respectively)....................................... 32 48 41 ---- ---- ---- $275 $285 $263 ==== ==== ==== 3. OTHER ASSETS Other assets consist of the following (in thousands): <CAPTION> December 31, ------------ June 30, 1996 1997 1998 ------ ----- ----------- (Unaudited) <S> <C> <C> <C> Cash value of officer's life insurance............... $ 82 $101 $110 Deposits............................................. 103 80 71 ---- ---- ---- $185 $181 $181 ==== ==== ==== </TABLE> F-110

DEBLAN CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information at June 30, 1998 and for the Six Months Ended June 30, 1997 and June 30, 1998 is Unaudited) 4. FEDERAL INCOME TAXES Differences between the effective tax rate and the statutory federal tax rate are as follows (in thousands): <TABLE> <CAPTION> For the Six For the Year Months Ended Ended December 31, June 30, ---------------- -------------- 1995 1996 1997 1997 1998 ---- ---- ---- ----- ------ (Unaudited) <S> <C> <C> <C> <C> <C> Federal income tax expense at the statutory rate........................... $32 $116 $166 $ 64 $ 118 Increase (Decrease) in: State income taxes, net of income tax benefit.................................. 6 4 5 2 1 Officer's life insurance and other nondeductible expenses................... 17 20 23 7 4 Surtax exemption.......................... (12) Other..................................... -- (4) 1 (1) (8) --- ---- ---- ----- ------ $43 $136 $195 $ 72 $ 115 === ==== ==== ===== ====== </TABLE> The net deferred federal income tax asset results from differences in depreciation between tax reporting and financial statement reporting, as follows (in thousands): <TABLE> <CAPTION> December 31, ------------ June 30, 1996 1997 1998 ---- ---- ----------- (Unaudited) <S> <C> <C> <C> Accumulated depreciation.............................. $ 3 $ 2 $ 14 ==== ==== ==== </TABLE> 5. NOTES PAYABLE Notes payable are as follows (in thousands): <TABLE> <CAPTION> December 31, ------------ June 30, 1996 1997 1998 ---- ---- ----------- (Unaudited) <S> <C> <C> <C> Notes payable--bank, bearing interest at bank prime plus 1%, secured by certificate of deposit, equipment, leasehold improvements, assignment of life insurance, common stock and guaranty of majority shareholder, due in total monthly installments of $6.6, including interest, maturing in 1998........... $ 98 $ 27 $-- Notes payable--bank, bearing interest at bank prime plus .5%, secured by certificate of deposit, equipment, leasehold improvements, assignment of life insurance, common stock and guaranty of majority shareholder, due in total monthly installments of $26.5, including interest, maturing in various years through 2002......................................... 465 686 561 Notes payable--bearing interest at 8.5% to 8.6%, secured by transportation equipment, due in total monthly installments of $1.8, including interest, maturing in various years through 2002............... 14 57 45 ---- ---- ---- 577 770 606 Less: Current maturities.............................. 278 291 244 ---- ---- ---- $299 $479 $362 ==== ==== ==== </TABLE> F-111

DEBLAN CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information at June 30, 1998 and for the Six Months Ended June 30, 1997 and June 30, 1998 is Unaudited) The following is a schedule of future minimum principal payments on debt (in thousands): <TABLE> <CAPTION> For the Year Ending December 31, Amount -------------------------------- ------ <S> <C> 1998.................................................................. $291 1999.................................................................. 210 2000.................................................................. 113 2001.................................................................. 124 2002.................................................................. 32 ---- $770 ==== </TABLE> In connection with the notes payable-bank, the Company has entered into a loan agreement which contains certain restrictive covenants, including maintenance of certain financial ratios, and limitations on borrowings, capital expenditures, loans, sale of assets, dividend payments and executive compensation. At December 31, 1996, December 31, 1997 and June 30, 1998, the Company was in compliance with the covenants or had obtained waivers for those covenants for the succeeding 12 months for which it was not in compliance. 6. OPERATING LEASES The Company leases facilities at various locations from unrelated third parties. The facility leases expire in years ranging from 1998 through 2005. Rent expense is composed of the following items (in thousands): <TABLE> <CAPTION> For the Six For the Year Ended Months Ended December 31, June 30, -------------------- ------------ 1995 1996 1997 1997 1998 ------ ------ ------ ----- ----- (Unaudited) <S> <C> <C> <C> <C> <C> Facilities.................................. $ 997 $ 908 $ 953 $ 478 $ 478 Equipment................................... 20 18 8 5 2 Contingent rents............................ 78 101 162 54 54 ------ ------ ------ ----- ----- $1,095 $1,027 $1,123 $ 537 $ 534 ====== ====== ====== ===== ===== </TABLE> The following is a schedule of future minimum rental payments (in thousands): <TABLE> <CAPTION> For the Year Ending December 31, Facilities Equipment Total -------------------------------- ---------- --------- ------ <S> <C> <C> <C> 1998............................................ $ 805 $ 2 $ 807 1999............................................ 726 -- 726 2000............................................ 624 -- 624 2001............................................ 529 -- 529 2002............................................ 477 -- 477 Thereafter...................................... 1,305 -- 1,305 ------ --- ------ $4,466 $ 2 $4,468 ====== === ====== </TABLE> F-112

DEBLAN CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information at June 30, 1998 and for the Six Months Ended June 30, 1997 and June 30, 1998 is Unaudited) 7. PROFIT SHARING PLAN The Company has a profit sharing plan under Section 401(k) of the Internal Revenue Code for all eligible employees. All eligible employees are permitted to defer compensation up to the maximum percentage of annual compensation allowed by the Internal Revenue Code. The plan provides for a matching 50% contribution and a discretionary contribution by the Company. The Company provided contributions of $40,560, $49,974 and $77,877 for the years ended December 31, 1995, 1996 and 1997, and $14,470 and $25,211 for the six months ended June 30, 1997 and 1998, respectively. 8. COMMITMENTS The Company is required to pay its franchisor seven percent of revenues as a franchise fee. 9. CORPORATE REGISTRATION In a corporate reorganization in February, 1997, the par value of the common stock was changed from $1.00 to $.10, followed by a 150-to-1 stock split which increased the number of issued shares to 97,800. Additionally, the number of shares authorized was increased to 110,000. The financial statements presented have been restated to reflect the stock split. Common stock was increased $3,000, and retained earnings were reduced $3,000. 10. REDEMPTION AGREEMENT The shareholders of the Company entered into a stock redemption agreement with the Company in March, 1997. The following is a brief overview of the general terms: Upon the death of the majority shareholder, the Company is obligated to purchase his stock (87,300 shares at December 31, 1997). The price per share shall be the greater of the proceeds from the redemption of life insurance or the value of the stock as stipulated by the shareholders, annually. The initial value stipulated in March, 1997 was $22.75 per share. The Company owns and is beneficiary of life insurance in the amount of $1,500,000 on the life of the majority shareholder, the proceeds of which may be used toward this redemption. Upon the death of the other shareholders, the Company is obligated to purchase the stock at the above described stipulated value. 11. SUBSEQUENT EVENT Subsequent to year end, the shareholders of the Company agreed to sell their shares to Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields") subject to certain events, including Mrs. Fields obtaining financing through a private placement of debt securities. F-113

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Chocolate Chip Cookies of Texas, Inc.: We have audited the accompanying balance sheets of Chocolate Chip Cookies of Texas, Inc. (a Texas corporation) as of September 30, 1996 and 1997, and the related statements of operations, stockholders' equity and cash flows for the years ended September 30, 1995, 1996 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chocolate Chip Cookies of Texas, Inc. as of September 30, 1996 and 1997, and the results of its operations and its cash flows for the years ended September 30, 1995, 1996 and 1997 in conformity with generally accepted accounting principles. Arthur Andersen LLP Salt Lake City, Utah July 22, 1998 F-114

CHOCOLATE CHIP COOKIES OF TEXAS, INC. BALANCE SHEETS (In Thousands) ASSETS <TABLE> <CAPTION> September 30, September 30, June 30, 1996 1997 1998 ------------- ------------- ----------- (Unaudited) <S> <C> <C> <C> CURRENT ASSETS: Cash................................. $ 161 $ 66 $ 173 Accounts receivable.................. -- -- 2 Inventories.......................... 21 22 34 Prepaid assets....................... 4 1 20 ----- ----- ----- Total current assets............... 186 89 229 ----- ----- ----- PROPERTY AND EQUIPMENT, at cost: Leasehold improvements............... 353 494 496 Equipment and fixtures............... 150 168 168 Vehicles............................. 26 26 26 ----- ----- ----- 529 688 690 Less accumulated depreciation and amortization........................ (377) (408) (435) ----- ----- ----- Net property and equipment......... 152 280 255 ----- ----- ----- OTHER ASSETS: Deposits............................. -- -- 13 Intangibles, net of accumulated amortization of $216, $245 and $257, respectively........................ 47 43 31 ----- ----- ----- Total other assets................. 47 43 44 ----- ----- ----- DEFERRED TAX ASSET..................... 2 3 1 ----- ----- ----- Total assets....................... $ 387 $ 415 $ 529 ===== ===== ===== </TABLE> The accompanying notes to financial statements are an integral part of these balance sheets. F-115

CHOCOLATE CHIP COOKIES OF TEXAS, INC. BALANCE SHEETS--(Continued) (In Thousands, Except Share and Per Share Data) LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> September 30, September 30, June 30, 1996 1997 1998 ------------- ------------- ----------- (Unaudited) <S> <C> <C> <C> CURRENT LIABILITIES: Current portion of long-term debt.... $ 31 $ 33 $ -- Accounts payable..................... 73 73 50 Accrued salaries..................... 33 43 94 Accrued liabilities.................. 18 45 50 Deferred rent expense................ 22 31 34 Income taxes payable................. 12 15 57 ----- ----- ----- Total current liabilities.......... 189 240 285 LONG-TERM DEBT, net of current portion............................... 81 47 -- ----- ----- ----- Total liabilities.................. 270 287 285 ----- ----- ----- COMMITMENTS (Note 6) STOCKHOLDERS' EQUITY: Common stock, $1 par value; 1,000,000 shares authorized and 250 shares outstanding......................... -- -- -- Treasury stock, 750 shares at cost... (216) (216) (216) Retained earnings.................... 333 344 460 ----- ----- ----- Total stockholder's equity........... 117 128 244 ----- ----- ----- Total liabilities and stockholders' equity............................ $ 387 $ 415 $ 529 ===== ===== ===== </TABLE> The accompanying notes to financial statements are an integral part of these balance sheets. F-116

CHOCOLATE CHIP COOKIES OF TEXAS, INC. STATEMENTS OF OPERATIONS (In Thousands) <TABLE> <CAPTION> Nine Months Nine Months Year Ended Year Ended Year Ended Ended Ended September 30, September 30, September 30, June 30, June 30, 1995 1996 1997 1997 1998 ------------- ------------- ------------- ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> NET STORE SALES......... $2,168 $2,321 $2,650 $1,962 $2,266 ------ ------ ------ ------ ------ OPERATING COSTS: Selling and store occupancy costs...... 1,197 1,234 1,373 1,005 1,101 Food cost of sales.... 504 603 634 472 531 General and administrative....... 352 363 565 424 429 Depreciation and amortization......... 48 49 60 41 39 ------ ------ ------ ------ ------ Total operating costs and expenses........... 2,101 2,249 2,632 1,942 2,100 ------ ------ ------ ------ ------ Income from operations......... 67 72 18 20 166 ------ ------ ------ ------ ------ OTHER INCOME/(EXPENSE): Interest expense...... (21) (11) (8) (6) (4) Interest income....... 4 3 6 4 4 ------ ------ ------ ------ ------ Income before provision for income taxes....... 50 64 16 18 166 PROVISION FOR INCOME TAXES.................. 12 12 5 6 50 ------ ------ ------ ------ ------ NET INCOME.............. $ 38 $ 52 $ 11 $ 12 $ 116 ====== ====== ====== ====== ====== </TABLE> The accompanying notes to financial statements are an integral part of these statements. F-117

CHOCOLATE CHIP COOKIES OF TEXAS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) <TABLE> <CAPTION> Treasury Common Stock Stock ------------- ------------- Retained Shares Amount Shares Amount Earnings Total ------ ------ ------ ------ -------- ----- <S> <C> <C> <C> <C> <C> <C> BALANCE, SEPTEMBER 30, 1994....... 250 $-- 750 $(216) $243 $ 27 Net income...................... -- -- -- -- 38 38 --- ---- --- ----- ---- ---- BALANCE, SEPTEMBER 30, 1995....... 250 -- 750 (216) 281 65 Net income...................... -- -- -- -- 52 52 --- ---- --- ----- ---- ---- BALANCE, SEPTEMBER 30, 1996....... 250 -- 750 (216) 333 117 Net income...................... -- -- -- -- 11 11 --- ---- --- ----- ---- ---- BALANCE, SEPTEMBER 30, 1997....... 250 -- 750 (216) 344 128 Net income (unaudited).......... -- -- -- -- 116 116 --- ---- --- ----- ---- ---- BALANCE, JUNE 30, 1998 (unau- dited)........................... 250 $-- 750 $(216) $460 $244 === ==== === ===== ==== ==== </TABLE> The accompanying notes to financial statements are an integral part of these statements. F-118

CHOCOLATE CHIP COOKIES OF TEXAS, INC. STATEMENTS OF CASH FLOWS (In Thousands) INCREASE (DECREASE) IN CASH <TABLE> <CAPTION> Nine Months Nine Months Year Ended Year Ended Year Ended Ended Ended September 30, September 30, September 30, June 30, June 30, 1995 1996 1997 1997 1998 ------------- ------------- ------------- ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income............. $ 38 $ 52 $ 11 $ 12 $116 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......... 48 49 60 41 39 Changes in assets and liabilities: Accounts receivable.. -- -- -- -- (2) Inventories.......... (11) 9 (1) (13) (12) Prepaid assets....... (7) 3 3 4 (19) Deposits............. -- -- -- -- (13) Deferred tax asset... (1) 1 (1) (2) 2 Accounts payable..... -- (10) -- 4 (23) Income taxes payable............. (20) 7 3 4 42 Accrued liabilities, salaries and deferred rent expense............. 28 4 46 121 59 ----- ---- ----- ---- ---- Net cash provided by operating Activities......... 75 115 121 171 189 ----- ---- ----- ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment......... (143) (10) (159) (69) (2) Amounts paid for non- compete agreements.... (63) -- -- -- -- Amounts paid for franchise agreements.. (25) -- (25) (26) -- ----- ---- ----- ---- ---- Net cash used in investing activities......... (231) (10) (184) (95) (2) ----- ---- ----- ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt............... 160 -- -- -- -- Principal payments on debt.................. (21) (27) (32) (24) (80) ----- ---- ----- ---- ---- Net cash provided by (used in) financing activities......... 139 (27) (32) (24) (80) ----- ---- ----- ---- ---- NET (DECREASE) INCREASE IN CASH................ (17) 78 (95) 52 107 CASH, beginning of period................. 100 83 161 161 66 ----- ---- ----- ---- ---- CASH, end of period..... $ 83 $161 $ 66 $213 $173 ===== ==== ===== ==== ==== </TABLE> The accompanying notes to financial statements are an integral part of these statements. F-119

CHOCOLATE CHIP COOKIES OF TEXAS, INC. STATEMENTS OF CASH FLOWS--(Continued) (In Thousands) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest was approximately $21, $11, $8, $6 (unaudited) and $4 (unaudited) for the years ended September 30, 1995, 1996 and 1997 and for the nine months ended June 30, 1997 and 1998, respectively. Cash paid for income taxes was approximately $17, $2, $1, $1 (unaudited) and $1 (unaudited) for the years ended September 30, 1995, 1996 and 1997 and for the nine months ended June 30, 1997 and 1998, respectively. The accompanying notes to financial statements are an integral part of these statements. F-120

CHOCOLATE CHIP COOKIES OF TEXAS, INC. NOTES TO FINANCIAL STATEMENTS (Including Notes to Unaudited Periods) 1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS Chocolate Chip Cookies of Texas, Inc. (the "Company"), a Texas corporation, was incorporated in 1981. The Company operates retail stores which sell freshly baked cookies and other food products. The Company's stores are franchised from Great American Cookie Company, Inc. ("GACC"). As of June 30, 1998, the Company owned and operated six stores, of which five are located in Texas and one in Louisiana. The Company's business follows seasonal trends and is also affected by climate and weather conditions. The Company experiences its highest revenues in the first fiscal quarter. Because the Company's stores are all located in shopping malls, the Company's sales performance is significantly dependent on the performance of those malls. As a franchisee of GACC, substantially all of the Company's sales are derived from products purchased from GACC. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash, accounts payable and debt instruments. The carrying value of those instruments reported in the balance sheets are considered to estimate their respective fair values due to the short-term nature of such instruments and the current interest rate environment. Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the FIFO (first-in, first-out) method (see Note 3). Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the useful life of the improvement or the remaining term of the applicable lease. The depreciable lives of equipment, fixtures and vehicles range from five to ten years. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments that extend the useful lives of existing equipment are capitalized and depreciated. On retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations. Intangibles Intangibles primarily consist of franchise fees paid to GACC and amounts paid for non-compete agreements between the Company and various other parties. Intangibles are being amortized on a straight-line F-121

CHOCOLATE CHIP COOKIES OF TEXAS, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) basis over the lives of the agreements, which are generally ten years for franchise agreements and three years for non-compete agreements. Income Taxes The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial and income tax bases of assets and liabilities using enacted tax rates expected to apply when differences are expected to be settled or realized. Revenue Recognition Revenues generated from the Company's stores are recognized at the point of sale. Sources of Supply The Company currently buys a significant amount of its food products and supplies from GACC and an unrelated supplier. In accordance with the franchise agreement, the Company must buy its food products from GACC (see Note 6). Management believes that the Company could obtain its supplies from numerous other suppliers at comparable prices and terms. Long-Lived Assets The Company assesses and measures for impairment of long-lived assets, including intangibles, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events and circumstances have occurred that indicate possible impairment. In accordance with SFAS No. 121, the Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the remaining life in measuring whether assets are recoverable. The Company assesses impairment of long-lived assets at the store level, which the Company believes is the lowest level for which there are identifiable cash flows that are independent of other groups of assets. As of June 30, 1998, the Company does not consider any of its long-lived assets to be impaired. Recent Accounting Pronouncements During the nine months ended June 30, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company does not expect that these statements will have a significant impact on its financial statements. Interim Financial Statements The financial statements as of and for the nine months ended June 30, 1998, and for the nine months ended June 30, 1997, are unaudited. In the opinion of management, these financial statements have been presented on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for these periods. These interim financial statements are not necessarily indicative of the results that may be achieved for the full fiscal year. F-122

CHOCOLATE CHIP COOKIES OF TEXAS, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) 3. INVENTORIES The Company's inventories consist of the following as of September 30, 1996 and 1997 and June 30, 1998: <TABLE> <CAPTION> September 30, September 30, June 30, 1996 1997 1998 ------------- ------------- ----------- (Unaudited) <S> <C> <C> <C> Food................................. $12,000 $13,000 $23,000 Beverages............................ 3,000 3,000 4,000 Supplies............................. 6,000 6,000 7,000 ------- ------- ------- $21,000 $22,000 $34,000 ======= ======= ======= </TABLE> 4. LONG-TERM DEBT As of September 30, 1996 and September 30, 1997, long-term debt consisted of a promissory note payable to Wells Fargo Bank secured by the property and equipment of the Company. The note was originally issued by the Company on October 17, 1994 with a variable interest rate equal to the prime rate. As of September 30, 1997 the interest rate on the note was 8.50%. During April 1998, the note was paid in full. 5. INCOME TAXES The components of the provision for income taxes for the years ended September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and 1998 are as follows: <TABLE> <CAPTION> September 30, September 30, September 30, June 30, June 30, 1995 1996 1997 1997 1998 ------------- ------------- ------------- ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> Federal: Current............... $11,000 $11,000 $ 5,000 $ 8,000 $44,000 Deferred.............. (1,000) -- (1,000) (2,000) 2,000 State: Current............... 2,000 1,000 1,000 -- 4,000 ------- ------- ------- ------- ------- Total................... $12,000 $12,000 $ 5,000 $ 6,000 $50,000 ======= ======= ======= ======= ======= </TABLE> The differences between income taxes at the statutory income tax rate and income taxes reported in the statements of operations are as follows for the years ended September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and 1998: <TABLE> <CAPTION> Nine Months Nine Months Ended Ended September 30, September 30, September 30, June 30, June 30, 1995 1996 1997 1997 1998 ------------- ------------- ------------- ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> Federal statutory rate.. 15% 15% 15% 15% 30% State franchise taxes... 4 2 6 -- 2 Other................... 5 2 10 18 (2) --- --- --- --- --- 24% 19% 31% 33% 30% === === === === === </TABLE> F-123

CHOCOLATE CHIP COOKIES OF TEXAS, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) The significant components of the Company's deferred income tax assets and liabilities at September 30, 1996 and 1997 and June 30, 1998 are as follows: <TABLE> <CAPTION> September 30, September 30, June 30, 1996 1997 1998 ------------- ------------- ----------- (Unaudited) <S> <C> <C> <C> Deferred income tax assets: Deferred rent expense............ $ 3,000 $ 5,000 $ 10,000 Amortization of non-compete agreements and franchise agreements...................... 6,000 9,000 20,000 ------- -------- -------- Total deferred income tax assets........................ 9,000 14,000 30,000 Deferred income tax liabilities: Accumulated depreciation......... (7,000) (11,000) (29,000) ------- -------- -------- Net deferred income tax assets..... $ 2,000 $ 3,000 $ 1,000 ======= ======== ======== </TABLE> 6. RELATED-PARTY TRANSACTIONS Related-Party Operating Leases The Company leases retail store facilities under long-term noncancelable operating lease agreements with remaining terms of one to nine years from GACC. The future minimum lease payments due under these operating leases as of September 30, 1997 are as follows: <TABLE> <CAPTION> Year Ending September 30, ------------------------- <S> <C> 1998........................................................... $ 185,000 1999........................................................... 185,000 2000........................................................... 192,000 2001........................................................... 193,000 2002........................................................... 166,000 Thereafter..................................................... 326,000 ---------- $1,247,000 ========== </TABLE> Each of these leases provides for contingent rentals based on gross revenues. Total rental expense, which has been accounted for on a straight-line basis for escalating leases included above, for the years ended September 30, 1995, 1996 and 1997 and for the nine months ended June 30, 1997 and 1998 was approximately $280,000, $299,000, $335,000, $239,000 (unaudited) and $219,000 (unaudited), respectively. Franchise Royalties The Company pays GACC franchise royalties in connection with its franchise agreements with GACC. Franchise royalties are calculated as 7% of gross revenues (as defined in the individual agreements). During the years ended September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and 1998, the Company incurred approximately $152,000, $163,000, $185,000, $132,000 (unaudited) and $158,000 (unaudited), respectively, for franchise royalties, which are included as part of selling and store occupancy costs in the accompanying statements of operations. As of September 30, 1996 and 1997 and June 30, 1998, approximately $13,000, $15,000 and $17,000 (unaudited), respectively, in franchise royalties were payable to GACC. F-124

CHOCOLATE CHIP COOKIES OF TEXAS, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) 6. RELATED PARTY TRANSACTIONS (Continued) Inventory The Company, in connection with its franchise agreements with GACC, purchases the majority of its inventories from GACC. During the years ended September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and 1998, the Company purchased approximately $311,000, $348,000, $387,000, $298,000 (unaudited) and $327,000 (unaudited), respectively, in inventories from GACC. As of September 30, 1996 and 1997 and June 30, 1998, approximately $12,000, $14,000 and $15,000 (unaudited), respectively, were payable to GACC related to inventory purchases. 7. SUBSEQUENT EVENT On August 24, 1998, the Company sold 100 percent of its common stock to Mrs. Fields' Original Cookies, Inc. F-125

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Combined Karp Entities: We have audited the accompanying combined balance sheets of the Combined Karp Entities (the "Company") identified in Note 1 as of December 31, 1996 and 1997, and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 1995, 1996 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Combined Karp Entities as of December 31, 1996 and 1997, and the results of their operations and their cash flows for the years ended December 31, 1995, 1996 and 1997 in conformity with generally accepted accounting principles. Arthur Andersen LLP Salt Lake City, Utah October 6, 1998 F-126

THE COMBINED KARP ENTITIES COMBINED BALANCE SHEETS (In Thousands) ASSETS <TABLE> <CAPTION> December 31, December 31, June 30, 1996 1996 1998 ------------ ------------ ----------- (Unaudited) <S> <C> <C> <C> CURRENT ASSETS: Cash................................... $ 179 $ 176 $ 98 Inventories............................ 57 54 62 Prepaid assets......................... 42 34 31 ------ ------ ------ Total current assets................. 278 264 191 ------ ------ ------ PROPERTY AND EQUIPMENT, at cost: Leasehold improvements................. 803 803 803 Equipment and fixtures................. 460 460 462 ------ ------ ------ 1,263 1,263 1,265 Less accumulated depreciation.......... (617) (718) (768) ------ ------ ------ Net property and equipment........... 646 545 497 ------ ------ ------ OTHER ASSETS: Deposits............................... 42 37 35 Intangibles, net of accumulated amortization of $159, $179 and $191, respectively.......................... 136 121 111 ------ ------ ------ Total other assets................... 178 158 146 ------ ------ ------ NON-CURRENT DEFERRED TAX ASSET........... 8 20 23 ------ ------ ------ Total assets......................... $1,110 $ 987 $ 857 ====== ====== ====== </TABLE> The accompanying notes to combined financial statements are an integral part of these balance sheets. F-127

THE COMBINED KARP ENTITIES COMBINED BALANCE SHEETS--(Continued) (In Thousands) LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> December 30, December 30, June 30, 1996 1997 1998 ------------ ------------ ----------- (Unaudited) <S> <C> <C> <C> CURRENT LIABILITIES: Accounts payable....................... $ 39 $ 95 $ 63 Accrued salaries....................... 55 52 42 Accrued liabilities.................... 123 121 107 Income taxes payable................... 128 142 147 ------ ------ ------- Total current liabilities............ 345 410 359 ------ ------ ------- RELATED-PARTY PAYABLES................... 23 23 23 ------ ------ ------- COMMITMENTS AND CONTINGENCIES (Note 6) STOCKHOLDERS' EQUITY: Common stock (Note 5).................. 90 90 90 Additional paid-in capital............. 1,324 1,452 1,536 Accumulated deficit.................... (672) (988) (1,151) ------ ------ ------- Total stockholders' equity........... 742 554 475 ------ ------ ------- Total liabilities and stockholders' equity.............................. $1,110 $ 987 $ 857 ====== ====== ======= </TABLE> The accompanying notes to combined financial statements are an integral part of these balance sheets. F-128

THE COMBINED KARP ENTITIES COMBINED STATEMENTS OF OPERATIONS (In Thousands) <TABLE> <CAPTION> Six Months Six Months Year Ended Year Ended Year Ended Ended Ended December 31, December 31, December 31, June 30, June 30, 1995 1996 1997 1997 1998 ------------ ------------ ------------ ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> NET STORE SALES......... $2,342 $2,445 $2,500 $1,144 $1,181 ------ ------ ------ ------ ------ OPERATING COSTS: Food cost of sales.... 614 668 683 336 339 Selling and store occupancy costs...... 1,421 1,488 1,635 788 744 General and administrative....... 192 199 238 101 114 Depreciation and amortization......... 104 127 121 59 62 ------ ------ ------ ------ ------ Total operating costs.............. 2,331 2,482 2,677 1,284 1,259 ------ ------ ------ ------ ------ Income (loss) from operations......... 11 (37) (177) (140) (78) INTEREST EXPENSE........ (54) (30) (18) (9) (7) ------ ------ ------ ------ ------ Loss before provision for income taxes....... (43) (67) (195) (149) (85) PROVISION FOR INCOME TAXES.................. (26) (19) (15) (4) (6) ------ ------ ------ ------ ------ NET LOSS................ $ (69) $ (86) $ (210) $ (153) $ (91) ====== ====== ====== ====== ====== </TABLE> The accompanying notes to combined financial statements are an integral part of these statements. F-129

THE COMBINED KARP ENTITIES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) <TABLE> <CAPTION> Additional Accumulated Common Stock Paid-In Capital Deficit Total ------------ --------------- ----------- ----- <S> <C> <C> <C> <C> BALANCE, DECEMBER 31, 1994..... $90 $ 398 $ (13) $ 475 Distributions................ -- -- (137) (137) Net loss..................... -- -- (69) (69) --- ------ ------- ----- BALANCE, DECEMBER 31, 1995..... 90 398 (219) 269 Distributions................ -- -- (367) (367) Capital contributions........ -- 926 -- 926 Net loss..................... -- -- (86) (86) --- ------ ------- ----- BALANCE, DECEMBER 31, 1996..... 90 1,324 (672) 742 Distributions................ -- -- (106) (106) Capital contributions........ -- 128 -- 128 Net loss..................... -- -- (210) (210) --- ------ ------- ----- BALANCE, DECEMBER 31, 1997..... 90 1,452 (988) 554 Distributions (unaudited).... -- -- (72) (72) Capital contributions (unaudited)................. -- 84 -- 84 Net loss (unaudited)......... -- -- (91) (91) --- ------ ------- ----- BALANCE, JUNE 30, 1998 (unaudited)................... $90 $1,536 $(1,151) $ 475 === ====== ======= ===== </TABLE> The accompanying notes to combined financial statements are an integral part of these statements. F-130

THE COMBINED KARP ENTITIES COMBINED STATEMENTS OF CASH FLOWS (In Thousands) INCREASE (DECREASE) IN CASH <TABLE> <CAPTION> Six Months Six Months Year Ended Year Ended Year Ended Ended Ended December 31, December 31, December 31, June 30, June 30, 1995 1996 1997 1997 1998 ------------ ------------ ------------ ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............... $ (69) $ (86) $(210) $(153) $(91) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization......... 104 127 121 59 62 Changes in assets and liabilities: Related-party receivables......... (79) 143 -- -- -- Inventories.......... -- -- 3 -- (8) Prepaid assets....... (5) 5 8 11 3 Deposits............. 1 (11) 5 5 2 Deferred taxes....... (2) (9) (12) (7) (3) Accounts payable..... 38 (52) 56 25 (32) Accrued salaries..... -- 17 (3) (15) (10) Accrued liabilities.. 15 13 (2) (21) (14) Income taxes payable............. 13 14 14 3 5 Related-party payables............ 69 (567) -- -- -- ----- ----- ----- ----- ---- Net cash provided by (used in) operating activities......... 85 (406) (20) (93) (86) ----- ----- ----- ----- ---- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment......... (13) (111) -- -- (2) Acquisition of intangibles........... 4 (20) (5) (5) (2) Distributions.......... (137) (367) (106) (66) (72) Additional investment.. -- 926 128 62 84 ----- ----- ----- ----- ---- Net cash provided by (used in) investing activities......... (146) 428 17 (9) 8 ----- ----- ----- ----- ---- NET INCREASE (DECREASE) IN CASH................ (61) 22 (3) (102) (78) CASH, beginning of period................. 218 157 179 179 176 ----- ----- ----- ----- ---- CASH, end of period..... $ 157 $ 179 $ 176 $ 77 $ 98 ===== ===== ===== ===== ==== </TABLE> The accompanying notes to combined financial statements are an integral part of these statements. F-131

THE COMBINED KARP ENTITIES COMBINED STATEMENTS OF CASH FLOWS--(Continued) SUPPLEMENTAL DISCLOSURE OF COMBINED CASH FLOW INFORMATION: Cash paid for interest was approximately $40,000, $18,000, $18,000, $9,000 (unaudited) and $7,000 (unaudited) for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998, respectively. Cash paid for income taxes was approximately $18,000, $10,000, $10,000, $2,000 (unaudited) and $1,000 (unaudited) for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998, respectively. During the year ended December 31, 1996, related-party payables of Hot White Plains Cookies, Inc, Hot Roosevelt Cookies, Inc. and Hot Rockaway Cookies of approximately $364,000, $264,000 and $198,000, respectively, were forgiven and accounted for as capital contributions to these entities. During the year ended December 31, 1996 and December 31,1997, related party receivables of Hot Barton and Northpark Cookies, Inc. and Northpark Cookies, Inc. of approximately $71,000 and $0 and $120,000 and $4,000, respectively, were distributed to stockholders. The accompanying notes to combined financial statements are an integral part of these statements. F-132

THE COMBINED KARP ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS (Including Notes to Unaudited Periods) 1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS The Combined Karp Entities (the "Company") established operations on the following dates under the laws of the respective states: <TABLE> <CAPTION> Structure of State of State of Company Inception date Entity Incorporation Operation ------- ------------------ ------------- ------------- ---------- <S> <C> <C> <C> <C> Hot Barton and Northpark Cookies, Inc........... August 6, 1981 C-corporation Georgia New Jersey Northpark Cookies, Inc.................... October 5, 1981 C-corporation Iowa Iowa Crossroads Cookies, Inc.................... December 9, 1981 C-corporation Georgia Oklahoma Quail Springs Cookies, Inc.................... April 20, 1982 C-corporation Georgia Oklahoma Westgate Cookies, Inc... August 30, 1982 S-corporation Texas Texas Hot White Plains Cookies, Inc........... September 23, 1992 S-corporation Georgia New York Hot Roosevelt Cookies, Inc.................... April 7, 1993 S-corporation Georgia New York Hot Rockaway Cookies.... April 11, 1996 -- Florida New Jersey </TABLE> Northpark Cookies, Inc.'s status of incorporation became inactive as of November 25, 1987. The successor in interest is Hot Barton and Northpark Cookies, Inc. The ASK & MSK Family Limited Partnership-II(B), Inc. (the "Partnership") was incorporated in Florida on April 11, 1996. On this date, the Partnership acquired Hot Roosevelt Cookies, Inc. and Hot White Plains Cookies, Inc. As these entities share common control, these acquisitions were accounted for in a manner similar to a pooling of interests. In addition, on April 11, 1996, the Partnership invested in the Hot Rockaway Cookies store. The Company operates retail stores that sell freshly baked cookies and other food products. The retail stores are franchised from Great American Cookie Company, Inc. ("GACC"). The entities that make up the Company have various fiscal year ends which have been recast to December 31 for purposes of these combined financial statements. These fiscal year ends are as follows: <TABLE> <CAPTION> Company Fiscal Year End ------- --------------- <S> <C> Hot Barton and Northpark Cookies, Inc....................... July 31 Northpark Cookies, Inc...................................... July 31 Crossroads Cookies, Inc..................................... November 30 Quail Springs Cookies, Inc.................................. November 30 Westgate Cookies, Inc....................................... December 31 Hot White Plains Cookies, Inc............................... December 31 Hot Roosevelt Cookies, Inc.................................. December 31 Hot Rockaway Cookies........................................ December 31 </TABLE> F-133

THE COMBINED KARP ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) The Company's business follows seasonal trends and is affected by climate and weather conditions. The Company experiences its highest revenues in the fourth quarter. Because the stores are located in shopping malls, sales performance is significantly dependent on the performance of those malls. As a franchisee of GACC, substantially all of the Entities' sales are derived from products purchased from GACC. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The individuals entities included within the combined financial statements operate under similar ownership and common control. All significant intercompany balances and transactions have been eliminated in the combination. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash, accounts payable and related-party payables. The carrying value of cash and accounts payable reported in the combined balance sheets are considered to approximate their respective fair values due to the short-term nature of such instruments and the current interest rate environment. The fair value of related-party payables at prevailing market rates is estimated to be $25,000 as of December 31, 1996, 1997 and June 30, 1998. Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the FIFO (first-in, first-out) method (see Note 3). Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the useful life of the improvement or the remaining term of the applicable lease. The depreciable lives of equipment and fixtures are ten years. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments that extend the useful lives of existing equipment are capitalized and depreciated. On retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in the statement of operations. Intangibles Intangibles consist primarily of franchise fees and store operating lease costs paid to GACC. Intangibles are being amortized on a straight-line basis over the lives of the franchise or lease agreements, which are generally ten years. F-134

THE COMBINED KARP ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events that have been recognized in the combined financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial and income tax bases of assets and liabilities using enacted tax rates expected to apply when differences are expected to be settled or realized. Revenue Recognition Revenues generated from the combined stores are recognized at the point of sale. Sources of Supply The Company currently buys a significant portion of their food products and supplies from GACC and an unrelated supplier. In accordance with the franchise agreements, the Company must buy its food products from GACC (see Note 6). Management believes that the Company could obtain its supplies from numerous other suppliers at comparable prices and terms. Long-Lived Assets The Company assesses and measures for impairment of long-lived assets, including intangibles, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events and circumstances have occurred that indicate possible impairment. In accordance with SFAS No. 121, the Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the remaining life in measuring whether assets are recoverable. The Company assesses impairment of long-lived assets at the store level, which management believes is the lowest level for which there are identifiable cash flows that are independent of other groups of assets. As of June 30, 1998, the Company does not consider any of its long-lived assets to be impaired. Recent Accounting Pronouncements During the six months ended June 30, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company does not expect the implementation of these pronouncements will have a significant impact on its financial statements. Interim Combined Financial Statements The combined financial statements as of and for the six months ended June 30, 1998 and for the six months ended June 30, 1997 are unaudited. In the opinion of management, these combined financial statements have been presented on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the combined financial position and results of operations for these periods. These combined interim financial statements are not necessarily indicative of the results that may be achieved for the full fiscal year. F-135

THE COMBINED KARP ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) 3. INVENTORIES The Company's inventories consist of the following as of December 31, 1996 and 1997 and June 30, 1998: <TABLE> <CAPTION> December 31, December 31, June 30, 1996 1997 1998 ------------ ------------ ----------- (Unaudited) <S> <C> <C> <C> Food................................... $38,000 $33,000 $40,000 Beverages.............................. 5,000 6,000 7,000 Supplies............................... 14,000 15,000 15,000 ------- ------- ------- $57,000 $54,000 $62,000 ======= ======= ======= </TABLE> 4. INCOME TAXES The following four entities are not included in income tax calculations due to their status as S-corporations or as a business operated within a partnership: Westgate Cookies, Inc., Hot White Plains Cookies, Inc., Hot Roosevelt Cookies, Inc. and Hot Rockaway Cookies. Had these entities been taxable entities, on a pro forma basis, an income tax provision (benefit) of approximately $22,000, $(27,000), $16,000, $(14,000) and $15,000 would have been provided for the years ended December 31, 1995, 1996, 1997 and the six months ended June 30, 1997 and 1998, respectively. Income taxes were provided for all entities with C-corporation status. The components of the provision for income taxes for the years ended December 31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998 are as follows: <TABLE> <CAPTION> December 31, December 31, December 31, June 30, June 30, 1995 1996 1997 1997 1998 ------------ ------------ ------------ ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> Federal: Current.... $10,000 $13,000 $ 9,000 $ 4,000 $ 3,000 Deferred... (2,000) (8,000) (12,000) (7,000) (3,000) State: Current.... 18,000 14,000 18,000 7,000 6,000 ------- ------- -------- ------- ------- Total........ $26,000 $19,000 $ 15,000 $ 4,000 $ 6,000 ======= ======= ======== ======= ======= </TABLE> The differences between income taxes at the statutory income tax rate and income taxes reported in the statements of operations are the result of permanent differences. The significant components of the Entities' deferred income tax assets and liabilities at December 31, 1996 and 1997 and June 30, 1998 are as follows: <TABLE> <CAPTION> December 31, December 31, June 30, 1996 1997 1998 ------------ ------------ ----------- (Unaudited) <S> <C> <C> <C> Deferred income tax assets: Accumulated depreciation........... $5,000 $ 9,000 $11,000 Net operating loss carryforwards... 3,000 8,000 9,000 Capital losses in excess of capital gains............................. -- 3,000 3,000 ------ ------- ------- Net deferred income tax assets... $8,000 $20,000 $23,000 ====== ======= ======= </TABLE> F-136

THE COMBINED KARP ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) 5. STOCKHOLDERS' EQUITY Share Data The individual entities had the following assigned par value, authorized and outstanding shares at December 31, 1996 and 1997, and June 30, 1998: <TABLE> <CAPTION> Shares Shares Entity Par Value Authorized Outstanding ------ --------- ---------- ----------- <S> <C> <C> <C> Hot Barton and Northpark Cookies, Inc. ... $0.10 1,000 200 Northpark Cookies, Inc. .................. 0.50 1,000,000 180,000 Crossroads Cookies, Inc. ................. 0.10 2,000 1,000 Quail Springs Cookies, Inc. .............. 0.10 1,000 500 Westgate Cookies, Inc. ................... 0.10 1,000 1,000 Hot White Plains Cookies, Inc. ........... 0.01 10,000 500 Hot Roosevelt Cookies, Inc. .............. 0.01 10,000 500 </TABLE> Capital Contributions The individual entities received the following capital contributions: <TABLE> <CAPTION> Year Ended Year Ended Six Months December 31, December 31, Ended Entity 1996 1997 June 30, 1998 ------ ------------ ------------ ------------- <S> <C> <C> <C> Hot Barton and Northpark Cookies, Inc. ............................ $ -- $ 7,000 $ -- Northpark Cookies, Inc. .......... -- -- 7,000 Crossroads Cookies, Inc. ......... -- -- -- Quail Springs Cookies, Inc. ...... -- -- -- Westgate Cookies, Inc. ........... -- -- -- Hot White Plains Cookies, Inc. ... 428,000 46,000 15,000 Hot Roosevelt Cookies, Inc. ...... 300,000 27,000 12,000 Hot Rockaway Cookies.............. 198,000 48,000 50,000 -------- -------- ------- $926,000 $128,000 $84,000 ======== ======== ======= </TABLE> Distributions The individual entities made the following distributions to stockholders: <TABLE> <CAPTION> Year Ended Year Ended Six Months December 31, December 31, Ended Entity 1996 1997 June 30, 1998 ------ ------------ ------------ ------------- <S> <C> <C> <C> Hot Barton and Northpark Cookies, Inc. ............................ $ (71,000) $ -- $ -- Northpark Cookies, Inc. .......... (120,000) (4,000) -- Crossroads Cookies, Inc. ......... (24,000) (3,000) -- Quail Springs Cookies, Inc. ...... (45,000) (45,000) (30,000) Westgate Cookies, Inc. ........... (107,000) (54,000) (42,000) Hot White Plains Cookies, Inc. ... -- -- -- Hot Roosevelt Cookies, Inc. ...... -- -- -- Hot Rockaway Cookies.............. -- -- -- --------- --------- -------- $(367,000) $(106,000) $(72,000) ========= ========= ======== </TABLE> F-137

THE COMBINED KARP ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) 6. RELATED-PARTY TRANSACTIONS Related-party Operating Leases The Company leases retail store facilities under long-term noncancelable operating lease agreements with remaining terms of one to nine years from GACC. The future minimum lease payments due under these operating leases as of December 31, 1997 are as follows: <TABLE> <CAPTION> Year Ending December 31, ------------------------ <S> <C> 1998............................................................ $ 370,000 1999............................................................ 347,000 2000............................................................ 240,000 2001............................................................ 222,000 2002............................................................ 110,000 Thereafter...................................................... 152,000 ---------- $1,441,000 ========== </TABLE> Each of these leases provides for contingent rentals based upon gross revenues. Total rental expense, which has been accounted for on a straight-line basis for escalating leases included above, for the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998 was approximately $457,000, $486,000, $553,000, $276,000 (unaudited) and $225,000 (unaudited), respectively. Franchise Royalties The Company pays GACC franchise royalties in connection with its franchise agreements with GACC. Franchise royalties are calculated as 7% of gross revenues (as defined in the individual agreements). During the years ended December 31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998, the Company incurred approximately $164,000, $165,000, $175,000, $80,000 (unaudited) and $83,000 (unaudited), respectively, for franchise royalties, which are included as part of selling and store occupancy costs in the accompanying combined statements of operations. As of December 31, 1996 and 1997 and June 30, 1998, approximately $21,000, $21,000 and $14,000 (unaudited), respectively, in franchise royalties were payable to GACC. Inventory The Company, in connection with its franchise agreements with GACC, purchases the majority of its inventory from GACC. During the years ended December 31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998, the Company purchased approximately $372,000, $406,000, $425,000, $190,000 (unaudited) and $178,000 (unaudited), respectively, in inventory from GACC. As of December 31, 1996 and 1997 and June 30, 1998, approximately $14,000, $24,000 and $8,000 (unaudited), respectively, were payable to GACC related to inventory purchases. Related-party Payables The related-party payables of $23,000, $23,000 and $23,000 (unaudited) as of December 31, 1996, December 31, 1997 and June 30, 1998 represent loans from stockholders to Hot Barton and Northpark Cookies, Inc. These loans are non- interest bearing and have no specific payment terms or maturity dates. F-138

THE COMBINED KARP ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) (Including Notes to Unaudited Periods) Management Fees Each entity was responsible for paying management fees to a company owned by a related party. For the years ended December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998, the Entities paid approximately $24,000, $60,000, $80,000, $40,000 (unaudited) and $40,000 (unaudited), respectively, in management fees. As of December 31, 1996 and 1997 and June 30, 1998 approximately $5,000, $7,000 and $7,000 (unaudited), respectively, were payable to a related party for management fees. 7. SUBSEQUENT EVENT On July 29, 1998, the Entities entered into individual Asset Purchase Agreements with Mrs. Fields' Original Cookies, Inc. In accordance with these agreements, Mrs. Fields' Original Cookies, Inc. purchased the following assets of the entities: leasehold rights and interests, tangible personal property, such as inventories and property and equipment, certain agreements between the sellers and GACC, customer and vendor lists, recipes and production techniques, store petty cash, deposits and prepaid expenses. On September 9, 1998, the agreements were completed. F-139

INDEPENDENT AUDITORS' REPORT To the Board of Directors and Partners The Cookie Conglomerate, Inc., Cookie Conglomerate, L.L.P., and The Cookie Conglomerate of Carolina Place, Inc. We have audited the accompanying combined balance sheets of THE COOKIE CONGLOMERATE, INC. AND AFFILIATES (The Cookie Conglomerate, L.L.P. and The Cookie Conglomerate of Carolina Place, Inc.) as of December 31, 1997 and 1996 and the related combined statements of operations, changes in equity [deficit] and cash flows for the years then ended. These financial statements are the responsibility of the Companies' and Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of THE COOKIE CONGLOMERATE, INC. AND AFFILIATES as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Habif, Arogeti & Wynne, P.C. Atlanta, Georgia November 12, 1998 F-140

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED BALANCE SHEETS DECEMBER 31, ASSETS <TABLE> <CAPTION> 1997 1996 ----------- ---------- <S> <C> <C> Current assets -------------- Cash................................................. $ 227,385 $ 184,963 Advances............................................. 0 0 Inventories.......................................... 52,029 61,909 Prepaid expenses..................................... 26,993 33,064 ----------- ---------- Total current assets................................. 306,407 279,936 ----------- ---------- Property and equipment, at cost ------------------------------- Equipment............................................ 720,050 688,156 Fixtures............................................. 174,103 174,103 Leasehold improvements............................... 679,892 679,892 ----------- ---------- 1,574,045 1,542,151 Accumulated depreciation............................. (1,099,171) ( 938,942) ----------- ---------- 474,874 603,209 ----------- ---------- Other assets ------------ Deposits............................................. 34,450 34,450 Franchise costs, net of accumulated amortization of $61,456 for 1997 and $49,122 for 1996............... 73,544 85,936 Organizational costs, net of accumulated amortization of $4,004 for 1997 and $6,832 for 1996.............. 1,854 3,026 Intangible assets, net of accumulated amortization of $13,394 for 1997 and $9,474 for 1996................ 45,406 49,326 Loan costs, net of accumulated amortization of $6,999 for 1997 and $1,729 for 1996........................ 4,708 9,978 ----------- ---------- 159,962 182,716 ----------- ---------- $ 941,243 $1,065,861 =========== ========== </TABLE> See auditors' report and accompanying notes F-141

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED BALANCE SHEETS DECEMBER 31, LIABILITIES AND EQUITY <TABLE> <CAPTION> 1997 1996 --------- ---------- <S> <C> <C> Current liabilities ------------------- Accounts payable....................................... $ 156,264 $ 191,219 Accrued expenses....................................... 160,482 139,164 Line-of-credit......................................... 40,000 80,000 Current portion of long-term debt...................... 155,107 176,098 --------- ---------- Total current liabilities............................. 511,853 586,481 --------- ---------- Other liabilities ----------------- Long-term debt, net of current portion................. 108,671 268,664 Deferred rent payable.................................. 81,998 84,182 --------- ---------- 190,669 352,846 --------- ---------- Equity (deficit) ---------------- Common stock, $1 par value, 20,000 shares of Class A (voting) authorized and 10,000 shares of Class B (nonvoting) authorized; 2,357 shares of Class A issued and outstanding....................................... 2,357 2,357 Additional paid-in capital............................. 473,643 473,643 Accumulated deficit.................................... (239,117) (330,174) Partner capital (deficit).............................. 1,838 (19,292) --------- ---------- 238,721 126,534 --------- ---------- $ 941,243 $1,065,861 ========= ========== </TABLE> See auditors' report and accompanying notes F-142

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, <TABLE> <CAPTION> 1997 1996 ---------- ---------- <S> <C> <C> Sales.................................................... $4,202,799 $3,651,231 Food cost of sales....................................... 1,097,277 1,042,314 ---------- ---------- Gross profit.......................................... 3,105,522 2,608,917 ---------- ---------- Selling, general, and administrative expenses............ 2,787,260 2,519,005 ---------- ---------- Interest expense......................................... 40,075 56,762 ---------- ---------- Net income............................................ $ 278,187 $ 33,150 ========== ========== </TABLE> See auditors' report and accompanying notes F-143

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 <TABLE> <CAPTION> Additional Partners' Common Paid-In Accumulated Capital Stock Capital Deficit (Deficit) Total ------ ---------- ----------- --------- --------- <S> <C> <C> <C> <C> <C> Balances, December 31, 1995.......... $2,357 $473,643 $(255,382) $ (60,217) $ 160,401 Net income (loss)........... (71,792) 104,942 33,150 Dividends paid.............. (3,000) (64,017) (67,017) ------ -------- --------- --------- --------- Balances, December 31, 1996.......... 2,357 473,643 (330,174) (19,292) 126,534 Net income.................. 91,057 187,130 278,187 Dividends paid.............. 0 (166,000) (166,000) ------ -------- --------- --------- --------- Balances, December 31, 1997.......... $2,357 $473,643 $(239,117) $ 1,838 $ 238,721 ====== ======== ========= ========= ========= </TABLE> See auditors' report and accompanying notes F-144

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, Increase (Decrease) In Cash <TABLE> <CAPTION> 1997 1996 --------- --------- <S> <C> <C> Cash flows from operating activities Net income............................................... $ 278,187 $ 33,150 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation........................................... 160,229 198,535 Amortization........................................... 22,754 25,882 Changes in assets and liabilities Decrease in advances.................................. 0 1,600 Decrease in inventories............................... 9,880 10,915 Decrease (Increase) in prepaid expenses............... 6,071 (6,793) Decrease in deposits.................................. 0 8,767 Decrease in accounts payable.......................... (34,955) (56,024) Increase in accrued expenses.......................... 21,318 34,500 Increase (Decrease) in deferred rent payable.......... (2,184) 16,830 --------- --------- Total adjustments................................... 183,113 234,212 --------- --------- Net cash provided by operating activities............... 461,300 267,362 --------- --------- Cash flows from investing activities Acquisition of property and equipment.................... (31,894) (87,109) Franchise costs reimbursed............................... 0 8,000 Loan costs incurred...................................... 0 (9,462) --------- --------- Net cash used by investing activities................... (31,894) (88,571) --------- --------- Cash flows from financing activities Net proceeds from (payments on) line-of-credit........... (40,000) 55,000 Payments on long-term debt............................... (180,984) (161,252) Dividends paid........................................... (166,000) (67,017) --------- --------- Net cash used by financing activities................... (386,984) (173,269) --------- --------- Net increase in cash.............................. 42,422 5,522 Cash, beginning of year................................... 184,963 179,441 --------- --------- Cash, end of year................................. $ 227,385 $ 184,963 --------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the years for Interest................................................. $ 36,616 $ 55,347 </TABLE> See auditors' report and accompanying notes F-145

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Combination Policy The accompanying combined financial statements include the accounts of The Cookie Conglomerate Inc., The Cookie Conglomerate, L.L.P., and The Cookie Conglomerate of Carolina Place, Inc., all of which are under common control. Intercompany transactions and balances have been eliminated in the combination. Nature of Operations The Companies and Partnership operate retail cookie stores in North Carolina, South Carolina, and Ohio. The stores are franchised from Great American Cookie Company, Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc. Inventories Inventories are valued at the lower of cost or market with cost determined on the first-in, first-out method. Property and Equipment Property and equipment is carried at cost. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized. Depreciation is provided using both the straight-line and accelerated methods over the estimated useful lives of the assets which are as follows: <TABLE> <CAPTION> <S> <C> Equipment.......................................... 5 years Fixtures........................................... 7 years Leasehold improvements............................. Life of related lease </TABLE> Franchise Costs Franchise costs represent amounts paid to open the stores and for operating under the name of Great American Cookie Company, Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc. These costs are being amortized over eight to fifteen years using the straight-line method of amortization. Organizational Costs Organizational costs are carried at cost. Amortization is provided using the straight-line method over a period of sixty months. Intangible Assets: Intangible assets include goodwill and restrictive convenant fees. Goodwill represents the excess of the cost of the Carolina Place franchise over the fair value of its net assets at the date of acquisition. Restrictive convenant fees represent the costs of a non-compete agreement with the previous owners of the Carolina Place franchise. These assets are being amortized on the straight-line method over fifteen years. Loan Costs Loan costs represent bank loan and closing fees incurred in connection with the procurement of long-term debt. These costs are being amortized over the terms of the related loan agreements, which are two to five years. F-146

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES NOTES TO FINANCIAL STATEMENT--(Continued) DECEMBER 31, 1997 AND 1996 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Cookie Conglomerate, Inc. and The Cookie Conglomerate of Carolina Place, Inc. elected by unanimous consent of its stockholders to be taxed under the provisions of subchapter S of the Internal Revenue Code. Under those provisions, the Companies do not pay corporate income taxes on their taxable income. Instead, the stockholders are liable for individual income taxes on their respective shares of the Company's taxable income. The Cookie Conglomerate, L.L.P. is also not subject to income tax. Income is taxed directly to its partners. On December 30, 1997, the partners elected to become a limited liability partnership under the Georgia Uniform Partnership Act. Compensated Absences Employees of the Companies and Partnership are entitled to paid vacation, paid sick days and personal days off, depending on job classification, length of service, and other factors. It is impractical to estimate the amount of compensation for future absences, and accordingly, no liability has been recorded in the accompanying financial statements. The Companies' and Partnership's policy is to recognize the costs of compensated absences when actually paid to employees. Estimates The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. B. LINES-OF-CREDIT A summary of the lines-of-credit is as follows: <TABLE> <CAPTION> Collateral 1997 1996 ---------- ------- ------- <S> <C> <C> <C> Riverside Bank -- $100,000 Guarantee of Ronald Eichel, note payable dated Alan Kuehn, and Cookie September 30, 1996 with Conglomerate, Inc. interest payable monthly at prime plus 1%. Principal payable at maturity on September 30, 1997. $ 0 $80,000 Riverside Bank -- $100,000 Inventory, accounts note payable dated November receivable, 4, 1997 with interest equipment, general payable monthly at prime intangibles, plus 1%. Principal payable corporate guarantee of Cookie at maturity on November 4, Conglomerate Partnership, 1998. personal guarantees of Ronald Eichel, Nancy Eichel, and Alan Kuehn. 40,000 0 ------- ------- $40,000 $80,000 ======= ======= </TABLE> F-147

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES NOTES TO FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1997 AND 1996 C. LONG-TERM DEBT Long-term debt consists of the following at December 31: <TABLE> <CAPTION> Collateral 1997 1996 ---------- -------- -------- <S> <C> <C> <C> Tony Hege - $160,000 note Notes and accounts payable dated July 18, receivable, 1994. Principal payments inventory, fixtures and of $1,905 plus interest equipment. at 9% per annum payable monthly beginning August 10, 1994 until July 10, 1998 when remaining principal due. $ 77,778 $104,762 Alan Kuehn (stockholder)-- Notes and accounts $20,000 note payable at receivable, 9%. Interest only payable inventory, fixtures and through December of 1995. equipment. Principal payments of $417 plus interest due monthly through July 10, 1998 when remaining principal due. Interest expense incurred for each year totals $3,600. 20,000 20,000 Ron Eichel (stockholder)-- Notes and accounts $20,000 note payable at receivable, 9%. Interest only payable inventory, fixtures and through December of 1995. equipment. Principal payments of $417 plus interest due monthly through July 10, 1998 when remaining principal due. Interest expense incurred for each year totals $3,600. 20,000 20,000 Riverside Bank--$106,222 Inventory, equipment, note payable dated accounts September 30, 1996 with receivable, general 50 monthly installment intangibles. payments of principal and Personal guarantees of Ronald interest of $2,574 Eichel, Nanci Eichel, Alan beginning on October 30, Kuehn 1996. Interest at 9.25%. and corporate guarantee of Matures November 30, Cookie 2000. Conglomerate Partnership. 76,000 100,000 Riverside Bank--$196,747 Inventory, equipment, note payable dated accounts September 30, 1996 with receivable, general 25 monthly installment intangibles. payments beginning Personal guarantees of Ronald October 30, 1996 of Eichel and Alan Kuehn principal of $7,870 plus and corporate guarantee of interest at prime plus Cookie 1%. Matures October 30, Conglomerate Partnership. 1998. 70,000 173,000 Riverside Bank--$30,837 Inventory, accounts note payable dated receiveable, September 30, 1996 with general intangibles. 25 monthly installment Corporate payments beginning guarantee of Cookie October 30, 1996 of Conglomerate principal of $1,233 plus partnership, personal interest at 9.25%. guarantees Matures October 30, 1998. of Ronald Eichel, Nanci Eichel and Alan Kuehn. 0 27,000 -------- -------- 263,778 444,762 Less: Current maturities 155,107 176,098 -------- -------- $108,671 $268,664 ======== ======== </TABLE> F-148

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES NOTES TO FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1997 AND 1996 C. LONG-TERM DEBT (Continued) Following are maturities of long-term debt for each of the next five years: <TABLE> <CAPTION> December 31, ------------ <S> <C> 1998............................................................... $155,107 1999............................................................... 49,907 2000............................................................... 49,557 2001............................................................... 9,207 2002............................................................... 0 -------- $263,778 ======== </TABLE> D. COMMITMENTS The Cookie Conglomerate, Inc. and Affiliates are the lessee of store space in various malls under sublease arrangements with Great American Cookie Company, Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc. Minimum future lease payments under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 1997 for each of the next five years and in total are: <TABLE> <CAPTION> December 31, ------------ <S> <C> 1998............................................................ $ 481,036 1999............................................................ 454,143 2000............................................................ 297,246 2001............................................................ 237,789 2002............................................................ 195,536 Thereafter...................................................... 353,804 ---------- $2,019,554 ========== </TABLE> Additional rental payments are contingent on sales exceeding certain breakpoint levels specified in each lease. Rent expense totaled $640,870 for 1997 and $620,355 for 1996. Franchise agreements provide for the Companies and Partnership to pay annual service fees equal to 7% of gross sales. The service fees due the franchiser in connection with these agreements are due on a monthly basis. The franchise agreements end simultaneously with the termination of the lease of the premises in which the cookie facilities are located. E. SUBSEQUENT EVENT The Cookie Conglomerate of Carolina Place, Inc. effectively merged with The Cookie Conglomerate, Inc. on January 1, 1998. The Cookie Conglomerate, Inc. and The Cookie Conglomerate, L.L.P. entered into an asset purchase agreement on October 5, 1998 with Mrs. Fields' Original Cookies, Inc. to sell substantially all the assets of the Company and Partnership. F-149

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED BALANCE SHEET SEPTEMBER 30, 1998 (Unaudited) ASSETS <TABLE> <CAPTION> September 30, 1998 ------------- <S> <C> Current assets -------------- Cash............................................................ $135,749 Inventories..................................................... 71,635 Other current assets............................................ 2,011 -------- Total current assets........................................... 209,395 Property and equipment, net...................................... 435,604 Intangibles, net................................................. 111,490 Other assets..................................................... 34,451 -------- $790,940 ======== LIABILITIES AND STOCKHOLDERS' EQUITY <CAPTION> Current liabilities ------------------- <S> <C> Accounts payable................................................ $101,243 Accrued expenses................................................ 91,213 Current portion of long-term debt............................... 121,621 -------- Total current liabilities...................................... 314,077 <CAPTION> Other liabilities ----------------- <S> <C> Long-term debt, net of current portion.......................... 29,366 -------- Total liabilities.............................................. 343,443 -------- <CAPTION> Stockholders' equity -------------------- <S> <C> Common stock, $1 par value, 20,000 shares of Class A [voting] authorized and 10,000 Shares of Class B [nonvoting] authorized; 2,357 shares of Class A issued and outstanding................. 2,357 Additional paid-in capital...................................... 473,643 Partner capital................................................. 23,629 Accumulated Deficit............................................. (52,132) -------- 447,497 -------- $790,940 ======== </TABLE> See footnote F-150

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited) <TABLE> <CAPTION> 1998 1997 ---------- ---------- <S> <C> <C> Sales...................................................... $2,906,499 $2,926,659 Cost of sales.............................................. 2,313,079 2,388,393 ---------- ---------- Gross profit............................................. 593,420 538,266 Selling, general, and administrative expenses.............. 389,462 380,901 Interest expense........................................... 16,972 27,649 ---------- ---------- Net income............................................... $ 186,986 $ 129,716 ========== ========== </TABLE> See footnote F-151

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited) Increase (Decrease) In Cash <TABLE> <CAPTION> 1998 1997 --------- --------- <S> <C> <C> Cash flows from operating activities ------------------------------------ Net income.............................................. $ 186,985 $ 129,716 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation & amortization............................ 117,584 125,688 Changes in assets and liabilities Increase (decrease) in inventories.................... (19,606) 7,908 Decrease in prepaid expenses.......................... 24,981 28,124 Decrease in accounts payable & accrued expenses....... (246,288) (212,000) --------- --------- Total adjustments.................................... (123,329) (50,280) --------- --------- Net cash provided by operating activities........... 63,656 79,436 --------- --------- Cash flows from investing activities ------------------------------------ Acquisition of equipment................................ (64,292) (25,003) --------- --------- Net cash used by investing activities.................. (64,292) (25,003) --------- --------- Cash flows from financing activities ------------------------------------ Dividends paid.......................................... (43,906) (43,365) Payments on long-term debt and line-of-credit........... (47,095) (76,854) --------- --------- Net cash used by financing activities.................. (91,001) (120,219) --------- --------- Net decrease in cash.................................. (91,637) (65,786) Cash, beginning of period............................... 227,385 184,963 --------- --------- Cash, end of period................................... $ 135,748 $ 119,177 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ------------------------------------------------- <CAPTION> 1998 1997 --------- --------- <S> <C> <C> Cash paid during the years for interest................. $ 16,972 $ 27,649 </TABLE> See footnote F-152

THE COOKIE CONGLOMERATE, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) (1)BASIS OF PRESENTATION The accompanying interim unaudited combined financial statements have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission, and accordingly, do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, these combined financial statements reflect all adjustments, which consist only of normal recurring adjustments, which are necessary to present fairly the Company's financial position as of September 30, 1998 and results of operations and cash flows for the nine months ended September 30, 1998 and September 30, 1997. These interim unaudited combined financial statements should be read in conjunction with the audited combined financial statements and notes to it included in this filing. F-153

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors Pretzelmaker Holdings, Inc. and Subsidiaries Denver, Colorado We have audited the accompanying consolidated balance sheet of Pretzelmaker Holdings, Inc. and Subsidiaries as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pretzelmaker Holdings, Inc. and Subsidiaries at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, during 1997 the Company's subsidiary became non-compliant with the covenants under its bank debt agreements and the lender has not agreed to provide waivers. Accordingly, such debt has been reclassified as a current liability since, due to the covenant default, the lender has the right to accelerate the repayment of the loans. AJ. ROBBINS, PC CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS Denver, Colorado December 11, 1998 F-154

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors Pretzelmaker Holdings, Inc. and Subsidiaries Denver, Colorado We have audited the accompanying consolidated balance sheet of Pretzelmaker Holdings, Inc. and Subsidiaries as of December 31, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the period from inception (February 24, 1995) to December 31, 1995 and for the year ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pretzelmaker Holdings, Inc. and Subsidiaries at December 31, 1996, and the results of its operations and its cash flows for the period from inception (February 24, 1995) to December 31, 1995 and for the year ended December 31, 1996 in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Denver, Colorado February 7, 1997 F-155

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Substantially all pledged) <TABLE> <CAPTION> December 31, --------------------- September 30, 1996 1997 1998 ---------- ---------- ------------- (Unaudited) <S> <C> <C> <C> CURRENT ASSETS: Cash...................................... $ 95,914 $ 115,805 $ 216,261 Accounts receivable, net of allowance for doubtful accounts of $10,000, $10,000 and $45,000.................................. 485,002 642,821 510,904 Due from affiliates....................... 77,904 46,129 24,809 Refundable income taxes................... -- 56,524 -- Inventories............................... 31,583 74,226 47,400 Prepaid expenses and supplies............. 14,126 237 22,677 ---------- ---------- ---------- Total Current Assets.................... 704,529 935,742 822,051 ---------- ---------- ---------- PROPERTY AND EQUIPMENT: Store fixtures and equipment.............. 719,509 872,864 646,598 Leasehold improvements.................... 336,301 416,631 267,233 Computer equipment........................ 54,346 71,761 70,811 Furniture and fixtures.................... 54,264 54,134 34,959 ---------- ---------- ---------- 1,164,420 1,415,390 1,019,601 Less accumulated depreciation and amortization............................. 150,336 341,523 453,193 ---------- ---------- ---------- Net Property and Equipment................ 1,014,084 1,073,867 566,408 ---------- ---------- ---------- OTHER ASSETS: Intangible assets, net of accumulated amortization............................. 1,414,628 1,258,470 1,141,351 Deferred tax asset........................ 62,000 62,000 62,000 Other assets.............................. 122,762 46,880 62,533 Restricted cash........................... -- 64,575 59,112 ---------- ---------- ---------- Total Other Assets...................... 1,599,390 1,431,925 1,324,996 ---------- ---------- ---------- $3,318,003 $3,441,534 $2,713,455 ========== ========== ========== </TABLE> See accompanying notes to consolidated financial statements F-156

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> December 31, ---------------------- September 30, 1996 1997 1998 ---------- ---------- ------------- (Unaudited) <S> <C> <C> <C> CURRENT LIABILITIES: Bank debt............................... $ -- $ 732,916 $ 443,742 9% Notes payable in 1998................ -- 215,587 38,500 Accounts payable........................ 367,904 461,124 330,541 Accruals and other payables............. 47,810 138,065 185,213 Income taxes payable.................... 70,000 23,449 -- Deferred initial franchise fees......... 357,760 151,500 214,950 Current maturities of long-term debt.... 151,797 45,647 49,141 Current portion of non-compete agreements............................. 130,416 151,418 168,082 ---------- ---------- ---------- Total Current Liabilities............. 1,125,687 1,919,706 1,430,169 ---------- ---------- ---------- LONG-TERM OBLIGATIONS: Long-term debt, less current maturities............................. 288,639 237,130 180,555 Unsecured promissory notes.............. 534,000 540,000 540,000 Non-compete agreements payable.......... 327,221 175,803 -- Deferred revenues....................... -- -- 180,906 ---------- ---------- ---------- Total Liabilities..................... 2,275,547 2,872,639 2,331,630 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY: Common stock, $0.001 par value; shares authorized 1,000,000; shares issued and outstanding 135,155.. 135 135 135 Additional paid-in capital.............. 1,070,814 1,070,814 1,070,814 Accumulated deficit..................... (28,493) (502,054) (689,124) ---------- ---------- ---------- Total Stockholders' Equity............ 1,042,456 568,895 381,825 ---------- ---------- ---------- $3,318,003 $3,441,534 $2,713,455 ========== ========== ========== </TABLE> See accompanying notes to consolidated financial statements. F-157

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> February 24 Nine Months Ended (Inception) to Years Ended December 31, September 30, December 31, ------------------------- ------------------------ 1995 1996 1997 1997 1998 -------------- ----------- ------------ ------------------------ (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> REVENUES : Franchising............ $ 706,410 $1,663,846 $2,026,385 $1,415,632 $1,538,486 Net company-owned store sales................. 254,124 1,061,889 1,818,919 1,222,149 1,038,775 Initial franchise fees.................. 435,988 893,099 778,294 593,285 186,202 Product and equipment revenue 329,523 1,795,262 1,441,815 1,322,613 598,068 ---------- ---------- ---------- ---------- ---------- Total Revenues........ 1,726,045 5,414,096 6,065,413 4,553,679 3,361,531 ---------- ---------- ---------- ---------- ---------- COSTS AND EXPENSES: General and administrative expenses.............. 1,088,763 2,588,832 2,685,646 2,007,944 1,546,513 Company-owned stores expenses.............. 275,163 1,104,908 1,815,775 1,370,404 992,336 Product and equipment costs................. 209,910 1,173,866 921,131 895,829 121,254 Losses on store closings and asset dispositions.......... -- -- 340,491 153,611 108,858 Litigation settlement.. -- -- 148,702 148,702 -- Depreciation and amortization.......... 156,382 291,862 402,693 288,566 627,337 Interest expense....... 89,247 157,242 224,536 171,316 152,303 ---------- ---------- ---------- ---------- ---------- Total Costs and Expenses............. 1,819,465 5,316,710 6,538,974 5,036,372 3,548,601 ---------- ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE TAXES ON INCOME (93,420) 97,386 (473,561) (482,693) (187,070) TAXES ON INCOME -- 32,459 -- -- -- ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (93,420) $ 64,927 $ (473,561) $ (482,693) $ (187,070) ========== ========== ========== ========== ========== </TABLE> See accompanying notes to consolidated financial statements F-158

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> Common Stock Additional -------------- Paid-in Accumulated Shares Amount Capital Deficit Total ------- ------ ---------- ----------- ---------- <S> <C> <C> <C> <C> <C> Balances at February 24, 1995 (Inception)........... -- $-- $ -- $ -- $ -- Issuance of Capital Stock.. 135,155 135 1,070,814 -- 1,070,949 Net loss for the period.... -- -- -- (93,420) (93,420) ------- ---- ---------- --------- ---------- Balances at December 31, 1995....................... 135,155 135 1,070,814 (93,420) 977,529 Net income for the year.... -- -- -- 64,927 64,927 ------- ---- ---------- --------- ---------- Balances at December 31, 1996....................... 135,155 135 1,070,814 (28,493) 1,042,456 Net loss for the year...... -- -- -- (473,561) (473,561) ------- ---- ---------- --------- ---------- Balances at December 31, 1997....................... 135,155 135 1,070,814 (502,054) 568,895 Net loss for the period (unaudited)............... -- -- -- (187,070) (187,070) ------- ---- ---------- --------- ---------- Balances at September 30, 1998 (unaudited)........... 135,155 $135 $1,070,814 $(689,124) $ 381,825 ======= ==== ========== ========= ========== </TABLE> See accompanying notes to consolidated financial statements F-159

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> February 24, Years Ended Nine Months Ended (Inception) to December 31, September 30, December 31, -------------------- ---------------------- 1995 1996 1997 1997 1998 -------------- --------- --------- ----------- ---------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)...... $ (93,420) $ 64,927 $(473,561) $(482,693) $(187,070) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amor- tization............. 156,382 291,862 402,693 288,566 627,337 Loss on disposal of equipment............ -- -- 108,890 6,795 (76,601) Interest accretion.... 73,637 69,974 51,884 38,904 23,161 Deferred revenues..... -- -- -- -- 180,906 Deferred income tax- es................... (22,000) (40,000) -- -- -- Accounts receivable allowance............ 5,000 5,000 -- -- 35,000 Changes in operating assets and liabilities: Accounts receivable.. (172,836) (211,469) (81,319) (52,693) 71,917 Refundable income taxes............... (23,000) 23,000 (56,524) -- 56,524 Inventories.......... (11,254) (18,779) (42,643) (60,727) 26,826 Due from affiliates.. -- (77,904) 31,775 51,565 21,320 Prepaid expenses and supplies............ (14,126) -- 13,889 (24,722) (22,440) Accounts payable..... 147,000 184,788 72,520 255,828 (130,583) Accruals and other payables............ 62,995 (86,315) 110,955 52,476 23,699 Income taxes pay- able................ -- 70,000 (46,551) (70,000) -- Deferred initial franchise fees...... 90,679 16,561 (206,261) (147,910) 63,450 --------- --------- --------- --------- --------- Net Cash Provided by (Used in) Operating Activities............ 199,057 291,645 (114,253) (144,611) 713,446 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment......... (445,612) (665,948) (278,529) (161,209) (75,296) Proceeds from sale of property and equipment............. -- -- 199,564 191,064 166,361 Purchase of business, net of cash acquired.. (333,784) -- -- -- -- Other assets........... (63,003) (70,451) 80,335 49,972 (7,876) Restricted cash........ -- -- (64,575) (69,560) 5,463 --------- --------- --------- --------- --------- Net Cash Provided by (Used in) Investing Activities............ (842,399) (736,399) (63,205) 10,267 88,652 --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of capital stock...... 795,000 -- -- -- -- Proceeds from notes payable............... 399,000 593,878 518,426 406,728 -- Principal payments on notes payable......... -- (49,727) (128,928) (84,804) (466,261) Principal payments on non-compete agreements............ (360,000) (182,300) (182,300) (182,300) (182,300) Principal payments on capital lease obligations........... (3,165) (8,676) (9,849) (3,830) (53,081) --------- --------- --------- --------- --------- Net Cash Provided by (Used in) Financing Activities............ 830,835 353,175 197,349 135,794 (701,642) --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH................ 187,493 (91,579) 19,891 1,450 100,456 CASH BALANCE, beginning of period.............. -- 187,493 95,914 95,914 115,805 --------- --------- --------- --------- --------- CASH BALANCE, end of pe- riod................... $ 187,493 $ 95,914 $ 115,805 $ 97,364 $ 216,261 ========= ========= ========= ========= ========= </TABLE> See accompanying notes to consolidated financial statements F-160

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the Nine Months Ended September 30, 1997 and 1998 is Unaudited.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Pretzelmaker Holdings, Inc. and Subsidiaries (the Company), was incorporated on February 24, 1995 and acquired all the issued and outstanding common stock of Pretzelmaker, Inc. (Pretzelmaker) on March 28, 1995. Pretzelmaker holds legal title to certain trademarks and recipes for specialty bakery products. Pretzelmaker licenses use of the trademarks and recipes to qualified third parties for the establishment and operation of Pretzelmaker stores. In connection with these licensing activities, Pretzelmaker will require third- party-licensees to use certain business formats, systems, methods, procedures, designs, layouts, specifications, tradenames and trademarks. There are licensed locations located throughout the United States and Canada, as well as Korea. Pretzelmaker also operates company-owned stores and sports venues for the sale of its bakery products. On September 26, 1996, Pretzelmaker Canada, Inc. (Canada) was incorporated. Pretzelmaker owns all the issued and outstanding stock of Canada. Canada has a master franchise agreement with Pretzelmaker which covers all locations in Canada. Basis of Presentation The Consolidated financial statements include the accounts of the Company, Pretzelmaker and Canada, its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The acquisition of Pretzelmaker has been accounted for as a purchase and accordingly these consolidated financial statements include the results of Pretzelmaker from the date of acquisition forward. Unaudited Information The accompanying consolidated financial statements as of September 30, 1998 and for the nine months ended September 30, 1997 and 1998 are unaudited and have been prepared on a substantially equivalent basis with that of the annual consolidated financial statements. In the opinion of management, the unaudited information contains all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's consolidated financial position and results of operations as of September 30, 1998 and for such periods. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial Instruments and Credit Risk Concentration Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable. The Company places its cash in what it believes to be highly rated financial institutions. The balance in each cash account maintained in the United States is insured by the Federal Deposit Insurance Corporation up to $100,000. From time to time, balances in these accounts may exceed the insured limits. F-161

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the Nine Months Ended September 30, 1997 and 1998 is Unaudited.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Concentrations of credit risk with respect to accounts receivable are limited due to a broad franchisee base and generally short payment terms. Cash and Equivalents For the purposes of the statement of cash flows, the Company considers cash and all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories consisting of food products, ovens, belts and promotional materials are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets as follows: <TABLE> <S> <C> Store fixtures and equipment................................. 5-7 years Leasehold improvements....................................... Term of lease Computers and equipment...................................... 5 years Furniture and fixtures....................................... 7 years </TABLE> Intangible Assets Intangible assets consist primarily of goodwill and non-compete agreements, which arose in connection with the acquisition of Pretzelmaker by the Company in 1995. The goodwill and non-compete agreements are being amortized over periods of fifteen and nine years, respectively. Revenue Recognition Revenues generated from company-owned stores are recognized at the point of sale. Initial franchise fees are recognized after the Company has completed performance of its initial license obligations. A portion of the franchise fee revenue is deferred until commencement of operations of the licensee's location. Franchise and license royalties, which are based upon a percentage of gross store sales, are recognized as earned. Advance payments received from suppliers are recorded as deferred revenues and recognized as income over the life of the related supply agreement. Income Taxes The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial and income tax basis of assets and liabilities using enacted tax rates expected to apply when differences are expected to be settled or realized. Valuation allowances will be established when necessary, to reduce deferred tax assets to the amount expected to be realized. F-162

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the Nine Months Ended September 30, 1997 and 1998 is Unaudited.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign Currency Translation The functional currency for the Company's foreign operations is the applicable local currency. The translation of the applicable foreign currency into U.S. dollars is computed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains and losses resulting from such translation are immaterial. Recent Accounting Pronouncement During the nine months ended September 30, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires an "all-inclusive" income presentation approach which specifies that all revenues, expenses, gains and losses recognized during the period be reported in income, regardless of whether they are considered to be results of operations of the period. The adoption of SFAS No. 130 had no material impact on the Company's financial statement presentation. Reclassifications Certain reclassifications have been made in the prior period consolidated financial statements to conform with the current period presentation. Year 2000 Issues Management of the Company has assessed the year 2000 issue and has determined that its financial software and related corporate systems and retail sales data collecting systems are not year 2000 compliant. As a result of the acquisition of the Company (Note 12) all of the Company's year 2000 non-compliant systems will be converted to Mrs. Fields' systems by early 1999. NOTE 2--BANK DEBT During April 1997, the Company through Pretzelmaker established a $300,000 line-of-credit with a bank and subsequently finalized a term loan facility to repay then outstanding term debt as well as to provide financing for expansion equipment and fixtures. Advances under the line-of-credit were made based upon 75% of eligible accounts receivable and 30% of allowable inventories. Advances under the term loan facility are repayable in 36 monthly installments, plus interest. Interest on amounts outstanding on the bank debt is computed at the bank's prime rate plus 1% and the debt is collateralized by the Company's accounts receivable, inventories, intangibles and property and equipment. F-163

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the Nine Months Ended September 30, 1997 and 1998 is Unaudited.) NOTE 2--BANK DEBT (Continued) The following amounts were outstanding under the bank debt agreements: <TABLE> <CAPTION> December 31, September 30, 1997 1998 ------------ ------------- (Unaudited) <S> <C> <C> Line-of-credit.................................. $300,000 $279,692 Term loans, payable $14,114 monthly, plus interest....................................... 432,916 164,050 -------- -------- Total......................................... $732,916 $443,742 ======== ======== </TABLE> Under the terms of the agreements, the Company is subject to certain debt covenants, which include, among other items, limitations on capital expenditures, minimum tangible net worth and debt coverage ratio amounts and maximum leverage ratio (all as defined under the agreements). As of December 31, 1997 and September 30, 1998 the Company was not in compliance with the covenant requirements and the lender has not agreed to provide waivers of such violations. Accordingly, the term debt which by its original terms would have been classified as a long-term obligation, has been reclassified as a current liability due to the default, as the lender has the right to accelerate the repayment of the loans. Subsequent to the acquisition as discussed in Note 12, Mrs. Fields is in discussions with the lender regarding repayment or refinancing. All required payments under the terms of the debt are current and on March 5, 1998, by mutual agreement with the lender, the Company made a $200,000 prepayment on the term loan portion of the debt. Subsequent to December 31, 1997, advances under the line-of-credit were frozen and an agreement was reached to extend the repayment of the line-of-credit balance to January 31, 1999. As of December 31, 1996 there was approximately $409,000 outstanding in 10.1% to 10.25% term loans, payable to a bank in monthly installments through October 1999. Such amounts, which at that time totaled approximately $360,000 were repaid out of proceeds from the Company's new term loan facility discussed above. NOTE 3--STOCKHOLDERS' EQUITY Preferred Stock The Company's Articles of Incorporation authorize $0.001 par value, non- voting preferred stock in series A (300,000 shares authorized) and series B (800 shares authorized). In connection with the 1995 acquisition of Pretzelmaker by the Company, there were 275,942 share of series A and 800 shares of series B preferred shares issued. The series A and B shares contained dividends and liquidation preferences, cumulative dividend rights and were convertible into common stock of the Company under terms as defined in the agreements. No dividends were paid on the preferred shares. In connection with the acquisition of the Company discussed in Note 12, the 275,942 shares of series A and 800 shares of series B preferred stock were converted into 35,155 shares of common stock. The accompanying financial statements retroactively reflect the conversion (which has no affect on total stockholders' equity amounts) for all periods presented. F-164

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the Nine Months Ended September 30, 1997 and 1998 is Unaudited.) NOTE 3--STOCKHOLDERS' EQUITY (Continued) Stock Options The Company has 35,000 shares of common stock reserved for issuance under three stock option plans (Incentive Stock Option Plan, Non-Qualified Stock Option Plan and Stock Bonus Plan) collectively referred to as the "Plan". Through December 31, 1997, options to acquire 13,250 shares had been granted at exercise prices ranging from $13.20 to $25.00 per share. There were no options granted in 1998. The Company applies APB Opinion No. 25, Accounting for Stock Issues to Employees, in accounting for its plans. FASB Statement No. 123, Accounting for Stock-Basis Compensation, requires the Company to provide pro forma information regarding net income as if compensation cost for the Company's stock option plans has been determined in accordance with the fair value based method prescribed in FASB Statement No. 123. Under the accounting provisions of FASB Statements No. 123 the Company's reported net income (loss) would not have been materially impacted for the periods presented under FASB Statement No. 123. As part of the acquisition of the Company discussed in Note 12, all of the stock options were cancelled in connection with the consulting, bonus and service agreements. NOTE 4--NON-COMPETE AGREEMENTS In connection with the 1995 acquisition of Pretzelmaker, the Company entered into non-compete agreements with the two principal former owners of Pretzelmaker. The non-interest bearing obligations have been recorded as a liability on a discounted present value basis using an imputed interest rate of 15%. The agreements require annual payments of $182,300 and as of December 31, 1997, future minimum payments under the obligations are summarized as follows: <TABLE> <CAPTION> Years Ending December 31, Amount ------------------------- --------- <S> <C> 1998.............................................................. $ 182,300 1999.............................................................. 182,300 --------- Total Payments.................................................... 364,600 Less: Amounts Representing Interest............................... (37,379) --------- Present Value of Payments......................................... 327,221 Less: Current Portion............................................. (151,418) --------- $ 175,803 ========= </TABLE> NOTE 5--UNSECURED PROMISSORY NOTES During 1995, the Company issued 15% unsecured promissory notes due September 30, 2000 to various parties, who at the time, were also shareholders of the Company. In addition to the stated interest, which is payable quarterly, the notes also contain a net profits interest, as defined, in all Pretzelmaker company-owned stores and sports venues. Through September 30, 1998, there has been no net profit interest due under the agreements. In connection with the acquisition of the Company during November 1998 (as discussed in Note 12), the acquirer has agreed to repay the outstanding unsecured promissory notes in January, 1999. F-165

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the Nine Months Ended September 30, 1997 and 1998 is Unaudited.) NOTE 6--CAPITAL LEASE OBLIGATIONS At December 31, 1997 included with long-term debt are capitalized lease obligations incurred for store equipment, fixtures and improvements. The obligations bear implicit interest rates of 16.9% to 21.6% and require total monthly payments of approximately $6,800, decreasing as the leases are paid off through October 2001. Total future payments required under the lease obligations at December 31, 1997 are approximately $78,600 in 1998, $76,300 in 1999, $66,800 in 2000 and $67,300 in 2001. As of December 31, 1997, property and equipment includes $197,469 acquired through capital leases. Accumulated depreciation related to these assets was $19,183. NOTE 7--COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases retail store facilities and corporate office space under long-term non-cancelable operating lease agreements requiring monthly payments over their remaining terms which expire through 2007. Certain of the retail store leases also provide for contingent rentals based upon gross revenue of the store as well as adjustments for operating costs. Additionally, as a result of master franchise agreements in Canada and former company-owned stores which have been franchised, the Company is contingently liable under lease guarantees or assignment agreements. Total rent expense, including lease termination costs for closed company- owned stores is summarized as follows: <TABLE> <CAPTION> February 24 Nine Months Ended (Inception) to Years Ended December 31, September 30, December 31, ------------------------ ------------------- 1995 1996 1997 1997 1998 --------------- ------------ ------------ --------- --------- <S> <C> <C> <C> <C> <C> Rent expense............ $77,100 $256,900 $446,100 $308,700 $256,200 Lease termination expense................ -- -- 109,200 103,600 186,600 ------- ------------ ------------ --------- --------- $77,100 $256,900 $555,300 $412,300 $442,800 ======= ============ ============ ========= ========= </TABLE> As of December 31, 1997, future minimum lease payments due under operating leases are as follows: <TABLE> <CAPTION> Years Ending December 31, Amount ------------------------- ---------- <S> <C> 1998............................................................. $ 242,000 1999............................................................. 248,000 2000............................................................. 216,000 2001............................................................. 151,000 2002............................................................. 130,000 Thereafter....................................................... 356,000 ---------- $1,343,000 ========== </TABLE> F-166

PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the Nine Months Ended September 30, 1997 and 1998 is Unaudited.) NOTE 7--COMMITMENTS AND CONTINGENCIES (Continued) During September 1998, the Company entered into a sub-lease agreement for its corporate office space providing for sub-rental income to the Company of approximately $8,000 monthly to July 2000. Such amounts are not reflected in the table above. As of December 31, 1997, future minimum amounts due under operating leases where the Company is contingently liable under lease guarantees or assignment agreements are as follows: <TABLE> <CAPTION> Years Ended December 31, Amount ------------------------ ---------- <S> <C> 1998............................................................ $ 390,000 1999............................................................ 398,000 2000............................................................ 405,000 2001............................................................ 401,000 2002............................................................ 352,000 Thereafter...................................................... 1,262,000 ---------- $3,208,000 ========== </TABLE> Approximately 51% of the above amounts relate to franchised locations which are owned in whole or in part by individuals or entities which were stockholders of the Company prior to the acquisition discussed in Note 12. Legal Matters From time to time the Company is the subject of legal actions or threatened legal actions, which it considers routine to its business activities. Management of the Company believes that the potential liability to the Company under such matters would not have a material affect on the Company's consolidated financial position, results of operations or cash flows. NOTE 8--RELATED PARTY TRANSACTIONS Since 1996, the Company has had business relationships with various entities owned in whole or in part by its Chairman, President, and Chief Executive Officer (the "Officer") summarized as follows: <TABLE> <CAPTION> December 31, September 30, ---------------- ------------- 1996 1997 1998 -------- ------- ------------- <S> <C> <C> <C> Franchise Fee Income from Related Entities.. $200,000 $ -- $ -- Royalty and Advertising Fees from Related Entities in Illinois....................... 25,400 55,000 37,765 Account Receivables Outstanding at Period End from Related Entities.................. 77,904 46,129 24,809 </TABLE> During 1997, Canada received loans totaling approximately $65,000 (U.S.) from the two largest franchisees in Canada who are related to the Company through common ownership. The proceeds are invested in a Canadian certificate of deposit and the debt evidenced by non-interest bearing promissory notes. The certificate of deposit is presented as restricted cash and the notes are included