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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~February~~May 2325, 2002

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

For the transition period from to

Commission File Number 333-33751

ARCHIBALD CANDY CORPORATION
(Exact name of registrant as specified in its charter)

Illinois (State of incorporation)		36-0743280 (IRS Employer Identification No.)
1137 West Jackson Boulevard Chicago, Illinois (Address of principal executive offices)		60607 (zip code)

(312) 243-2700
(Registrant's telephone number, including area code)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes ý No o

As of ~~April~~July 915, 2002, the number of shares outstanding of the registrant's Common Stock was 4,210, all of which were held by Fannie May Holdings, Inc.

ARCHIBALD CANDY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~FEBRUARY~~MAY 2325, 2002

INDEX

		Page No.
PART I—FINANCIAL INFORMATION:
ITEM 1—FINANCIAL STATEMENTS (UNAUDITED)
	CONSOLIDATED BALANCE SHEETS	1
	CONSOLIDATED STATEMENTS OF OPERATIONS	2
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	3
	CONSOLIDATED STATEMENTS OF CASH FLOWS	4
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	5
ITEM 2—MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS
	OF OPERATIONS	18
ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS		2523
PART II—OTHER INFORMATION:
ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K		26
ITEM 3—DEFAULTS UPON SENIOR SECURITIES		24
SIGNATURES		27
ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K		25
SIGNATURES		26

PART I—FINANCIAL INFORMATION:

ITEM 1—FINANCIAL STATEMENTS

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Consolidated Balance Sheets (In thousands, except per share data)

			February 23, 2002			August 25, 2001
			May 25, 2002			August 25, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	23,~~804~~396		$	2,346
	Accounts receivable, net			41,~~720~~241			1,452
	Inventories			3028,~~147~~209			31,840
	Prepaid expenses and other current assets			43,~~110~~621			3,133
Total current assets				4136,~~781~~467			38,771
Property, plant, and equipment, net				2624,~~093~~908			34,398
Goodwill, net				57,~~594~~159			58,465
Noncompete agreements and other intangibles, net				4541			685
Deferred financing fees, net				5,~~801~~298			6,224
Investment in joint venture				2,~~094~~293			1,988
Other assets				1,~~490~~734			1,580
Total assets			$	~~134~~127,~~898~~900		$	142,111
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
	Revolving line of credit		$	210,~~680~~364		$	19,472
	Senior secured notes			170,000			—
	Accounts payable			1910,~~780~~712			16,821
	Accrued liabilities			42,~~093~~933			3,~~720~~814
	Payroll and related liabilities			32,~~174~~678			2,466
	Accrued interest			1115,~~614~~981			3,002
	Restructuring reserve			—			94
	Current portion of capital lease obligations			82			47
	Current portion of capital lease obligations			44			47
Total current liabilities				212,750			45,622
Total current liabilities				211,385			45,622
Due to affiliate				40			40
Senior secured notes				—			170,000
Deferred rent				—			885
Pension liability				1,~~308~~378			1,038
Capital lease obligations, less current portion				~~105~~115			130
Shareholder's equity (deficit):
	Common stock, $0.01 par value:
		Authorized—25,000 shares
		Authorized — 25,000 shares
		Issued and outstanding—4,210 shares		—			—
		Issued and outstanding — 4,210 shares		—			—
	Additional paid-in-capital			18,700			18,700
	Accumulated deficit			(96105,~~482~~237	)		(94,106	)
	Other comprehensive loss			(158	)		(198	)
	Other comprehensive income (loss)			154			(198	)
Total shareholder's deficit				(7786,~~940~~383	)		(75,604	)
Total liabilities and shareholder's deficit			$	~~134~~127,~~898~~900		$	142,111

See accompanying notes.

Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Consolidated Statements of Operations (Unaudited)
(In thousands)

	Three Months Ended						~~Six~~Nine Months Ended
	February 23, 2002			February 24, 2001			February 23, 2002			February 24, 2001
	May 25, 2002			May 26, 2001			May 25, 2002			May 26, 2001
Net sales	$	8137,~~213~~325		$	~~102~~57,~~494~~902		$	~~123~~160,~~588~~913		$	~~155~~212,~~041~~943
Cost of sales, excluding depreciation		3216,~~821~~243			3925,~~097~~706			5066,~~313~~556			5985,~~542~~248
Cost of sales, nonrecurring(1)		—			2,~~439~~059			—			24,~~439~~498
Total cost of sales		3216,~~821~~243			4127,~~536~~765			5066,~~313~~556			6189,~~981~~746
Gross profit		4821,~~392~~082			6030,~~958~~137			7394,~~275~~357			93123,~~060~~197
Selling, general, and administrative expenses, excluding depreciation and amortization		2720,~~663~~701			3731,~~510~~508			5778,~~214~~129			69100,~~294~~802
Depreciation and amortization expense		1,~~868~~973			3,~~296~~293			46,~~373~~346			69,~~583~~876
Amortization of goodwill and other intangibles		1,~~096~~054			1,~~052~~202			23,~~126~~180			23,~~104~~306
Share of loss in joint venture		50			16			178			105
Restructuring expense(2)		1,328			8,100			1,328			8,100
Management fees and other fees		223			164			251			295
Share of loss in joint venture		159			82			337			187
Operating income		17,492			18,920			9,133			14,679
Management fees and other fees		77			132			114			427
Operating income (loss)		(4,210	)		(14,180	)		4,923			499
Other (income) and expense:
Interest expense		4,~~491~~487			4,~~874~~686			913,~~288~~770			914,~~932~~617
Interest income		—			(3—	)		(5—	)		(32	)
Other income and expense		~~(115~~28	)		~~(67~~13	)		(9163	)		(~~113~~100	)
Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries(2)		—			—			2,258			—
Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries(3)		—			—			2,258			—
Income (loss) before income taxes		13,116			14,116			(2,317	)		4,863
Loss before income taxes		(8,725	)		(18,879	)		(11,042	)		(14,016	)
Provision for income taxes		5630			494			5989			7478
Net income (loss)	$	13,060		$	14,067		$	(2,376	)	$	4,789
Net loss	$	(8,755	)	$	(18,883	)	$	(11,131	)	$	(14,094	)

(1): These costs relate to the manufacturing start-up of Laura Secord products and the closing of unprofitable Sweet Factory stores.
(2): These costs relate to various professional fees associated with the restructuring of the company's balance sheet for the three months ended May 25, 2002 and the closing of unprofitable Sweet Factory Stores for the three months ended May 26, 2001.
(3): Represents the net write-off (for financial reporting purposes) of a $19.4 million receivable due from SFG and subsidiaries, after first offsetting $17.1 million of that write-off against the Company's negative investment balance in SFG and subsidiaries.

See accompanying notes.

Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)

	Three Months Ended						~~Six~~Nine Months Ended
	February 23, 2002			February 24, 2001			February 23, 2002			February 24, 2001
	May 25, 2002			May 26, 2001			May 25, 2002			May 26, 2001
Net income (loss)	$	13,060		$	14,067		$	(2,376	)	$	4,789
Net loss	$	(8,755	)	$	(18,883	)	$	(11,131	)	$	(14,094	)
Other comprehensive income (loss):
Foreign currency translation adjustment		5312			~~200~~(436	)		40352			(49485	)
Comprehensive income (loss)	$	13(8,~~065~~443	)	$	14(19,~~267~~319	)	$	(210,~~336~~779	)	$	4(14,~~740~~579	)

See accompanying notes.

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Consolidated Statements of Cash ~~Flow~~Flows (Unaudited) (In thousands)

			Six Months Ended
			Nine Months Ended
			February 23, 2002			February 24, 2001
			May 25, 2002			May 26, 2001
OPERATING ACTIVITIES
Net income (loss)			$	(2,376	)	$	4,789
Net loss			$	(11,131	)	$	(14,094	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization			69,~~499~~526			813,~~687~~182
	Share of loss in joint venture			~~178~~337			~~105~~187
	Restructuring expense			—			9,500
	Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries			2,258			—
	Changes in operating assets and liabilities:
		Accounts receivable, net		~~(3,268~~211	)		(61,~~496~~542	)
		Inventories		~~(494~~1,444	)		~~(915~~8,164	)
		Prepaid expenses and other current assets		(1,~~392~~047	)		~~504~~332
		Other assets		(72312	)		(~~255~~670	)
		Accounts payable and accrued liabilities		1811,~~112~~463			~~4,443~~328
Net cash provided by operating activities				19,445			10,862
		Restructuring reserve		—			(1,328	)
Net cash provided by operating activities				12,749			14,059
INVESTING ACTIVITIES
Purchase of property, plant, and equipment				(1,065	)		(3,028	)
Purchase of Property, Plant, and Equipment				(1,987	)		(4,087	)
Disposals of Property, Plant, and Equipment				319
Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries				(336	)		—
Net cash used in investing activities				(12,~~401~~004	)		(34,~~028~~087	)
FINANCING ACTIVITIES
Net repayments under revolving line of credit				(169,~~793~~108	)		(67,~~500~~200	)
Principal payments of capital lease obligations				(2620	)		(2735	)
Costs related to financing				(~~807~~919	)		(163	)
Net cash used in financing activities				(1710,~~626~~047	)		(67,~~690~~398	)
Effect of exchange rates on cash				40352			(49485	)
Net increase in cash and cash equivalents				~~458~~1,050			12,~~095~~089
Cash and cash equivalents beginning of period				2,346			3,120
Cash and cash equivalents end of period			$	23,~~804~~396		$	45,~~215~~209
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
	Interest		$	~~673~~788		$	910,~~950~~271
Non-cash investing and financing activities:
	Capital lease obligations recorded		$	—		$	132

See accompanying notes.

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) ~~February~~ May 2325, 2002

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Archibald Candy Corporation ("Archibald") and its subsidiaries (collectively, the "Company") are manufacturers and retailers of boxed chocolates and other confectionery items. The Company sells its Fannie May, Fanny Farmer and Laura Secord candies in over 440 Company-operated stores and in approximately 9,300 third-party retail outlets as well as through quantity order, mail order and fundraising programs in the United States and Canada. The Company is a wholly owned subsidiary of Fannie May Holdings, Inc. ("Holdings").

The accompanying consolidated financial statements include the accounts of Archibald and its subsidiary, Archibald Candy (Canada) Corporation. For the periods prior to November 15, 2001, the consolidated financial statements also include the accounts of Sweet Factory Group, Inc. ("SFG") and its three subsidiaries: Sweet Factory, Inc., SF Properties, Inc. and SF Candy Company—see Note 2 below. All significant intercompany balances and transactions have been eliminated in consolidation.

The interim financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes these disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments necessary for fair presentation for the periods presented have been reflected and are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended August 25, 2001. Certain amounts in the 2001 financial statements have been reclassified to conform with the 2002 presentation.

Results of operations for the period from August 25, 2001 to ~~February~~May 2325, 2002 are not necessarily indicative of the results that may be achieved for the entire year.

NOTE 2. SUBSEQUENT ~~BANKRUPTCY FILING—SWEET FACTORY GROUP, INC. AND SUBSIDIARIES~~ EVENTS

On ~~November~~June 1512, ~~2001~~2002, ~~Sweet~~Archibald ~~Factory Group, Inc. ("SFG")~~ and ~~its~~Holdings ~~three subsidiaries; Sweet Factory, Inc., SF Properties, Inc. and SF Candy Company,~~ filed ~~voluntary~~ petitions in the ~~U.S.~~United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") to commence a consolidated voluntary bankruptcy proceeding under Chapter 11 of the ~~U.S.~~United States Bankruptcy Code. ~~In connection with~~ (the ~~bankruptcy filings,~~"Bankruptcy ~~Sweet Factory, Inc~~Code"). ~~entered~~Archibald ~~into~~and aHoldings ~~Post-Petition~~also ~~Credit,~~have ~~Security~~filed ~~and~~a ~~Guaranty~~Joint ~~Agreement~~Plan of Reorganization (the "~~Post-Petition~~Archibald ~~Credit Agreement~~Plan"), with ~~The~~respect ~~CIT~~to ~~Group/Business Credit, Inc.~~which ~~("CIT")~~holders ~~and~~of ~~SFG,~~approximately SF83% ~~Properties, Inc.~~in ~~and~~aggregate SFprincipal ~~Candy~~amount ~~Company~~of asArchibald's ~~guarantors.~~101/4% ~~The~~senior ~~agreement~~secured isnotes ~~for~~have ~~one~~executed lock-up ~~year~~agreements ~~and~~agreeing ~~provides~~to ~~for~~vote ~~revolving~~in ~~loans~~favor atof ~~any~~the ~~time~~Archibald ~~not~~Plan. toThe ~~exceed~~Archibald ~~the~~Plan, ~~lesser of~~which ~~(1) $2.0 million~~is ~~and~~subject ~~(2) a~~to ~~borrowing~~the ~~base~~approval ~~comprised~~ of athe ~~percentage~~Bankruptcy ofCourt, ~~Sweet~~contemplates ~~Factory, Inc.~~a significant deleveraging of Archibald's ~~eligible~~balance ~~inventory~~sheet ~~plus~~and athe elimination of approximately $117.05 million ~~overadvance,~~in ~~subject~~annual ~~to certain~~interest ~~reserves~~payments. The ~~Post-Petition~~Archibald ~~Credit~~Plan ~~Agreement~~will isrequire, ~~secured~~among byother ~~first~~things, ~~priority~~the ~~liens~~requisite onvotes ~~Sweet~~under ~~Factory, Inc.'s~~the Bankruptcy ~~accounts~~Code ~~receivable~~ and ~~inventory~~must ~~and~~satisfy ~~provides~~the ~~that~~requirements ~~borrowings thereunder~~set ~~accrue~~forth ~~interest~~in atSection 1129 aof ~~variable~~the ~~rate~~Bankruptcy ~~equal~~Code. toDuring the ~~"prime~~Chapter ~~rate"~~11 ~~announced~~proceedings, ~~from~~the ~~time~~Company todoes ~~time~~not bycurrently ~~J.P.~~expect ~~Morgan~~any ~~Chase &~~significant impact ~~Co.,~~on ~~plus~~its ~~1.5%.~~employees, ~~The~~customers ~~Company~~or ~~and~~suppliers. Archibald Candy (Canada) Corporation ~~have guaranteed all obligations of Sweet Factory~~, ~~Inc.~~ ~~under~~ the ~~Post~~wholly-~~Petition~~owned ~~Credit~~subsidiary ~~Agreement.~~of ~~Sweet~~Archibald ~~Factory, Inc.~~that isoperates ~~required~~its toLaura ~~pay~~Secord ~~fees in connection with the Post-Petition Credit Agreement. On March 4~~business, ~~2002,~~has ~~SFG~~not ~~and its subsidiaries~~ filed a ~~Plan of Reorganization with the Bankruptcy Court. A confirmation hearing is scheduled for~~bankruptcy ~~May 24, 2002~~proceeding.

~~SFG~~In ~~and~~connection ~~its~~with ~~subsidiaries'~~the ~~financial~~Archibald ~~results~~bankruptcy ~~are~~proceeding, ~~included~~Archibald inhas ~~the~~entered ~~Company's~~into ~~consolidated~~a ~~results~~Post-Petition ~~through~~Loan ~~November 15,~~and ~~2001.~~Security ~~Accounting~~Agreement ~~principles~~and ~~generally~~Guaranty ~~accepted~~dated inas ~~the~~of ~~United~~June 12, 2002 ~~States~~(the ~~generally~~"Archibald ~~require~~DIP ~~that~~Credit ~~any~~Facility") ~~entity~~with ~~that~~Foothill ~~files~~Capital ~~for~~Corporation, ~~protection~~as ~~under~~Arranger and Administrative Agent, the Ulenders party thereto and Holdings and Archibald Candy (Canada) Corporation as Guarantors.S. ~~Bankruptcy~~Pursuant ~~Code~~to ~~whose~~the ~~financial~~Archibald ~~statements~~DIP ~~were~~Credit ~~previously~~Facility, ~~consolidated~~the ~~with~~lenders ~~those~~have ofagreed ~~its~~to ~~parent~~make ~~must~~available beto ~~prospectively deconsolidated~~Archibald

~~from~~a ~~the~~$45.0 million ~~parent~~term ~~with~~loan ~~the~~and ~~investment~~revolving ~~accounted~~credit ~~for using the cost method~~facility. The ~~effects~~proceeds ~~on the Company's balance sheet~~ of ~~this deconsolidation and use of~~ the ~~cost~~Archibald ~~method~~DIP ~~are~~Credit ~~that:~~Facility ~~(i) the Company's~~were ~~investment~~used, in ~~SFG~~part, isto ~~included~~pay-off asthe aindebtedness ~~single~~outstanding ~~amount and (ii) the Company~~under Archibald's ~~receivable~~revolving ~~from~~credit ~~SFG~~facility iswith ~~no longer eliminated.~~ The ~~effect~~CIT onGroup/Business ~~the Company's income statement is that beginning November 15~~Credit, Inc. ~~2001~~("CIT"), ~~the~~and ~~SFG operating results~~ are ~~not~~being ~~included~~used into ~~the~~fund ~~consolidated results. At November 15, 2001, the Company~~Archibald's ~~investment~~working incapital ~~SFG was a negative $17.1 million,~~ and ~~the~~ ~~receivable~~capital ~~had~~expenditure aneeds ~~balance~~during ~~of $19.4 million. Because of SFG's and its subsidiaries' bankruptcies, it was determined that~~ the ~~receivable should be reserved for financial reporting purposes.~~ ~~That~~bankruptcy ~~write-off was first netted against the negative investment balance, with the remaining $2~~proceedings.~~3 million~~ ~~recorded as a non-operating expense.~~

~~Management~~Archibald ~~has~~and ~~assessed~~Holdings ~~the~~will ~~liquidity~~continue ~~position~~to ofmanage ~~SFG~~their properties and ~~its~~operate ~~subsidiaries~~their asbusiness ain ~~result~~accordance ofwith the ~~bankruptcy~~applicable ~~filings~~provisions ~~and~~of ~~available~~the ~~debtor~~Bankruptcy inCode. ~~possession~~The ~~financing~~proceeding ~~and~~has ~~believes that SFG and~~been ~~its~~designated ~~subsidiaries~~as ~~will~~case benumber ~~able to fund their post~~02-~~petition obligations until a plan of reorganization is finalized or another transaction is effected~~11719.

Archibald's management has assessed the liquidity position of Archibald and Archibald Candy (Canada) Corporation in light of the Archibald and Holdings bankruptcy proceedings and the funds available under the Archibald DIP Credit Facility and believes that Archibald and Archibald Candy (Canada) Corporation will be able to fund their post-petition obligations until the Archibald Plan is confirmed.

NOTE 3. BANKRUPTCY FILING—SWEET FACTORY GROUP, INC. AND SUBSIDIARIES

On November 15, 2001, SFG and its three subsidiaries, Sweet Factory, Inc., SF Properties, Inc. and SF Candy Company, filed voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. In connection with the Sweet Factory bankruptcy filings, Sweet Factory, Inc. entered into a Post-Petition Credit, Security and Guaranty Agreement (the "SF DIP Credit Facility") with CIT and SFG, SF Properties, Inc. and SF Candy Company, as guarantors. The SF DIP Credit Facility is for one year and provides for revolving loans at any time not to exceed the lesser of (1) $2.0 million and (2) a borrowing base comprised of a percentage of Sweet Factory, Inc.'s eligible inventory plus a $1.0 million overadvance, subject to certain reserves. The SF DIP Credit Facility provides that borrowings thereunder accrue interest at a variable rate equal to the "prime rate" announced from time to time by J.P. Morgan Chase & Co. plus 1.5%.

On March 4, 2002, SFG and its subsidiaries filed a Plan of Reorganization with the Bankruptcy Court. On June 5, 2002, SFG and its subsidiaries entered into an Asset Purchase Agreement with RDR Group, a California corporation ("RDR"), pursuant to which RDR has agreed to purchase from SFG and its subsidiaries substantially all of the assets used in connection with their business for $4.5 million in cash, subject to the approval of the Bankruptcy Court. As a result of the overbidding procedure conducted by the Bankruptcy Court on June 17, 2002, RDR increased the purchase price to $6.1 million in order to be the winning bidder. The Company's management expects that the sale of the Sweet Factory assets to RDR will be consummated on or about July 30, 2002. Pursuant to SFG's Plan of Reorganization, Archibald expects to receive approximately $3.7 million in cash out of the proceeds of the sale. The remaining $2.4 million in proceeds will be applied to pay-off the SF DIP Credit Facility, to make cure payments to the landlords of those store leases that are to be assumed by RDR, to pay administrative expenses and to make a payment to the unsecured creditors' class. Following the consummation of the sale to RDR, SFG and its subsidiaries will be liquidated. SFG's Plan of Reorganization was confirmed on July 11, 2002 by the Bankruptcy Court.

SFG and its subsidiaries' financial results are included in the Company's consolidated results through November 15, 2001. Accounting principles generally accepted in the United States generally require that any entity that files for protection under the U.S. Bankruptcy Code whose financial statements were previously consolidated with those of its parent must be prospectively deconsolidated from the parent with the investment accounted for using the cost method. The effects on the Company's balance sheet of this deconsolidation and use of the cost method are that: (i) the Company's investment in SFG is included as a single amount and (ii) the Company's receivable from SFG is no longer eliminated. The effect on the Company's income statement is that beginning November 15, 2001, the SFG operating results are not included in the consolidated results. At November 15, 2001, the Company's investment in SFG was a negative $17.1 million, and the receivable had a balance of $19.4 million. Because of SFG's and its subsidiaries' bankruptcies, it was determined that the receivable should be reserved for financial reporting purposes. That write-off was first netted

against the negative investment balance, with the remaining $2.3 million recorded as a non-operating expense.

Management has assessed the liquidity position of SFG and its subsidiaries as a result of the bankruptcy filings and available debtor in possession financing and believes that SFG and its subsidiaries will be able to fund their post-petition obligations until the sale to RDR is consummated and SFG and its subsidiaries are liquidated.

The condensed consolidated financial information set forth below for SFG and its subsidiaries has been prepared on a going concern basis which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business. As a result of the bankruptcy filings of SFG and its subsidiaries and related events, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be liquidated or settled for the amounts recorded. In addition, a plan of reorganization, or rejection thereof, could change the amounts reported in the financial statements of SFG and its subsidiaries and cause a material decrease in the carrying amount of the net investment.

Following are the condensed consolidated statements of operations and balance sheet data for SFG and its subsidiaries (in thousands):

	For the quarter ended Feb. 23, 2002			For the quarter ended Feb. 24, 2001			For the period of Aug. 26, 2001 thru Nov. 15, 2001			For the six months ended Feb. 23, 2002			For the six months ended Feb. 24, 2001
	For the quarter ended May 25, 2002			For the quarter ended May 26, 2001			For the period of Aug. 26, 2001 thru Nov. 15, 2001			For the nine months ended May 25, 2002			For the nine months ended May 26, 2001
Net sales	$	97,~~619~~718		$	1914,~~513~~204		$	8,867		$	1927,~~554~~272		$	3347,~~512~~716
Operating loss		(~~372~~1,196	)		(~~513~~11,796	)		(3,172	)		(45,~~014~~210	)		(214,~~823~~618	)
Loss before income taxes		(~~380~~1,208	)		(~~513~~11,782	)		(3,175	)		(45,~~025~~233	)		(214,~~825~~607	)
Net loss		(~~377~~1,211	)		(~~520~~11,788	)		(3,178	)		(45,~~025~~236	)		(214,~~834~~622	)

Operating loss includes restructuring expenses of $35701 and $~~910~~1,611 for the quarter and year-to-date periods ended ~~February~~ May 2325, 2002, respectively. Operating loss includes $8,100 of restructuring expenses and $1,400 of cost of sales, nonrecurring for the quarter and year-to-date periods ended May 26, 2001.

	Feb. 23, 2002			Nov. 15, 2001			Aug. 25, 2001
	May 25, 2002			Nov 15, 2001			Aug. 25, 2001
Current assets	$	3,~~042~~103		$	2,620		$	4,174
Property, plant and equipment		4,~~737~~183			5,316			5,699
Other assets		~~791~~749			772			892
Total assets	$	8,~~570~~035		$	8,708		$	10,765
Current liabilities	$	67,~~685~~107		$	6,079		$	4,069
Payable to Archibald Candy Corporation		19,~~544~~838			19,383			19,761
Other liabilities		~~313~~273			371			885
Total stockholder's deficit		(1719,~~972~~183	)		(17,125	)		(13,950	)
Total liabilities & stockholder's deficit	$	8,~~570~~035		$	8,708		$	10,765

Following are the condensed pro forma consolidated statement of operations and balance sheet data of the Company, assuming the deconsolidation of SFG and its subsidiaries (in thousands):

	For the quarter ended Feb. 24, 2001			For the six months ended Feb. 23, 2002			For the six months ended Feb. 24, 2001
	For the quarter ended May 26, 2001			For the nine months ended May 25, 2002			For the nine months ended May 26, 2001
Net sales	$	8243,~~981~~698		$	~~114~~152,~~721~~046		$	~~121~~165,~~529~~227
Operating income		19,433			12,305			17,503
Operating income (loss)		(2,384	)		8,095			15,117
Income before income taxes		14,629			858			7,688
Income (loss) before income taxes		(7,097	)		(7,867	)		591
Net income		14,587			802			7,623
Net income (loss)		(7,095	)		(7,953	)		528

	August 25, 2001
Current assets	$	34,598
Property, plant and equipment		28,699
Investment in and amounts due from SFG		5,811
Other assets		68,050

Total assets	$	137,158

Current liabilities	$	41,553
Other liabilities		171,209
Total stockholder's deficit		(75,604	)

Total liabilities & stockholder's deficit	$	137,158

NOTE 3. INVENTORIES

Inventories at February 23, 2002 and August 25, 2001 are comprised of the following:

	February 23, 2002		August 25, 2001
Raw materials	$	13,943	$	12,901
Work in process		205		225
Finished goods		15,999		18,714
	$	30,147	$	31,840

NOTE 4. DEBT AND LIQUIDITY

Archibald has not made the approximately $8.7 million interest payment that was due on January 2, 2002 on its outstanding $170 million of 101/4% senior secured notes due 2004 (the "Senior Notes"), however, Archibald has entered into a forbearance agreement (the "Noteholders' Forbearance Agreement") with holders (the "Consenting Holders") of approximately 88% in aggregate face amount of the Senior Notes. The Senior Notes have been classified as current on Archibald's balance sheet.

Pursuant to the Noteholders' Forbearance Agreement, the Consenting Holders have agreed to forbear until April 30, 2002 (the "Noteholders' Forbearance Period") from exercising their rights under the Senior Notes, the indenture pursuant to which the Senior Notes have been issued (the "Indenture") and applicable law resulting from Archibald's failure to make the approximately $8.7 million interest payment on the Senior Notes that was due on January 2, 2002. The Noteholders' Forbearance Period may be terminated prior to April 30, 2002 if any of the following occurs (other than if due to the Consenting Holders' breach of their obligations under the Noteholders' Forbearance Agreement): (1) any other event of default under the Indenture, (2) the termination of Archibald's forbearance agreement (the "CIT Forbearance Agreement") with The CIT Group/Business Credit, Inc. ("CIT"), the agent and sole lender under Archibald's revolving credit facility (the "CIT Facility"), (3) the termination of Holdings' forbearance agreement (the "Senior Preferred Forbearance Agreement") with the holders of its senior preferred stock (the "Senior Preferred Holders"), (4) any acceleration of the principal and interest under the Senior Notes, (5) any payment or distribution by Archibald to the

holders of Holdings' preferred stock or to Holdings for payment to the holders of its preferred stock, (6) any election by the Senior Preferred Holders of a director having 51% of the total voting power of Holdings' Board of Directors or (7) a breach of any representation, warranty or covenant in the Noteholders' Forbearance Agreement.

Archibald originally entered into the CIT Forbearance Agreement as of December 31, 2001 because (1) Archibald had failed, or expected to fail, to satisfy certain financial covenants in the CIT Facility that required, Archibald to meet minimum levels of net earnings, before interest, income taxes, depreciation and amortization, and net cash flow for periods ending in November and December 2001 and February 2002 and (2) Archibald expected to fail to make the January 2002 interest payment on the Senior Notes. Pursuant to subsequent amendments to the CIT Forbearance Agreement, CIT also agreed to forbear from exercising its rights with respect to certain additional covenant defaults by Archibald under the CIT Facility. CIT has extended the forbearance period under the CIT Forbearance Agreement (the "CIT Forbearance Period") beyond March 1, 2002, its originally scheduled expiration date, until April 30, 2002. Pursuant to the CIT Forbearance Agreement, CIT has allowed Archibald to continue to request borrowings under the CIT Facility for working capital needs, but not in excess of the lesser of a certain specified limit and a borrowing base comprised of a percentage of the eligible accounts receivable and eligible inventory of Archibald and its Canadian subsidiary, Archibald Candy (Canada) Corporation. During the CIT Forbearance Period, Archibald's management expects that Archibald will have sufficient availability under the CIT Facility to meet its working capital needs as they become due; however, there can be no assurance that this will be the case. The CIT Forbearance Period may be terminated prior to April 30, 2002 if any of the following occurs: (1) any acceleration of the Senior Notes, (2) any payment on account of the Senior Notes or Holdings' preferred stock, (3) any other event of default under the CIT Facility or (4) a breach of any representation, warranty or covenant in the CIT Forbearance Agreement.

Pursuant to the Senior Preferred Forbearance Agreement, the Senior Preferred Holders have agreed to forbear until April 30, 2002 (the "Senior Preferred Forbearance Period") from exercising their right to elect a director to Holdings' Board of Directors who would have 51% of the total voting power of Holdings' Board of Directors and from exercising any other right or remedies that they may have as a result of Holdings' failure to make the $3.0 million redemption payment required to be made by it to the Senior Preferred Holders on January 15, 2002 and the $10.5 million in aggregate of remaining redemption payments that automatically accelerated as a result thereof. The Senior Preferred Forbearance Period may be terminated prior to April 30, 2002 if any of the following occurs (other than if due to the Senior Preferred Holders' breach of their obligations under the Senior Preferred Forbearance Agreement): (1) the termination of the CIT Forbearance Agreement, (2) the termination of the Noteholders' Forbearance Agreement or (3) a breach by Holdings of any representation, warranty or covenant in the Senior Preferred Forbearance Agreement. Pursuant to the Senior Preferred Forbearance Agreement, Holdings also has granted to the Senior Preferred Holders the right to designate an individual who is entitled to observe all meetings of the Boards of Directors of Holdings, Archibald and its subsidiaries.

Archibald is continuing discussions with the holders of the Senior Notes, CIT, Holdings' significant stockholders and investment advisors on an overall capital restructuring, including, among other things (1) a restructuring of the Senior Notes through debt for equity exchanges or conversions or repurchases or acquisitions of the Senior Notes on discounted terms, (2) new equity and/or debt from unaffiliated third parties and/or affiliates of Archibald or its directors and officers, (3) extensions of the forbearance periods under the Noteholders' Forbearance Agreement, the CIT Forbearance Agreement and the Senior Preferred Forbearance Agreement or (4) combinations of the foregoing. Archibald has not received any commitments or agreements with respect to any new sources of equity or debt, and there can be no assurance that any such financing will be obtained, particularly if the Senior Notes are not restructured on a satisfactory basis. There can be no assurance that Archibald will succeed in a restructuring on a timely basis or that the terms and conditions of a restructuring would be favorable to Archibald.

In addition to the Senior Preferred Stock, Holdings also has the two following classes of junior preferred stock: Junior Class A PIK Preferred Stock and Junior Class B PIK Preferred Stock. The

~~Junior~~NOTE ~~Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock were issued in 1991 in the original face amount of $7~~4.~~0 million~~ and $0.7 million, respectively. As of February 23, 2002, affiliates of TCW Capital owned approximately 64% of the Junior Class A PIK Preferred Stock and affiliates (or parties advised by such affiliates) of The Jordan Company owned approximately 36% of the Junior Class A PIK Preferred Stock and approximately 80% of the Junior Class B PIK Preferred Stock. INVENTORIES

~~In connection~~Inventories ~~with~~are ~~Archibald~~stated ~~entering~~at ~~into~~ the ~~CIT~~lower ~~Facility, Holdings entered into agreements with the holders~~ of ~~the~~cost ~~Junior~~or ~~Class A PIK Preferred Stock and the Junior Class B Preferred Stock extending the mandatory redemption date for each such class of preferred stock from November 1, 2001 to March 15, 2006~~market. ~~The~~Inventories ~~redemption~~are ~~value~~valued ofprimarily ~~the~~at ~~Junior Class A~~first ~~PIK Preferred Stock and the Junior Class B PIK Preferred Stock on March 15~~in, ~~2006~~first ~~will~~out ~~be approximately $21~~(FIFO).~~2 million~~ and $2.1 million, respectively. The holders of Junior Class A PIK Preferred Stock also have agreed to extend from January 1, 2000 to June 30, 2003 the date on which they have the right to put to Holdings their common stock. In the event that Holdings does not redeem all of the common stock and preferred stock owned by affiliates of TCW Capital within 90 days of any exercise of this put right, affiliates of TCW Capital have the right to take control of a majority of the voting power of Holdings' Board of Directors for purposes of effecting a sale of Holdings.

Inventories at May 25, 2002 and August 25, 2001 are comprised of the following:

	May 25, 2002		August 25, 2001
Raw materials	$	12,703	$	12,901
Work in process		267		225
Finished goods		15,239		18,714

	$	28,209	$	31,840

NOTE 5. INCOME TAXES

The provision for income taxes differs from the amount of income tax benefit computed by applying the United States federal income tax rate due to the benefit of the net operating losses that were not recognized ~~in prior periods~~.

NOTE 6. ~~GUARANTOR~~ ~~SUBSIDIARIES~~ CONTINGENT LIABILITY

On January 15, 2002, the Company retained an investment banking firm to assist in the development of a plan to restructure its debt. As part of the Chapter 11 bankruptcy filing, a $2.0 million claim relating to the investment banking firm has been classified as disputed and unsecured. The Company has not recorded a liability associated with this claim.

NOTE 7. GUARANTOR SUBSIDIARIES

The Company's obligations under the Senior Notes are fully and unconditionally guaranteed on a senior secured, joint and several basis by each of the Company's subsidiaries (collectively, the "Guarantor Subsidiaries"). The Company, directly or indirectly, wholly owns each of the Guarantor Subsidiaries. None of Archibald's subsidiaries is subject to any restriction on its ability to pay dividends or make distributions to Archibald. The following consolidating financial information illustrates the composition of Archibald and the Guarantor Subsidiaries as of and for certain dates and periods. Separate financial statements of the respective Guarantor Subsidiaries have not been provided because Archibald's management has determined that such additional information would not be useful in assessing the financial composition of the Guarantor Subsidiaries.

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Consolidating Balance Sheet As of ~~February~~May 2325, 2002 (Unaudited) (In thousands)

		Archibald Candy Corporation			Guarantor Subsidiaries(a)		Eliminations			Consolidated
Assets
Current assets:
	Cash and cash equivalents	$	23,~~302~~033		$	~~502~~363	$	—		$	23,~~804~~396
	Accounts receivables, net		31,~~790~~088			~~930~~153		—			41,~~720~~241
	Inventories		2625,~~236~~047			3,~~911~~162		—			3028,~~147~~209
	Prepaids and other current assets		32,~~752~~781			~~358~~840		—			43,~~110~~621
Total current assets			3631,~~080~~949			54,~~701~~518		—			4136,~~781~~467
Property, plant, and equipment, net			1716,~~178~~115			8,~~915~~793		—			2624,~~093~~908
Intercompany			1626,~~719~~101			~~487~~782		—(9,303	)		17,~~206~~580
Investment in subsidiaries			(413,~~109~~771	)		—		(133,~~016~~354	)		(17,125	)
Other assets			6463,~~836~~763			2,~~107~~307		—			66,~~943~~070
Total assets		$	~~130~~124,~~704~~157		$	1716,~~210~~400	$	(1312,~~016~~657	)	$	~~134~~127,~~898~~900
Liabilities and shareholder's equity (deficit)
Current liabilities:
	Revolving line of credit	$	210,~~680~~364		$	—	$	—		$	210,~~680~~364
	Senior secured notes		170,000			—		—			170,000
	Accounts payable		178,~~866~~927			1,~~914~~785		—			1910,~~780~~712
	Other current liabilities		1620,~~906~~289			21,~~019~~385		—			1821,~~925~~674
Total current liabilities			~~207~~209,~~452~~580			3,~~933~~170		—			~~211~~212,~~385~~750
Other noncurrent liabilities			1,~~453~~533			9,303		(9,303	)		1,~~453~~533
Total shareholder's equity (deficit)			(7886,~~201~~956	)		3,~~974~~927		(3,~~713~~354	)		(7786,~~940~~383	)
Total liabilities and shareholder's equity (deficit)		$	130,704		$	17,210	$	(13,016	)	$	134,898
Total liabilities and shareholder's equity		$	124,157		$	16,400	$	(12,657	)	$	127,900

(a): This column does not include the balances of SFG and subsidiaries beginning November 15, 2001 due to their deconsolidation for financial reporting purposes. SFG and its subsidiaries, however, continue to be guarantors on the Senior Notes. Refer to Note 3 for financial information on SFG and its subsidiaries since their deconsolidation.

Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Consolidating Balance Sheet
As of August 25, 2001
(In thousands)

		Archibald Candy Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
	Cash and cash equivalents	$	1,116		$	1,230		$	—		$	2,346
	Accounts receivables, net		1,350			102			—			1,452
	Inventories		26,415			5,425			—			31,840
	Prepaids and other current assets		2,213			920			—			3,133
Total current assets			31,094			7,677			—			38,771
Property, plant, and equipment, net			19,551			14,847			—			34,398
Intercompany			19,031			(19,031	)		—			—
Investment in subsidiaries			(2,008	)		—			2,008			—
Other assets			66,049			2,893			—			68,942
Total assets		$	133,717		$	6,386		$	2,008		$	142,111
Liabilities and shareholder's equity (deficit)
Current liabilities:
	Revolving line of credit	$	19,472		$	—		$	—		$	19,472
	Accounts payable		11,469			5,352			—			16,821
	Other current liabilities		7,392			1,937			—			9,329
Total current liabilities			38,333			7,289			—			45,622
Long-term debt, less current portion			170,130			9,303			(9,303	)		170,130
Other noncurrent liabilities			1,078			885			—			1,963
Total shareholder's equity (deficit)			(75,824	)		(11,091	)		11,311			(75,604	)
Total liabilities and shareholder's equity (deficit)		$	133,717		$	6,386		$	2,008		$	142,111
Total liabilities and shareholder's equity		$	133,717		$	6,386		$	2,008		$	142,111

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Consolidating Statement of Operations for the Three Months Ended ~~February~~May 2325, 2002 (Unaudited) (In thousands)

		Archibald Candy Corporation			Guarantor Subsidiaries(a)			Eliminations			Consolidated
Net sales		$	6124,~~919~~571		$	1912,~~294~~754		$	—		$	8137,~~213~~325
Cost of sales, excluding depreciation			239,~~735~~956			96,~~086~~287			—			3216,~~821~~243
Gross profit			3814,~~184~~615			106,~~208~~467			—			4821,~~392~~082
Selling, general, and administrative expenses excluding depreciation and amortization			2014,~~858~~685			6,~~805~~016			—			2720,~~663~~701
Depreciation and amortization expense			1,~~513~~611			~~355~~362			—			1,~~868~~973
Amortization of goodwill and other intangibles			1,~~096~~054			—			—			1,~~096~~054
Share of loss in joint venture			—			50159			—			50159
Management fees and other fees			223			—			—			223
Restructuring Expense			1,328			—			—			1,328
Operating income			14,494			2,998			—			17,492
Management fees and other fees			77			—			—			77
Operating income			(4,140	)		(70	)		—			(4,210	)
Other (income) expense:
	Interest expense		4,~~491~~487			195			(195	)		4,~~491~~487
	Interest income		(195	)		—			195			—
	Other income and expenses		(7264	)		~~(43~~92	)		—			~~(115~~28	)
Equity in earnings of subsidiaries			~~(2,794~~357	)		—			~~2,794~~(357	)		—
Income before income taxes			13,064			2,846			(2,794	)		13,116
Loss before income taxes			(8,725	)		(357	)		357			(8,725	)
Provision for income taxes			430			52—			—			5630
Net income		$	13,060		$	2,794		$	(2,794	)	$	13,060
Net loss		$	(8,755	)	$	(357	)	$	357		$	(8,755	)

(a): This column does not include the balances of SFG and subsidiaries beginning November 15, 2001 due to their deconsolidation for financial reporting purposes. SFG and its subsidiaries, however, continue to be guarantors on the Senior Notes. Refer to Note 3 for financial information on SFG and its subsidiaries since their deconsolidation.

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Consolidating Statement of Operations for the ~~Six~~Nine Months Ended ~~February~~May 2325, 2002 (Unaudited) (In thousands)

		Archibald Candy Corporation			Guarantor Subsidiaries(a)			Eliminations			Consolidated
Net sales		$	86110,~~195~~766		$	3750,~~393~~147		$	—		$	~~123~~160,~~588~~913
Cost of sales, excluding depreciation			3343,~~724~~680			1622,~~589~~876			—			5066,~~313~~556
Gross profit			5267,~~471~~086			2027,~~804~~271			—			7394,~~275~~357
Selling, general, and administrative expenses excluding depreciation and amortization			3651,~~124~~023			2127,~~090~~106			—			5778,~~214~~129
Depreciation and amortization expense			34,~~221~~832			1,~~152~~514			—			46,~~373~~346
Amortization of goodwill and other intangibles			23,~~109~~163			17			—			23,~~126~~180
Share of loss in joint venture			—			~~178~~337			—			~~178~~337
Management fees and other fees			251			—			—			251
Restructuring Expense			1,328			—			—			1,328
Operating income (loss)			10,766			(1,633	)		—			9,133
Management fees and other fees			114			—			—			114
Operating income (loss)			6,626			(1,703	)		—			4,923
Other (income) expense:
	Interest expense		913,~~285~~767			~~393~~588			(~~390~~585	)		913,~~288~~770
	Interest income		(~~395~~585	)		—			~~390~~585			(5—	)
	Other income and expenses		(~~115~~179	)		24116			—			(9163	)
	Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries		2,258			—			—			2,258
	Intercompany Sweet Factory write-off		2,258			—			—			2,258
Equity in loss of subsidiaries			2,462			—			(2,462	)		—
Equity in loss of subsidiaries			2,105			—			(2,105	)		—
Loss before income taxes			(11,097	)		(2,407	)		2,462			(11,042	)
Loss before income taxes			(2,372	)		(2,050	)		2,105			(2,317	)
Provision for income taxes			34			55			—			89
Provision for income taxes			4			55			—			59
Net loss		$	(11,131	)	$	(2,462	)	$	2,462		$	(11,131	)
Net loss		$	(2,376	)	$	(2,105	)	$	2,105		$	(2,376	)

(a): This column does not include the balances of SFG and subsidiaries beginning November 15, 2001 due to their deconsolidation for financial reporting purposes. SFG and its subsidiaries, however, continue to be guarantors on the Senior Notes. Refer to Note 3 for financial information on SFG and its subsidiaries since their deconsolidation.

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Consolidating Statement of Operations for the Three Months Ended ~~February~~May 2426, 2001 (Unaudited) (In thousands)

		Archibald Candy Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales		$	6229,~~219~~912		$	4027,~~275~~990		$	—		$	~~102~~57,~~494~~902
Cost of sales, excluding depreciation			2014,~~947~~109			1811,~~150~~597			—			3925,~~097~~706
Cost of sales, nonrecurring			~~2,439~~(146	)		—2,205			—			2,~~439~~059
Total cost of sales			2313,~~386~~963			1813,~~150~~802			—			4127,~~536~~765
Selling, general, and administrative expenses excluding depreciation and amortization			19,369			18,141			—			37,510
Gross profit			15,949			14,188			—			30,137
Depreciation and amortization expense			1,780			1,516			—			3,296
Selling, general, and administrative expenses excluding depreciation and amortization			15,183			16,325			—			31,508
Amortization of goodwill and other intangibles			963			89			—			1,052
Depreciation and amortization expense			1,779			1,514			—			3,293
Share of loss in joint venture			—			16			—			16
Amortization of goodwill and other intangibles			1,113			89			—			1,202
Management fees and other fees			(31	)		195			—			164
Restructuring expense			—			8,100			—			8,100
Operating income			16,752			2,168			—			18,920
Share of loss in joint venture			—			82			—			82
Management fees and other fees			10			122			—			132
Operating loss			(2,136	)		(12,044	)		—			(14,180	)
Other (income) expense:
	Interest expense		4,~~872~~686			~~197~~195			(195	)		4,~~874~~686
	Interest income		(~~197~~195	)		(1—	)		195			(3—	)
	Other income and expenses		(6735	)		—48			—			~~(67~~13	)
Equity in income of subsidiaries			(112,~~965~~293	)		—			1(12,~~965~~293	)		—
Income (loss) before income taxes			14(18,~~109~~885	)		1(12,~~972~~287	)		(112,~~965~~293	)		14(18,~~116~~879	)
Provision for income taxes			42(2	)		76			—			494
Net income (loss)		$	14(18,~~067~~883	)	$	1(12,~~965~~293	)	$	(112,~~965~~293	)	$	14(18,~~067~~883	)

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) ~~Consolidated~~ Consolidating ~~Statements~~Statement of ~~Cash~~Operations ~~Flows~~ for the ~~Six~~Nine Months Ended ~~February~~May 2426, 2001 (Unaudited) (In thousands)

		Archibald Candy Corporation			Guarantor Subsidiaries			Eliminations			Consolidated
Net sales		$	91121,~~526~~438		$	6391,~~515~~505		$	—		$	~~155~~212,~~041~~943
Cost of sales, excluding depreciation			3246,~~876~~985			2638,~~666~~263			—			5985,~~542~~248
Cost of sales, nonrecurring			2,~~439~~293			—2,205			—			24,~~439~~498
Total cost of sales			3549,~~315~~278			2640,~~666~~468			—			6189,~~981~~746
Selling, general, and administrative expenses excluding depreciation and amortization			35,111			34,183			—			69,294
Gross profit			72,160			51,037			—			123,197
Depreciation and amortization expense			3,560			3,023			—			6,583
Selling, general, and administrative expenses excluding depreciation and amortization			50,294			50,508			—			100,802
Amortization of goodwill and other intangibles			1,926			178			—			2,104
Depreciation and amortization expense			5,339			4,537			—			9,876
Share of loss in joint venture			—			105			—			105
Amortization of goodwill and other intangibles			3,039			267			—			3,306
Management fees and other fees			9			286			—			295
Restructuring expense			—			8,100			—			8,100
Operating income			15,605			(926	)		—			14,679
Share of loss in joint venture			—			187			—			187
Management fees and other fees			19			408			—			427
Operating income (loss)			13,469			(12,970	)		—			499
Other (income) expense:
	Interest expense		914,~~927~~613			~~410~~605			(~~405~~601	)		914,~~932~~617
	Interest income		(~~407~~602	)		(1	)		~~405~~601			(32	)
	Other income and expenses		(~~112~~147	)		(147	)		—			(~~113~~100	)
Equity in income of subsidiaries			1,343			—			(1,343	)		—
Equity in loss of subsidiaries			13,636			—			(13,636	)		—
Income (loss) before income taxes			4(14,~~854~~031	)		(113,~~334~~621	)		113,~~343~~636			4(14,~~863~~016	)
Provision for income taxes			6563			915			—			7478
Net income (loss)		$	4(14,~~789~~094	)	$	(113,~~343~~636	)	$	113,~~343~~636		$	4(14,~~789~~094	)

Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) ~~Consolidated~~ Consolidating ~~Statements~~Statement of Cash Flows for the ~~Six~~Nine Months Ended ~~February~~May 2325, 2002 (Unaudited) (In thousands)

			Archibald Candy Corporation	~~Archibald Candy Corporation~~		Guarantor Subsidiaries(a)	~~Guarantor Subsidiaries(a)~~		Eliminations	~~Eliminations~~		Consolidated	~~Consolidated~~
OPERATING ACTIVITIES
Net loss			$	$(11,131	~~(2,376~~)	)$	$(2,462	~~(2,105~~)	)$	$2,462	~~2,105~~	$	$(11,131	~~(2,376~~)	)
Adjustments to reconcile net loss to net cash
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	provided by (used in) operating activities:
	Depreciation and amortization			7,995			1,531			—			9,526
		Depreciation and amortization			5,330			1,169			—			6,499
	Share of loss in joint venture			—			337			—			337
		Equity in loss of subsidiaries			—			—			—			—
	Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries			2,258			—			—			2,258
		Share of loss in joint venture			—			178			—			178
Changes in operating assets and liabilities:
		Effect of deconsolidation of Sweet Factory Group, Inc. and subsidiaries			2,258			—			—			2,258
	Accounts receivables, net			262			(51	)		—			211
Changes in operating assets and liabilities:
	Inventories			1,368			76			—			1,444
		Accounts receivables, net			(2,440	)		(828	)		—			(3,268	)
	Prepaid expenses and other current assets			(972	)		(75	)		—			(1,047	)
		Inventories			179			(673	)		—			(494	)
	Intercompany			2,462			—			(2,462	)		—
		Prepaid expenses and other current assets			(1,808	)		416			—			(1,392	)
	Other assets			15			(327	)		—			(312	)
		Intercompany			2,101			4			(2,105	)		—
	Accounts payable and accrued liabilities			10,658			805			—			11,463
		Other assets			(37	)		(35	)		—			(72	)
Net cash provided by operating activities				12,915			(166	)		—			12,749
		Accounts payable and accrued liabilities			16,184			1,928			—			18,112
INVESTING ACTIVITIES
Net cash provided by operating activities					19,391			54			—			19,445
Purchase of Property, Plant, and Equipment				(1,223	)		(764	)		—			(1,987	)
INVESTING ACTIVITIES
Disposals of Property, Plant, and Equipment				272			47			—			319
Purchase of property, plant, and equipment					(579	)		(486	)		—			(1,065	)
Impact of deconsolidation of Sweet Factory Group, Inc. and subsidiaries				—			(336	)		—			(336	)
Impact of deconsolidation of Sweet Factory Group, Inc. and subsidiaries					—			(336	)		—			(336	)
Net cash used in investing activities				(951	)		(1,053	)		—			(2,004	)
Net cash used in investing activities					(579	)		(822	)		—			(1,401	)
FINANCING ACTIVITIES
FINANCING ACTIVITIES
Net repayments under revolving line of credit				(9,108	)		—			—			(9,108	)
Net repayments under revolving line of credit					(16,793	)		—			—			(16,793	)
Principal payments of capital lease obligations				(20	)		—			—			(20	)
Principal payments of capital lease obligations					(26	)		—			—			(26	)
Costs related to refinancing				(919	)		—			—			(919	)
Costs related to refinancing					(807	)		—			—			(807	)
Net cash provided by financing activities				(10,047	)		—			—			(10,047	)
Net cash provided by financing activities					(17,626	)		—			—			(17,626	)
Effect of exchange rates on cash				—			352			—			352
Effect of exchange rates on cash					—			40			—			40
Net increase (decrease) in cash and cash equivalents				1,917			(867	)		—			1,050
Net increase (decrease) in cash and cash equivalents					1,186			(728	)		—			458
Cash and cash equivalents beginning of period				1,116			1,230			—			2,346
Cash and cash equivalents beginning of period					1,116			1,230			—			2,346
Cash and cash equivalents end of period			$	3,033		$	363		$	—		$	3,396
Cash and cash equivalents end of period				$	2,302		$	502		$	—		$	2,804

(a): This column does not include the balances of SFG and subsidiaries beginning November 15, 2001 due to their deconsolidation for financial reporting purposes. SFG and its subsidiaries, however, continue to be guarantors on the Senior Notes. Refer to Note 2 for financial information on SFG and its subsidiaries since their deconsolidation.

			Archibald Candy Corporation	~~Archibald Candy Corporation~~		Guarantor Subsidiaries	~~Guarantor Subsidiaries~~		Eliminations	~~Eliminations~~		Consolidated	~~Consolidated~~
OPERATING ACTIVITIES
Net income (loss)			$	$(14,094	~~4,789~~)	$	$(13,636	~~(1,343~~)	)$	$13,636	~~1,343~~	$	$(14,094	~~4,789~~)
Adjustments to reconcile net income (loss) to net cash
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	provided by (used in) operating activities:
	Depreciation and amortization			8,378			4,804			—			13,182
		Depreciation and amortization			5,486			3,201			—			8,687
	Restructuring expense			—			9,500			—			9,500
	Equity in loss of subsidiaries	~~Equity in loss of subsidiaries~~		13,636	~~1,343~~		—	—		(13,636	~~(1,343~~)	)	—	—
	Share of loss in joint venture	~~Share of loss in joint venture~~		—	—		187	~~105~~		—	—		187	~~105~~
Changes in operating assets and liabilities:
	Accounts receivables, net	~~Accounts receivables, net~~		(1,064	~~(5,680~~)	)	(478	~~(816~~)	)	—	—		(1,542	~~(6,496~~)	)
	Inventories	~~Inventories~~		8,758	~~1,593~~		(594	~~(2,508~~)	)	—	—		8,164	~~(915~~	)
	Prepaid expenses and other current assets	~~Prepaid expenses and other current assets~~		(21	~~(57~~)	)	353	~~561~~		—	—		332	~~504~~
	Intercompany	~~Intercompany~~		(3,513	~~(2,592~~)	)	3,513	~~2,592~~		—	—		—	—
	Other assets	~~Other assets~~		(670	~~(255~~)	)	—	—		—	—		(670	~~(255~~)	)
	Accounts payable and accrued liabilities	~~Accounts payable and accrued liabilities~~		(19	~~6,068~~)		347	~~(1,625~~	)	—	—		328	~~4,443~~
Net cash provided by (used in) operating activities					10,695			167			—			10,862
	Restructuring reserve			—			(1,328	)		—			(1,328	)
INVESTING ACTIVITIES
Net cash provided by operating activities				11,391			2,668			—			14,059
Purchase of property, plant, and equipment					(2,432	)		(596	)		—			(3,028	)
INVESTING ACTIVITIES
Net cash used in investing activities					(2,432	)		(596	)		—			(3,028	)
Purchase of property, plant, and equipment				(2,878	)		(1,209	)		—			(4,087	)
FINANCING ACTIVITIES
Net cash used in investing activities				(2,878	)		(1,209	)		—			(4,087	)
Net borrowings under revolving line of credit					(6,500	)		—			—			(6,500	)
FINANCING ACTIVITIES
Principal payments of capital lease obligations					(19	)		(8	)		—			(27	)
Net borrowings under revolving line of credit				(7,200	)		—			—			(7,200	)
Costs related to refinancing					(163	)		—			—			(163	)
Principal payments of capital lease obligations				(22	)		(13	)		—			(35	)
Net cash provided by (used in) financing activities					(6,682	)		(8	)		—			(6,690	)
Costs related to refinancing				(163	)		—			—			(163	)
Effect of exchange rates on cash					—			(49	)		—			(49	)
Net cash used in financing activities				(7,385	)		(13	)		—			(7,398	)
Net increase in cash and cash equivalents					1,581			(486	)		—			1,095
Effect of exchange rates on cash				—			(485	)		—			(485	)
Cash and cash equivalents beginning of period					800			2,320			—			3,120
Net increase in cash and cash equivalents				1,128			961			—			2,089
Cash and cash equivalents end of period				$	2,381		$	1,834		$	—		$	4,215
Cash and cash equivalents beginning of period				800			2,320			—			3,120
Cash and cash equivalents end of period			$	1,928		$	3,281		$	—		$	5,209

NOTE 7. 8. NEW ACCOUNTING ~~PRONOUNCEMENTS~~ PRONOUNCEMENT

In July 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. SFAS No. 142 requires the use of non-amortization approach to account for purchased goodwill and for separately recognized (non-goodwill) intangible assets that have an indefinite useful life. Under this approach, goodwill and intangibles will not be amortized, but will periodically be reviewed for impairment and expensed against earnings only in periods in which the recorded value exceeds the fair value. The Company is currently evaluating the potential effects of the implementation of ~~these~~this new ~~standards~~standard.

ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Some information included in the report may constitute forward-looking statements that involve a number of risks and uncertainties. From time to time, information provided by the Company or statements made by its employees may contain other forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: general economic conditions, including inflation, interest rate fluctuations, trade restrictions, and general debt levels; competitive factors, including price pressures, technological development, and products offered by competitors; inventory risks due to changes in market demand or business strategies; and changes in effective tax rates. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

THREE MONTHS ENDED ~~FEBRUARY 23~~MAY 25, 2002 COMPARED TO THE THREE MONTHS ENDED ~~FEBRUARY~~MAY 2426, 2001.

NET SALES. Consolidated sales for the three months ended ~~February~~May 2325, 2002 were $8137.23 million, a decrease of $2120.36 million, ~~or 20.8%,~~ from $~~102~~57.59 million for the three months ended ~~February~~May 2426, 2001. The bankruptcy filing and subsequent deconsolidation of the Company's Sweet Factory subsidiaries accounted for $1914.52 million of the decline. Company-operated retail sales, excluding Sweet Factory, for the three months ended ~~February~~May 2325, 2002 were $5931.29 million, a decrease of $2.74 million, or 47.40%, from $6134.93 million for the three months ended ~~February~~May 2426, 2001. Same store sales decreased 24.35% for Fannie May/Fanny Farmer and 35.76% (02.45% ~~increase~~decrease in Canadian Dollars) for Laura Secord ~~primarily~~ primarily due to a weak retail environment during the ~~Christmas~~Easter ~~and~~holiday ~~Valentine's~~period. ~~Day~~In ~~holiday~~addition, ~~periods~~the Company had 14 fewer stores as of May 25, 2002 as compared to May 26, 2001. Sales through the Company's third-party retail outlets and non-retail distribution channels ~~increased~~decreased $04.90 million, ~~or 4.3%,~~ to $225.04 million for the three months ended ~~February~~May 2325, 2002 from $219.14 million for the three months ended ~~February~~May 2426, 2001. The ~~increase~~decrease was due primarily to ~~higher~~a ~~third-party~~promotion ~~retail~~offered ~~sales~~ to ~~our~~the ~~national~~Company's ~~chain~~card ~~accounts~~and gift business customers, which was not repeated during the current year.

GROSS PROFIT. Gross profit for the three months ended ~~February~~May 2325, 2002 was $4821.41 million, a decrease of $129.60 million, ~~or 20.7%,~~ from $6130.01 million for the ~~three~~ three months ended ~~February~~May 2426, 2001. Gross profit in the prior year included $119.71 million related to Sweet Factory and a reduction of $2.41 million associated with costs related to the closing of unprofitable Sweet Factory stores and the manufacturing start-up of the Laura Secord products beginning in September 2000. After giving effect to these items, gross profit dollars ~~declined~~decreased $32.30 million versus the prior year, which was primarily due to lower sales. ~~negatively~~Gross ~~impacting~~profit ~~margins~~as ~~$1.1 million;~~ a ~~change~~percentage inof ~~the~~net ~~mix~~sales, ofafter ~~outside~~giving ~~purchased~~effect ~~products~~to ~~sold~~these ~~increasing~~items, ~~costs~~was $056.~~9 million;~~6% anfor ~~increase~~the inthree ~~inventory~~months ~~shrinkage~~ended atMay 25, ~~Laura~~2002 ~~Secord~~versus ~~of $0~~52.9 ~~million,~~% ~~which~~for ~~such~~the ~~similar~~three ~~costs~~months ~~were~~ended ~~recorded~~May 26, in2001. ~~the~~This ~~second~~increase ~~half~~was ofprimarily ~~the~~due ~~prior~~to ~~year~~retail ~~upon~~sales, awhich ~~physical~~have ~~inventory~~a ~~count;~~higher ~~and~~gross anprofit ~~increase~~rate ofthan ~~$0.3 million~~other ~~related~~distribution tochannels ~~higher~~in ~~purchase~~general, ~~costs~~being ata ~~Laura~~higher ~~Secord~~proportion asof atotal ~~result~~sales ofthis ~~the~~year ~~decline~~versus of the ~~value~~prior ofyear, ~~the~~as ~~Canadian~~well ~~dollar~~as ~~versus~~lower ~~the~~manufacturing Ucosts.S ~~dollar.~~

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $2720.7 million for the three months ended ~~February~~May 2325, 2002, a decrease of $910.8 million, ~~or 26.1%,~~ from $3731.5 million for the three months ended ~~February~~May 2426, 2001. SG&A expenses, excluding Sweet Factory, were $2720.7 million for the three months ended ~~February~~May 2325, 2002, ~~an increase~~a ofdecrease of $10.27 million or 43.53%, from $2621.54 million for the three months ended ~~February~~May 2426, ~~2002~~2001. This increase was primarily due to a higher healthcare accrual and increased wrapping costs of which such similar costs were recorded in the second half of the prior year upon a physical inventory count.

RESTURCTURING EXPENSE. Restructuring expense of $1.3 million for the three months ended May 25, 2002 relates to professional fees associated with the restructuring of the Company's

~~EBITDA. Earnings~~ ~~before~~balance ~~interest,~~sheet. ~~income~~See ~~taxes,~~"Effect ~~depreciation and amortization (EBITDA), excluding the effect~~ of ~~the~~Bankruptcy ~~deconsolidation~~Filings" ~~of Sweet Factory was $20~~below.~~6 million~~ ~~for~~Restructuring ~~the~~expense ~~three~~of ~~months ended February 23, 2002, as compared to~~ $258.01 million for the three months ended ~~February~~May 2426, 2001, ~~excluding~~relates ~~the~~to ~~manufacturing start-up costs of $2.4 million and~~ the ~~effect~~closing of ~~the~~unprofitable ~~deconsolidation of~~ Sweet Factory ~~of $0~~stores.~~7 million.~~ This decrease is primarily due to lower sales, a change in the mix of outside purchased products sold, the timing of Laura Secord inventory shrinkage, and higher healthcare and wrapping costs, as discussed above.

~~OPERATING INCOME~~EBITDA. ~~Operating~~Earnings before interest, income taxes, depreciation and amortization (EBITDA) was $17(1.52) million for the three months ended May 25, 2001 as compared to $(9.7) million for the three months ended ~~February~~May 2326, ~~2002~~2001. EBITDA, aexcluding ~~decrease~~the effect of the deconsolidation of Sweet Factory and restructuring expense was $10.41 million ~~from~~for ~~income~~the ofthree months ended May 25, 2002, as compared to $181.95 million for the three months ended ~~February~~May 2426, 2001., ~~The~~excluding ~~decrease~~the inmanufacturing ~~operating~~start-up ~~income~~costs ~~was~~and ~~due~~the ~~primarily~~closing toof unprofitable ~~the~~Sweet ~~decline~~Factory instores ~~sales~~of $2.1 million, anrestructuring ~~increase~~expense inof ~~other~~$8.1 million ~~costs~~and ~~described~~the ~~above~~effect ~~and~~of the deconsolidation of Sweet Factory, ~~which had an operating loss~~ of $02.53 million. inThis ~~the~~decrease ~~prior~~is primarily ~~year~~due to lower sales, offset by an improved gross profit rate.

~~NET~~OPERATING ~~INCOME~~LOSS. Operating ~~Net~~loss ~~income~~was $4.2 million for the three months ended ~~February~~May 2325, 2002 ~~was $13.1 million~~, a decrease of $110.0 million from a loss of $14.12 million for the three months ended ~~February~~May 2426, 2001. The decrease in operating loss was due primarily to the deconsolidation of Sweet Factory, which had an operating loss of $11.8 million in the prior year, offset by restructuring expense of $1.3 million in the current year.

~~SIX~~ NET LOSS. Net ~~MONTHS~~loss ~~ENDED~~for ~~FEBRUARY~~the 23three months ended May 25, 2002 ~~COMPARED~~was TO$8.8 million, ~~THE~~a ~~SIX~~decrease ~~MONTHS~~of ~~ENDED~~$10.1 million ~~FEBRUARY~~from 24$18.9 million for the three months ended May 26, 2001 .

~~NET~~NINE ~~SALES.~~MONTHS ~~Consolidated~~ENDED ~~sales~~MAY ~~for the six months ended February 23~~25, 2002 ~~were~~COMPARED ~~$123.6 million,~~TO aTHE ~~decrease~~NINE ofMONTHS ~~$31.4 million,~~ENDED orMAY ~~20.3%~~26, ~~from $155.0 million for the six months ended February 24,~~ 2001. Company-operated retail sales for the six months ended February 23, 2002 were $90.6, a decrease of $29.2 million, or 24.4%, from $119.8 million for the six months ended February 24, 2001. This decrease was due primarily to the bankruptcy filing of Sweet Factory and subsequent deconsolidation, the ongoing closing of Sweet Factory stores, and decline in Sweet Factory same store sales, which accounted for $24.6 million of the decline. Same store sales decreased 3.0% for Fannie May/Fanny Farmer and 4.1% (0.3% increase in Canadian Dollars) for Laura Secord. Sales through the Company's third-party retail outlets and non-retail distribution channels decreased $2.2 million to $33.0 million for the six months ended February 23, 2002, from $35.2 million for the six months ended February 24, 2001. The decrease was primarily due to lower fundraising sales, partially offset by increased third-party sales.

~~GROSS PROFIT~~NET SALES. Consolidated ~~Gross~~sales ~~profit~~ for the ~~six~~nine months ended ~~February~~May 2325, 2002 ~~was~~were $73160.39 million, a decrease of $1952.80 million, ~~or 21.3%,~~ from $93212.19 million for the ~~six~~ nine months ended ~~February~~May 2426, 2001. ~~Gross~~The ~~profit,~~bankruptcy ~~excluding~~filing ~~Sweet Factory~~ and ~~$2.4 million~~subsequent indeconsolidation of the ~~prior~~Company's ~~year~~Sweet ~~associated~~Factory ~~with~~subsidiaries ~~costs~~accounted ~~related~~for to$38.8 million of the ~~manufacturing~~decline. ~~start~~Company-upoperated ofretail ~~the Laura~~sales, ~~Secord~~excluding ~~products~~Sweet ~~in September 2000~~Factory, for the ~~six~~nine months ended ~~February~~May 2325, 2002 ~~was~~were $67113.86 million, a decrease of $6.7.0 million, or 85.98%, from $74120.56 million. ~~The decrease~~for inthe ~~gross~~nine ~~profit~~months ~~dollars~~ended ~~was~~May 26, ~~primarily~~2001. ~~due~~Same tostore ~~lower~~ sales ~~which~~decreased ~~negatively~~3.3% ~~impacted~~for ~~gross~~Fannie ~~profit~~May/Fanny $Farmer and 4.~~2 million;~~5% a(1.1% ~~change~~decrease in ~~the~~Canadian ~~mix~~Dollars) offor ~~outside~~Laura ~~purchased~~Secord, primarily ~~products~~due ~~sold~~to ~~increasing~~a ~~costs~~weak ~~of $1~~retail environment.~~4 million;~~ anIn ~~increase~~addition, inthe ~~inventory~~Company ~~shrinkage~~had at14 ~~Laura~~fewer ~~Secord~~stores as of ~~$1.5~~May ~~million~~25, ~~which~~2002 ~~such~~as ~~similar~~compared ~~costs~~to ~~were~~May 26, ~~recorded~~2001. inSales through the ~~second~~Company's ~~half~~third-party ofretail outlets ~~the~~and ~~prior~~non-retail ~~year~~distribution ~~upon~~channels adecreased ~~physical~~$6.2 million ~~inventory count;~~to ~~and~~$38.4 million anfor ~~increase~~the ofnine months ended May 25, 2002, from $044.56 million ~~related~~for tothe ~~higher~~nine months ~~purchase~~ended ~~costs~~May 26, at2001. ~~Laura~~The ~~Secord~~decrease aswas aprimarily ~~result~~due ofto ~~the~~lower ~~decline~~fundraising insales ~~the~~and ~~value~~an ofoffered promotion to the ~~Canadian~~Company's ~~dollar~~card ~~versus~~and gift business customers, which was not repeated during the ~~U.S.~~current ~~dollar~~year.

~~SELLING,~~GROSS ~~GENERAL AND ADMINISTRATIVE EXPENSES~~PROFIT. Gross ~~SG&A~~profit ~~expenses were $57.2 million~~ for the ~~six~~nine months ended ~~February~~May 2325, 2002 was $94.4 million, a decrease of $1228.18 million, ~~or 17.5%,~~ from $69123.32 million for the ~~six~~ nine months ended ~~February~~May 2426, 2001. ~~SG&A~~Gross ~~expenses~~profit, excluding Sweet Factory, ~~were~~and $494.05 million ~~for~~in the ~~six~~prior ~~months~~year ~~ended~~associated ~~February 23,~~with ~~2002,~~costs ~~an increase~~related ofto ~~$1.0 million,~~the ormanufacturing ~~2.1%,~~start-up ~~from~~of ~~$48.0 million for~~ the ~~six~~Laura Secord ~~months~~products ~~ended~~beginning ~~February~~in September ~~24,~~2000 ~~2001.~~and ~~The~~the ~~increase~~closing ~~was~~of ~~primarily~~unprofitable ~~due~~Sweet toFactory astores, ~~higher~~for ~~healthcare~~the ~~accrual~~nine ~~and~~months ~~increased wrapping~~ended ~~costs~~May 25, of2002 ~~which~~was ~~such~~$88.8 million, ~~similar~~a ~~costs~~decrease ~~were~~of $8.9 million ~~recorded~~or in9.1%, ~~the~~from ~~second~~$97.7 million. ~~half~~The ofdecrease ~~the~~in ~~prior~~gross ~~year~~profit ~~from~~dollars awas ~~physical~~primarily ~~inventory~~due ~~count~~to ~~partially~~lower ~~offset by other cost savings~~sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A expenses were $78.1 million for the nine months ended May 25, 2002, a decrease of $22.7 million from $100.8 million for the nine months ended May 26, 2001. SG&A expenses, excluding Sweet Factory, were $69.9 million for the nine months ended May 25, 2002, an increase of $0.5 million, or 1.0%, from $69.4 million for the nine months ended May 26, 2001. The increase was primarily due to higher healthcare costs.

RESTURCTURING EXPENSE. Restructuring expense of $1.3 million for the three months ended May 25, 2002 relates to professional fees associated with the restructuring of the Company's

~~OTHER~~ ~~(INCOME)~~balance ~~AND EXPENSES~~sheet. ~~Included~~See in"Effect ~~other~~of ~~expenses~~Bankruptcy isFilings" ~~a charge of $2~~below.~~3 million~~ ~~associated~~Restructuring ~~with~~expense ~~the net write-off (for financial reporting purposes) due to SFG's bankruptcy~~ of a $198.41 million ~~receivable~~for ~~due~~the ~~from~~three ~~SFG~~months ~~and~~ended ~~subsidiaries~~May 26, ~~after~~2001 ~~first~~relates ~~offsetting~~to ~~$17.1 million of that write-off against~~ the ~~Company's~~closing ~~negative~~of ~~investment~~unprofitable Sweet ~~balance~~Factory ~~in SFG and its subsidiaries~~stores.

~~EBITDA.~~OTHER ~~Earnings before interest, income taxes, depreciation, and amortization~~ (~~EBITDA~~INCOME), ~~excluding~~AND ~~the~~EXPENSE. Included ~~effect~~in ofother ~~deconsolidation~~expenses ofis ~~Sweet~~a ~~Factory~~charge of $2.3 million ~~and~~associated with the ~~Sweet Factory~~net ~~EBITDA~~write-off ~~loss of $2.7 million was $18.5 million~~ (for ~~the~~financial ~~six~~reporting ~~months~~purposes) due ~~ended February 23, 2002, as compared~~ to ~~$26.3 million for~~ the ~~six~~Sweet ~~months~~Factory ~~ended~~bankruptcy ~~February 24, 2001, excluding manufacturing start-up costs~~ of a $219.4 million ~~and~~receivable due from the Sweet Factory ~~EBITDA~~subsidiaries, ~~loss~~after offirst offsetting $017.41 million. ~~This~~of ~~decrease~~that iswrite-off ~~primarily~~against ~~due to lower sales, and higher~~the ~~outside~~Company's ~~purchased~~negative ~~product~~investment ~~costs~~balance ~~and~~in ~~the~~Sweet ~~timing~~Factory ofGroup, Inc. ~~Laura Secord packaging costs and inventory shrinkage; and higher healthcare and wrapping costs as discussed above~~("SFG").

~~OPERATING INCOME~~EBITDA. Earnings before ~~Operating~~interest, income taxes, depreciation, and amortization (EBITDA), was $912.13 million for the ~~six~~nine months ended ~~February~~May 2325, 2002, aas ~~decrease~~compared to of $513.68 million ~~from~~for ~~income~~the nine months ended May 26, 2001. EBITDA, excluding the effect of deconsolidation of Sweet Factory of $142.73 million, ~~for~~ the ~~six~~Sweet ~~months~~Factory ~~ended~~EBITDA ~~February 24,~~loss ~~2001~~of $2.7 million ~~Operating~~and ~~income~~restructuring ~~was~~expense of $121.3 million, was $18.7 million for the ~~six~~nine months ended ~~February~~May 2325, 2002, ~~excluding~~as ~~Sweet~~compared ~~Factory,~~to ~~a decrease of~~ $727.~~6 million from operating income of $19.~~9 million for the ~~six~~nine months ended ~~February~~May 2426, 2001, excluding restructuring expense of $8.1 million, manufacturing start-up costs and the closing of unprofitable Sweet Factory stores of $4.5 million and ~~The~~the ~~decrease~~Sweet ~~was~~Factory ~~primarily~~EBITDA ~~due~~loss ~~to the~~of ~~decline~~$1.4 million. inThis ~~sales~~decrease ~~and~~is ~~increase~~primarily indue ~~costs~~to ~~described~~lower ~~above~~sales.

~~NET~~OPERATING INCOME (LOSS). Operating ~~Net~~income ~~loss~~was $4.9 million for the ~~six~~nine months ended ~~February~~May 2325, 2002 ~~was $2.4 million~~, aan ~~decrease~~increase of $74.24 million from ~~net~~ income of $40.85 million for the ~~six~~ nine months ended ~~February~~May 2426, 2001. ~~The~~Operating ~~net~~income ~~loss~~was $9.4 million for the ~~six~~nine months ended ~~February~~May 2325, 2002, ~~includes~~excluding ~~the~~Sweet ~~effect~~Factory ofand ~~the~~restructuring expense ~~deconsolidation~~which is a decrease of ~~Sweet~~$8.8 million ~~Factory~~from operating income of $218.32 million for the nine months ended May 26, 2001, excluding restructuring expense, manufacturing start-up costs and Sweet Factory. The decrease was primarily due to the decline in sales and increase in healthcare costs described above.

~~EFFECT~~ NET INCOME OF(LOSS). Net ~~BANKRUPTCY~~loss ~~FILING~~ for the nine months ended May 25, 2002 was $11.1 million, a decrease of $3.0 million from net income of $14.1 million for the nine months ended May 26, 2001. The net loss for the nine months ended May 25, 2002 includes the effect of the deconsolidation of Sweet Factory of $2.3 million.

OnEFFECT ~~November 15,~~OF ~~2001,~~BANKRUPTCY Sweet Factory Group, Inc. ("SFG") and its three subsidiaries; Sweet Factory, Inc., SF Properties, Inc. and SF Candy Company, filed voluntary petitions in the U.S. Bankruptcy Court for the District of Delaware ("Bankruptcy Court") under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy filings, Sweet Factory, Inc. entered into a Post-Petition Credit, Security and Guaranty Agreement (the "Post-Petition Credit Agreement") with The CIT Group/Business Credit, Inc. and SFG, SF Properties, Inc. and SF Candy FILINGS

~~Company as~~On ~~guarantors.~~June 12, ~~The~~2002, ~~agreement~~Archibald isCandy ~~for~~Corporation ~~one~~("Archibald") ~~year~~ and ~~provides~~Fannie ~~for~~May ~~revolving~~Holdings, Inc. ~~loans~~("Holdings"), atits ~~any~~sole ~~time~~shareholder, ~~not~~filed topetitions ~~exceed~~in the United ~~lesser~~States Bankruptcy Court for the District of Delaware (~~1) $2.0 million~~the ~~and~~"Bankruptcy (2Court") to commence a ~~borrowing base~~consolidated ~~comprised~~voluntary ofbankruptcy aproceeding ~~percentage~~under Chapter 11 of ~~Sweet~~the ~~Factory, Inc~~United States Bankruptcy Code (the "Bankruptcy Code").'s ~~eligible~~Archibald ~~inventory~~and ~~plus~~Holdings also have filed a ~~$1.0 million~~Joint ~~overadvance~~Plan of Reorganization (the "Archibald Plan"), ~~subject~~with respect to ~~certain~~which ~~reserves.~~holders ~~The~~of ~~Post-Petition~~approximately ~~Credit~~83% ~~Agreement~~in isaggregate principal ~~secured~~amount byof ~~first~~Archibald's ~~priority~~101/4% ~~liens~~senior onsecured ~~Sweet~~notes ~~Factory, Inc.'s~~have ~~accounts~~executed ~~receivable~~lock-up ~~and~~agreements ~~inventory~~agreeing ~~and~~to ~~provides~~vote ~~that~~in ~~borrowings~~favor ~~thereunder~~of ~~accrue~~the ~~interest~~Archibald atPlan. aThe ~~variable~~Archibald ~~rate~~Plan, ~~equal~~which is subject to the approval of the ~~"prime~~Bankruptcy ~~rate" announced~~Court, ~~from~~contemplates ~~time~~a tosignificant ~~time~~deleveraging byof ~~J.P.~~Archibald's ~~Morgan~~balance ~~Chase &~~sheet ~~Co.,~~and ~~plus~~the 1elimination of approximately $17.5%. million ~~The~~in ~~Company~~annual ~~and~~interest payments. The Archibald ~~Candy~~Plan ~~(Canada)~~will ~~Corporation~~require, ~~have~~among ~~guaranteed~~other ~~all~~things, ~~obligations~~the ofrequisite ~~Sweet~~votes ~~Factory, Inc.~~ under the ~~Post-Petition~~ ~~Credit~~Bankruptcy ~~Agreement.~~Code ~~Sweet~~and ~~Factory, Inc.~~must issatisfy ~~required~~the torequirements ~~pay~~set ~~fees~~forth in ~~connection~~Section 1129 ~~with~~of the ~~Post-Petition~~Bankruptcy ~~Credit Agreement~~Code. OnDuring ~~March~~the Chapter 4,11 ~~2002~~proceeding, ~~SFG~~Archibald ~~and~~does not currently expect any significant impact on its ~~subsidiaries~~ ~~filed~~employees, acustomers ~~Plan~~or ofsuppliers. ~~Reorganization~~Archibald ~~with~~Candy (Canada) Corporation, the ~~Bankruptcy~~wholly-owned ~~Court.~~subsidiary Aof Archibald ~~confirmation~~that ~~hearing~~operates isits ~~scheduled~~Laura ~~for~~Secord ~~May 24~~business, ~~2002~~has not filed a bankruptcy proceeding.

~~SFG~~In ~~and~~connection ~~its~~with ~~subsidiaries' financial results are included in~~ the ~~Company's~~Archibald ~~consolidated~~bankruptcy ~~results through November 15~~proceeding, ~~2001.~~Archibald ~~Accounting~~has ~~principles~~entered ~~generally~~into ~~accepted~~a inPost-Petition ~~the~~Loan ~~United States~~and ~~generally~~Security ~~require~~Agreement ~~that~~and ~~any~~Guaranty ~~entity~~dated ~~that~~as ~~files~~of ~~for~~June 12, ~~protection under~~ 2002 (the ~~U.S.~~"Archibald ~~Bankruptcy~~DIP ~~Code~~Credit ~~whose~~Facility") ~~financial statements were previously consolidated~~ with ~~those~~Foothill ofCapital ~~its~~Corporation, ~~parent~~as ~~must~~Arranger beand ~~prospectively deconsolidated~~Administrative ~~from~~Agent, the ~~parent~~lenders ~~with~~party thereto ~~the~~and ~~investment~~Holdings ~~accounted~~and ~~for~~Archibald ~~using~~Candy ~~the~~(Canada) ~~cost~~Corporation, ~~method~~as Guarantors. ~~The~~Pursuant ~~effects~~to on the ~~Company's~~Archibald ~~balance~~DIP ~~sheet~~Credit ofFacility, ~~this~~the ~~deconsolidation~~lenders ~~and~~have ~~use~~agreed ofto ~~the~~make ~~cost~~available ~~method~~to ~~are~~Archibald ~~that:~~a ~~(i)~~$45.0 ~~the~~million ~~Company's~~term ~~investment~~loan ~~in SFG is included as a single amount~~ and ~~(ii) the~~revolving ~~Company's~~credit ~~receivable from SFG is no longer eliminated~~facility. The ~~effect~~proceeds onof the ~~Company's~~Archibald ~~income~~DIP ~~statement~~Credit ~~is that beginning~~

~~November 15,~~Facility ~~2001,~~were ~~the~~used ~~SFG operating results are not included~~ in ~~the consolidated results. At November 15~~part, ~~2001,~~to ~~the~~pay-off ~~Company's investment in SFG was a negative $17.1 million, and~~ the ~~receivable~~indebtedness ~~had~~outstanding aunder ~~balance of $19.4 million. Because of SFG~~Archibald's ~~and~~revolving ~~its~~credit ~~subsidiaries'~~facility ~~bankruptcies, it was determined that~~ (the ~~receivable~~"CIT ~~should~~Facility") bewith ~~reserved~~The ~~for~~CIT ~~financial~~Group/Business ~~reporting purposes~~Credit, Inc. ~~That~~("CIT"), ~~write-off~~and ~~was~~are ~~first~~being ~~netted~~used ~~against~~to ~~the~~fund ~~negative~~Archibald's ~~investment~~working ~~balance,~~capital ~~with~~and ~~the~~capital ~~remaining~~expenditure ~~$1.3 million~~needs ~~recorded~~during asthe abankruptcy ~~non-operating expense~~proceedings.

~~The~~Archibald's ~~condensed~~management ~~consolidated~~has ~~financial~~assessed ~~information~~the ~~set~~liquidity ~~forth~~position ~~below~~of ~~for~~Archibald ~~SFG~~ and ~~its~~Archibald ~~subsidiaries~~Candy ~~has~~(Canada) ~~been~~Corporation ~~prepared~~in onlight ~~a going concern basis which contemplates continuity~~ of ~~operations, realization~~the ofArchibald ~~assets,~~ and ~~liquidation~~Holdings ofbankruptcy ~~liabilities~~proceedings inand the funds ~~ordinary~~available ~~course~~under ~~of business. As a result of~~ the ~~bankruptcy~~Archibald ~~filings~~DIP ofCredit ~~SFG~~Facility and ~~its~~believes ~~subsidiaries and related events, there is no assurance~~ that ~~the~~Archibald ~~carrying~~and ~~amounts~~Archibald ofCandy ~~assets~~(Canada) ~~will~~Corporation ~~be realized or that liabilities~~ will be ~~liquidated~~able orto ~~settled~~fund ~~for~~their ~~the~~post-petition ~~amounts~~obligations ~~recorded.~~until ~~In addition, a plan of reorganization, or rejection thereof, could~~the ~~change~~Archibald ~~the~~Plan ~~amounts~~is ~~reported in the financial statements of SFG and its subsidiaries and cause a material decrease in the carrying amount of the net investment~~confirmed.

~~Following~~On ~~are~~November 15, 2001, SFG and its three subsidiaries, Sweet Factory, Inc., SF Properties, Inc. and SF Candy Company, filed voluntary petitions in the ~~condensed~~Bankruptcy Court ~~consolidated~~under ~~statements~~Chapter 11 of ~~operations~~the Bankruptcy Code. In connection with the Sweet Factory bankruptcy filings, Sweet Factory, Inc. entered into a Post-Petition Credit, Security and Guaranty ~~balance~~Agreement ~~sheet~~(the ~~data~~"SF ~~for~~DIP Credit Facility") with CIT and SFG, SF Properties, Inc. and ~~its~~SF ~~subsidiaries~~Candy Company, as guarantors. The SF DIP Credit Facility is for one year and provides for revolving loans at any time not to exceed the lesser of (in1) $2.0 million ~~thousands~~and (2): a borrowing base comprised of a percentage of Sweet Factory, Inc.'s eligible inventory plus a $1.0 million overadvance, subject to certain reserves.

	For the quarter ended Feb. 23, 2002			For the quarter ended Feb. 24, 2001			For the period of Aug. 26, 2001 thru Nov. 15, 2001			For the six months ended Feb. 23, 2002			For the six months ended Feb. 24, 2001
Net sales	$	9,619		$	19,513		$	8,867		$	19,554		$	33,512
Operating loss		(372	)		(513	)		(3,172	)		(4,014	)		(2,823	)
Loss before income taxes		(380	)		(513	)		(3,175	)		(4,025	)		(2,825	)
Net loss		(377	)		(520	)		(3,178	)		(4,025	)		(2,834	)

~~Operating~~SFG and ~~loss~~its ~~includes~~subsidiaries' ~~restructuring~~financial ~~expenses~~results are included in the Company's consolidated results through November 15, 2001. Accounting principles generally accepted in the United States generally require that any entity that files for protection under the U.S. Bankruptcy Code whose financial statements were previously consolidated with those of ~~$35~~its ~~and~~parent ~~$910~~must be prospectively deconsolidated from the parent with the investment accounted for using the ~~quarter~~cost method. The effects on the Company's balance sheet of this deconsolidation and ~~year-to-date~~use ~~periods~~of ~~ended~~the cost method are that: ~~February~~(i) 23the Company's investment in SFG is included as a single amount and (ii) the Company's receivable from SFG is no longer eliminated. The effect on the Company's income statement is that beginning November 15, ~~2002~~2001, ~~respectively~~the SFG operating results are not included in the consolidated results. At November 15, 2001, the Company's investment in SFG was a negative $17.1 million, and the receivable had a balance of $19.4 million. Because of SFG's and its subsidiaries' bankruptcies, it was determined that the receivable should be reserved for financial reporting purposes. That write-off was first netted against the negative investment balance, with the remaining $2.3 million recorded as a non-operating expense.

	Feb. 23, 2002			Nov 15, 2001			Aug. 25, 2001
Current assets	$	3,042		$	2,620		$	4,174
Property, plant and equipment		4,737			5,316			5,699
Other assets		791			772			892
Total assets	$	8,570		$	8,708		$	10,765
Current liabilities	$	6,685		$	6,079		$	4,069
Payable to Archibald Candy Corporation		19,544			19,383			19,761
Other liabilities		313			371			885
Total stockholder's deficit		(17,972	)		(17,125	)		(13,950	)
Total liabilities & stockholder's deficit	$	8,570		$	8,708		$	10,765

~~Following~~Management ~~are~~has assessed the ~~condensed~~liquidity ~~pro~~position ~~forma~~of ~~consolidated~~SFG ~~statement~~and its subsidiaries as a result of ~~operations~~the bankruptcy filings and ~~balance~~available ~~sheet~~debtor ~~data~~in ofpossession ~~the~~financing ~~Company,~~and ~~assuming~~believes that SFG and its subsidiaries will be able to fund their post-petition obligations until the ~~deconsolidation~~sale ofto RDR is consummated and SFG and its subsidiaries ~~(in~~are ~~thousands):~~liquidated.

	For the quarter ended Feb. 24, 2001		For the six months ended Feb. 23, 2002		For the six months ended Feb. 24, 2001
Net sales	$	82,981	$	114,721	$	121,529
Operating income		19,433		12,305		17,503
Income before income taxes		14,629		858		7,688
Net income		14,587		802		7,623

See Note 3 to the Financial Statements for financial information for SFG and subsidiaries and pro forma financial information for the Company, assuming the deconsolidation of SFG and its subsidiaries.

	August 25, 2001
Current assets	$	34,598
Property, plant and equipment		28,699
Investment in and amounts due from SFG		5,811
Other assets		68,050
Total assets	$	137,158
Current liabilities	$	41,553
Other liabilities		171,209
Total stockholder's deficit		(75,604	)
Total liabilities & stockholder's deficit	$	137,158

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $1912.47 million for the ~~six~~nine months ended ~~February~~May 2325, 2002 compared to $1014.91 million for the ~~six~~nine months ended ~~February~~May 2426, 2001. The ~~increase~~decrease in net cash provided by operating activities was due primarily to the ~~non-payment~~decrease ofin ~~the~~operating ~~interest~~income ~~due~~and on the ~~senior~~significant ~~secured~~decline ~~notes~~in ~~on January 2,~~inventories ~~2002 totaling $8.7 million and an increase~~ in ~~accounts~~the prior ~~payable~~year, offset by athe ~~decline~~non-payment inof ~~net~~interest ~~income~~on the senior secured notes. Net loss was $211.41 million for the ~~six~~nine months ended ~~February~~ May 2325, 2002 compared to net ~~income~~loss of $414.81 million for the ~~six~~nine months ended ~~February~~May 2426, 2001. Net loss included non-cash depreciation and amortization charges of $69.5 million for the ~~six~~nine months ended ~~February~~ May 2325, 2002 and $813.72 million for the ~~six~~nine months ended ~~February~~May 2426, 2001. Net loss also included a $2.3 million non-cash charge associated with the deconsolidation of Sweet Factory due to the Sweet Factory bankruptcy filing.

Net cash used in investing activities decreased to $12.40 million for the ~~six~~nine months ended ~~February~~May 2325, 2002 from $34.01 million for the ~~six~~nine months ended ~~February~~ May 2426, 2001 due to lower capital expenditures.

Net cash used in financing activities was $1710.60 million for the ~~six~~nine months ended ~~February~~May 2325, 2002 compared to $6.7.4 million for the ~~six~~nine months ended ~~February~~ May 2426, 2001 due to the repayment of borrowings under ~~our~~the ~~line~~CIT offacility ~~credit~~and increased debt financing costs.

~~The~~In ~~CIT~~connection ~~Facility~~with ~~provides~~Archibald's ~~that~~and ~~borrowings~~Holdings' ~~thereunder~~bankruptcy ~~accrue~~case, ~~interest~~Archibald atentered ainto ~~variable~~the ~~rate~~Post-Petition ~~equal~~Loan toand Security Agreement and Guaranty (the "~~prime~~Archibald ~~rate~~DIP Credit Facility") ~~announced~~with ~~from~~Foothill ~~time~~Capital Corporation, as the Arranger and Administrative Agent, the lenders party thereto and Holdings and Archibald Candy (Canada) Corporation, as Guarantors. Under the Archibald DIP Credit Facility, the lenders have agreed to ~~time~~make byavailable JPto ~~Morgan~~Archibald ~~Chase~~(a) &a Co$25.0 million revolving credit facility, ~~plus~~pursuant 1to which Archibald may borrow up to the lesser of (i) $25.0% million and (ii) a borrowing base comprised of certain percentages of eligible accounts receivable and inventory, subject to certain reserves, and (b) two $10.0 million term loans ("Term Loan A" and "Term Loan B") for an aggregate of $20.0 million. Funds borrowed on June 14, 2002 under the Archibald DIP ~~The~~Credit ~~Company~~Facility iswere ~~required~~used to pay-off ~~fees~~in full the CIT Facility. Term Loan B and the revolving credit facility under the Archibald DIP Credit Facility mature on the earliest of (i) June 12, 2003, (ii) emergence through a confirmed plan of reorganization approved by the Bankruptcy Court and (iii) other events set forth in ~~connection~~the ~~with~~Archibald DIP Credit Facility. Term Loan A under the ~~CIT~~Archibald DIP Credit Facility matures on the earliest of (A) December 31, 2002, (B) emergence through a confirmed plan of reorganization approved by the Bankruptcy Court and (C) other events set forth in the Archibald DIP Credit Facility.

The ~~CIT~~Archibald ~~Group/Business~~DIP Credit~~, Inc.~~ ~~("CIT"),~~Facility provides that borrowings under the ~~agent~~revolver ~~and~~accrue ~~sole~~interest ~~lender~~at ~~under~~a ~~Archibald's~~rate ~~Revolving~~equal ~~credit~~to ~~facility~~the ("~~The~~prime ~~CIT Facility~~rate"), ~~agreed~~announced from time to ~~overadvances~~time ~~under~~by ~~the~~Wells ~~CIT~~Fargo plus 0.75%: ~~Facility~~that inborrowings anunder ~~aggregate~~Term ~~amount~~Loan A ofaccrue ~~not~~interest ~~more~~at ~~than~~a ~~$3.0 million,~~rate ~~which~~equal ~~expired~~to onthe ~~October 3,~~greater ~~2001~~of (i) 8.25% Onand ~~October~~the (ii) 3,"prime ~~2001,~~rate" ~~the~~announced ~~Company~~from ~~and~~time ~~CIT~~to ~~entered~~time ~~into~~by anWells ~~Overadvance~~Fargo ~~Agreement~~plus 3.50%; and ~~First~~the ~~Amendment~~borrowings tounder ~~Financing~~Term ~~Agreement~~Loan B ~~pursuant~~accrue tointerest ~~which~~at ~~CIT~~a ~~agreed~~rate equal to ~~provide~~the agreater $5of (A) 9.0% and (B) ~~million~~the ~~overadvance~~"prime rate" announced from time to ~~the~~time by Wells Fargo plus 4.25%. The Company, ~~which~~is ~~expired~~required onto ~~December 28,~~pay ~~2001.~~fees Inin connection with the ~~Overadvance~~ ~~Agreement~~Archibald ~~and~~DIP Credit Facility.

In connection with the Sweet Factory bankruptcy case, CIT and Sweet Factory, Inc. entered into the Post-Petition Credit, Security and Guaranty Agreement (the "SF DIP Credit Facility"). The Company, Holdings and Archibald Candy (Canada) Corporation have guaranteed all obligations of

~~First~~Sweet ~~Amendment to Financing Agreement~~Factory, Inc. those stockholders of Holdings who are (or who are advised by) affiliates of The Jordan Company entered into a Participation Agreement pursuant to which such stockholders agreed to purchase from CIT a last-out participation in any overadvance under the ~~CIT~~SF DIP Credit Facility. The ~~aggregate~~guaranty ~~amount~~by ofArchibald ~~the~~Candy ~~participation~~Corporation ~~was~~is ~~equal~~secured toby ~~the~~a ~~lesser of (1)~~ $21.50 million orcash ~~(2) 50%~~collateral ofaccount ~~the~~held ~~amount~~by ~~of the outstanding overadvance, if any, under the~~ CIT ~~Facility at the time of the participation~~. The ~~participating~~SF ~~stockholders~~DIP ~~were~~Credit Facility ~~required~~provides tothat ~~purchase~~borrowings ~~the~~thereunder ~~participation~~accrue oninterest ~~the~~at ~~earlier of (~~a~~) December 28,~~ ~~2001,~~variable orrate ~~(b) if~~equal ~~all~~to ~~amounts due under~~ the ~~CIT~~"prime ~~Facility were~~rate" ~~accelerated,~~announced onfrom ~~the~~time ~~fifth~~to ~~business~~time ~~day following notice~~ by ~~CIT but, in each case, only if any overadvance was outstanding on the purchase date~~J.P. Morgan ~~The Participation Agreement expired on December~~Chase ~~28,~~& ~~2001~~Co. ~~with~~plus ~~no participant having been required to purchase any participation thereunder~~1.5%.

InUpon ~~connection with~~ the ~~November 15,~~consummation ~~2001~~of ~~bankruptcy~~the ~~filings~~sale byof ~~our~~substantially ~~Sweet~~all ~~Factory~~of ~~subsidiaries,~~ the ~~CIT~~assets ~~Facility~~of ~~was~~the ~~further~~Sweet ~~amended~~Factory ~~pursuant~~business to ~~the~~RDR ~~Second~~Group, ~~Amendment~~Archibald expects to ~~allow~~receive ~~such bankruptcy~~approximately ~~filings,~~$3.7 million toin ~~eliminate,~~cash and onthe aSF ~~go-forward~~DIP ~~basis,~~Credit ~~Sweet~~Facility ~~Factory, Inc.~~will asbe apaid ~~co-borrower~~in ~~and~~full toout ~~remove~~of the ~~inventory~~proceeds ~~and accounts receivable~~ of ~~our Sweet Factory subsidiaries from~~ the ~~borrowing base~~sale. ~~Concurrently~~Also, ~~with~~Archibald's ~~entering~~guaranty ~~into~~of the ~~Second~~SF ~~Amendment,~~DIP ~~CIT~~Credit ~~and~~Facility ~~Sweet~~will ~~Factory, Inc.~~be ~~entered~~terminated ~~into~~upon the ~~Post-Petition~~repayment ~~Credit~~of ~~Agreement.~~the ~~See~~SF ~~"Effect~~DIP Credit ofFacility ~~Bankruptcy~~and ~~Filing"~~the $1.0 million ~~The~~cash ~~Company,~~collateral ~~Holdings~~account ~~and~~held ~~Archibald~~by ~~Candy~~CIT ~~(Canada)~~as ~~Corporation~~security ~~have~~for ~~guaranteed~~the ~~all~~Archibald ~~obligations~~guaranty ofwill ~~Sweet~~be ~~Factory, Inc.~~released ~~under~~to ~~the Post-Petition Credit Agreement~~Archibald.

Archibald has not made the approximately $8.7 million interest payment that was due on January 2, 2002 on its outstanding $170 million of 101/4% senior secured notes due 2004 (the "Senior Notes"), however, ~~Archibald~~holders ~~has~~of ~~entered~~approximately ~~into~~83% ain ~~forbearance~~aggregate ~~agreement~~principal ~~(the~~amount ~~"Noteholders'~~of ~~Forbearance~~such ~~Agreement")~~notes ~~with~~have ~~holders~~executed ~~(the~~lock-up ~~"Consenting~~agreements ~~Holders")~~agreeing ~~of approximately~~to ~~88%~~vote in favor ~~aggregate~~of ~~face~~the ~~amount~~joint ofplan or reorganization that Archibald and Holdings have filed in connection with the ~~Senior~~Archibald ~~Notes~~bankruptcy. The Senior Notes have been classified as current on Archibald's balance sheet.

Pursuant to the Noteholders' Forbearance Agreement, the Consenting Holders have agreed to forbear until April 30, 2002 (the "Noteholders' Forbearance Period") from exercising their rights under the Senior Notes, the indenture pursuant to which the Senior Notes have been issued (the "Indenture") and applicable law resulting from Archibald's failure to make the approximately $8.7 million interest payment on the Senior Notes that was due on January 2, 2002. The Noteholders' Forbearance Period may be terminated prior to April 30, 2002 if any of the following occurs (other than if due to the Consenting Holders' breach of their obligations under the Noteholders' Forbearance Agreement): (1) any other event of default under the Indenture, (2) the termination of Archibald's forbearance agreement (the "CIT Forbearance Agreement") with The CIT Group/Business Credit, Inc. ("CIT), the agent and sole lender under Archibald's revolving credit facility (the "CIT Facility"), (3) the termination of Holdings' forbearance agreement (the "Senior Preferred Forbearance Agreement") with the holders of its senior preferred stock (the "Senior Preferred Holders"), (4) any acceleration of the principal and interest under the Senior Notes, (5) any payment or distribution by Archibald to the holders of Holdings' preferred stock or to Holdings for payment to the holders of its preferred stock, (6) any election by the Senior Preferred Holders of a director having 51% of the total voting power of Holdings' Board of Directors or (7) a breach of any representation, warranty or covenant in the Noteholders' Forbearance Agreement.

date, until April 30, 2002. Pursuant to the CIT Forbearance Agreement, CIT has allowed Archibald to continue to request borrowings under the CIT Facility for working capital needs, but not in excess of the lesser of a certain specified limit and a borrowing base comprised of a percentage of the eligible accounts receivable and eligible inventory of Archibald and its Canadian subsidiary, Archibald Candy (Canada) Corporation. The CIT Facility is secured by liens on Archibald's and Sweet Factory, Inc.'s accounts receivable and inventory, and the Company's owned store locations, and the proceeds therefrom. The Company's other subsidiaries, including Archibald Candy (Canada) Corporation, have guaranteed all obligations under the CIT Facility and granted to the agent under the CIT Facility a lien on their accounts receivable, inventory, and the proceeds therefrom. In addition, Holdings has guaranteed all obligations under the CIT Facility and granted to the agent under the CIT Facility a lien on all of its assets, including all the outstanding shares of common stock of the Company.

During the CIT Forbearance Period, Archibald's management expects that Archibald will have sufficient availability under the CIT Facility to meet its working capital needs as they become due; however, there can be no assurance that this will be the case. The CIT Forbearance Period may be terminated prior to April 30, 2002 if any of the following occurs: (1) any acceleration of the Senior Notes, (2) any payment on account of the Senior Notes or Holdings' preferred stock, (3) any other event of default under the CIT Facility or (4) a breach of any representation, warranty or covenant in the CIT Forbearance Agreement.

Archibald is continuing discussions with the holders of the Senior Notes, CIT, Holdings' significant stockholders and investment advisors on an overall capital restructuring, including, among other things (1) a restructuring of the Senior Notes through debt for equity exchanges or conversions, repurchases or acquisitions of the Senior Notes on discounted terms, (2) new equity and/or debt from unaffiliated third parties and/or affiliates of Archibald or its directors and officers, (3) extensions of the forbearance periods under the Noteholders' Forbearance Agreement, the CIT Forbearance Agreement and the Senior Preferred Forbearance Agreement or (4) combinations of the foregoing. Archibald has not received any commitments or agreements with respect to any new sources of equity or debt, and there can be no assurance that any such financing will be obtained, particularly if the Senior Notes are not restructured on a satisfactory basis. There can be no assurance that Archibald will succeed in a restructuring on a timely basis or that the terms and conditions of a restructuring would be favorable to Archibald.

In addition to the Senior Preferred Stock, Holdings also has the two following classes of junior preferred stock: Junior Class A PIK Preferred Stock and Junior Class B PIK Preferred Stock. The Junior Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock were issued in 1991 in the original face amount of $7.0 million and $0.7 million, respectively. As of February 23, 2002,

affiliates of TCW Capital owned approximately 64% of the Junior Class A PIK Preferred Stock and affiliates (or parties advised by such affiliates) of The Jordan Company owned approximately 36% of the Junior Class A PIK Preferred Stock and approximately 80% of the Junior Class B PIK Preferred Stock.

In connection with Archibald entering into the CIT Facility, Holdings entered into agreements with the holders of the Junior Class A PIK Preferred Stock and the Junior Class B Preferred Stock extending the mandatory redemption date for each such class of preferred stock from November 1, 2001 to March 15, 2006. The redemption value of the Junior Class A PIK Preferred Stock and the Junior Class B PIK Preferred Stock on March 15, 2006 will be approximately $21.2 million and $2.1 million, respectively. The holders of Junior Class A PIK Preferred Stock also have agreed to extend from January 1, 2000 to June 30, 2003 the date on which they have the right to put to Holdings their common stock. In the event that Holdings does not redeem all of the common stock and preferred stock owned by affiliates of TCW Capital within 90 days of any exercise of this put right, affiliates of TCW Capital have the right to take control of a majority of the voting power of Holdings' Board of Directors for purposes of effecting a sale of Holdings.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's operations are not currently subject to market risks of a material nature for interest rates, foreign currency rates, commodity prices or other market price risks.

The following is the cash contractual obligations of the Company (in millions) as of May 25, 2002.

	Payments Due by Period
Contractual Obligations			Less than 1 year				After 5 years
Contractual Obligations	Total				1-3 years	4-5 years
	Total				1-3 years	4-5 years
Senior Secured Notes	$	185,937	$	185,937
Revolving Line of Credit		10,408		10,408
Capital Lease Obligations		158		54	104
Operating Leases		39,099		2,899	23,622	5,893	6,685
Total Contractual Cash Obligations		235,602		199,298	23,726	5,893	6,685

PART II—OTHER INFORMATION:

ITEM 1—LEGAL ~~6 EXHIBITS AND REPORTS ON FORM 8-K~~PROCEEDINGS

(a)	Exhibit 10.1	Senior Preferred Forbearance Agreement dated as of February 27, 2002 between Fannie May Holdings, Inc. and the holders of Fannie May Holdings, Inc.'s Senior Preferred Stock.
	Exhibit 10.2	Forbearance Agreement dated as of February 28, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.
	Exhibit 10.3	Amendment No. 1 to Forbearance Agreement dated as of February , 2002 among Archibald Candy Corporation, Fannie May Holdings, Inc. and The CIT Group/Business Credit, Inc., as agent and sole lender.
	Exhibit 10.4	Amendment No. 2 to Forbearance Agreement dated as of March 1, 2002 among Archibald Candy Corporation, Fannie May Holdings, Inc., Archibald Candy (Canada) Corporation, and The CIT Group/Business Credit, Inc., as agent and sole lender.
(b)	Reports on Form 8-K.
	On January 3, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5— Other Events disclosing that on January 2, 2002, Archibald did not make the interest payment required on its outstanding senior secured notes and that Archibald was going to enter into discussions with the holders of such notes regarding a potential restructuring of such notes. The Form 8-K also disclosed that Archibald had entered into a Forbearance Agreement with The CIT Group/Business Credit, Inc.
	On January 17, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 9-Regulation FD disclosing that in connection with restructuring discussions with certain holders of Archibald's senior secured notes, Archibald's management had prepared for such holders and Archibald's directors and their affiliates certain earnings forecasts.
	On February 5, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5—Other Events disclosing that Archibald's 30-day grace period for making the interest payment on its senior secured notes had expired and that Archibald did not expect that Fannie May Holdings, Inc. would be able to make the mandatory redemption payment on Holdings' senior preferred stock on the date due.
	On March 5, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5 — Other Events disclosing that Archibald had entered into a forbearance agreement with holders of its senior secured notes and had entered into an extension of its forbearance agreement with The CIT Group/Business Credit, Inc. The Form 8-K also disclosed that Fannie May Holdings, Inc. had entered into a forbearance agreement with the holders of its senior preferred stock.

On June 12, 2002, Archibald and Holdings filed voluntary petitions in the Bankruptcy Court for protection under Chapter 11 of the Bankruptcy Code (See Part I, Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations). Archibald and Holdings are operating their business as debtors and debtors in possession. All civil litigation commenced against the Company and Holdings prior to that date has been stayed by operation of law.

26 On November 15, 2001, Sweet Factory Group, Inc. and its subsidiaries, all of which are wholly owned subsidiaries of Archibald, filed voluntary petitions in the Bankruptcy Court for protection under Chapter 11 of the Bankruptcy Code (See Part I, Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations). Sweet Factory Group and its subsidiaries are operating their business as debtors and debtors in possession. All civil litigation commenced against Sweet Factory Group and its subsidiaries prior to that date has been stayed by operation of law.

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

Archibald is in default under the Indenture pursuant to which it has issued its 10¹/4% senior secured notes as a result of the Archibald Bankruptcy and Archibald's failure to pay the $8.7 million in interest due on such notes on January 1, 2002. Archibald also has failed to make the $8.7 million interest payment due on the notes on July 1, 2002. As of July 15, 2002, the total amount of past due interest on the notes is approximately $18.4 million.

ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 4.1	Amendment No. 1 to Forbearance Agreement dated as of April 30, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.
Exhibit 4.2	Amendment No. 2 to Forbearance Agreement dated as of May 30, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.
Exhibit 4.3	Lock-Up Agreement dated as of June 12, 2002 between Archibald Candy Corporation and holders of Archibald's senior secured notes.
Exhibit 10.1	Amendment No. 3 to Forbearance Agreement dated as of April 30, 2002 among Archibald Candy Corporation, Fannie May Holdings, Inc., Archibald Candy (Canada) Corporation, and The CIT Group/Business Credit, Inc., as agent and sole lender.
Exhibit 10.2	Amendment No. 4 to Forbearance Agreement dated as of May 30, 2002 between Archibald Candy Corporation, Fannie May Holdings, Inc., Archibald Candy (Canada) Corporation and The CIT Group/Business Credit, Inc., as agent and sole lender.
Exhibit 10.3	Post-Petition Loan and Security Agreement and Guaranty dated as of June 12, 2002 among Archibald Candy Corporation, Foothill Capital Corporation, as Arranger and Administrative Agent, the lenders party thereto and Fannie May Holdings, Inc. and Archibald Candy (Canada) Corporation, as Guarantors.
Exhibit 10.4	Joint Plan of Reorganization of Archibald Candy Corporation and Fannie May Holdings, Inc.
Exhibit 10.5	Asset Purchase Agreement dated as of June 5, 2002 between RDR Group and Sweet Factory Group, Inc. Sweet Factory, Inc., SF Candy Company and SF Properties, Inc.
Exhibit 10.6	Second Amended Plan of Liquidation of Sweet Factory Group, Inc., et al., as modified pursuant to Support Agreement dated May 23, 2002.
Exhibit 10.7	Certificate of Amendment to Certificate of Designation of Junior Class A PIK Preferred Stock of Fannie May Holdings, Inc., as filed on December 18, 2001
Exhibit 10.8	Certificate of Amendment to Certificate of Designation of Junior Class B PIK Preferred Stock of Fannie May Holdings, Inc., as filed on December 18, 2001.

On March 5, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5— Other Events disclosing that Archibald has entered into a forbearance agreement with holders of its senior secured notes and had entered into an extension of its forbearance agreement with The CIT Group/Business Credit, Inc. The Form 8-K also disclosed that Fannie May Holdings, Inc. had entered into a forbearance agreement with the holders of its senior preferred stock.

On May 8, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that provided information under Item 5— Other Events disclosing that Archibald had entered into extensions from April 30, 2002 until May 30, 2002 of the forbearance periods under its forbearance agreements with The CIT Group/Business Credit, Inc. and holders of Archibald's senior secured notes.

On June 19, 2002, Archibald filed a Current Report on Form 8-K with the Securities and Exchange Commission that disclosed the Chapter 11 bankruptcy filings by Archibald and Fannie May Holdings, Inc. and Archibald's entering into the debtor-in-possession financing with Foothill Capital Corporation, as Arranger and Administrative Agent, and the lenders party thereto.

SIGNATURE

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.

	ARCHIBALD CANDY CORPORATION
DATE: April 9, 2002	BY:	/s/ RICHARD J. ANGLIN Richard J. Anglin
DATE: July 15, 2002	By:		/s/ RICHARD J. ANGLIN Richard J. Anglin VICE PRESIDENT AND CHIEF FINANCIAL OFFICER AND SECRETARY (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
		VICE PRESIDENT AND CHIEF FINANCIAL OFFICER AND SECRETARY (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

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PART I—FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

Consolidated Balance Sheets
Consolidated Statements of Operations (Unaudited)
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) May 25, 2002
Consolidating Balance Sheet As of February 23, 2002 (Unaudited)
Consolidating Balance Sheet As of August 25, 2001
Consolidating Statement of Operations for the Three Months Ended May 25, 2002
Consolidating Statement of Operations for the Nine Months Ended May 25, 2002
Consolidating Statement of Operations for the Three Months Ended May 26, 2001
Consolidating Statement of Operations for the Three Months Ended February 24, 2001 (Unaudited)
Consolidating Statement of Cash Flows for the Nine Months Ended May 25, 2002
Archibald Candy Corporation (A Wholly Owned Subsidiary of Fannie May Holdings, Inc.) Consolidating Statement of Cash Flows for the Nine Months Ended May 26, 2001 (Unaudited) (In thousands)

ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PART II—OTHER INFORMATION

ITEM 1—LEGAL PROCEEDINGS

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURE

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