U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  ------------

                                    FORM 10-Q


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

                  For the quarterly period ended July 3, 2001

                                       OR

[ X ]     TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-27148

                    New World Coffee - Manhattan Bagel, Inc.
             (Exact name of registrant as specified in its charter)

             Delaware                                    13-3690261
   (State or other jurisdiction                      (I.R.S. Employer
 of Incorporation or organization)                   Identification No.)

                             246 Industrial Way West
                               Eatontown, NJ 07724
          (Address of principal executive offices, including zip code)

                                 (732) 544-0155
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                  Yes X       No ___




Number of shares of common stock, $.001 par value per share, outstanding:
As of August 14, 2001: 17,457,970


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.

              INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES

                                  July 3, 2001
<TABLE>
<CAPTION>
                                                                                                        Page

PART I.  FINANCIAL INFORMATION

Item 1.      Financial Statements

<S>                                                                                                      <C>
         Condensed Consolidated Balance Sheets as of July 3, 2001 and
         December 31, 2000.......................................................................         -3-

         Condensed Consolidated Statements of Operations for the second quarter and year to date
         periods ended July 3, 2001 and June 25, 2000............................................         -4-

         Condensed Consolidated Statements of Cash Flows for the year to date periods
          ended July 3, 2001 and June 25, 2000...................................................         -5-

         Notes to Consolidated Financial Statements..............................................         -6-


Item 2.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations...........................................................         -8-

PART II: OTHER INFORMATION.......................................................................         -11-

         SIGNATURES..............................................................................         -12-

</TABLE>

                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                               July 3,
                                                                                                 2001         December 31,
                                                                                             (Unaudited)          2000
                                                                                             -----------          ----
ASSETS
Current Assets:
<S>                                                                                           <C>               <C>
  Cash and cash equivalents.....................................................              $ 14,734          $ 2,271
  Franchise and other receivables, net..........................................                 4,933            3,068
  Due from bankruptcy estate....................................................                10,751               --
  Current maturities of notes receivables.......................................                   668              677
  Inventories...................................................................                 9,732            1,436
  Prepaid expenses and other current assets.....................................                 4,464              621
  Deferred income taxes - current portion.......................................                   500              500
  Investment in debt securities.................................................                34,156           13,889
  Assets held for resale........................................................                 2,089            5,141
                                                                                                 -----            -----
    Total current assets                                                                        82,027           27,603

Property, plant and equipment, net..............................................               118,195            6,970
Notes and other receivables, net................................................                   958            1,222
Trademarks and recipes, net.....................................................                57,451           15,724
Goodwill, net...................................................................                58,688            2,326
Deferred income taxes...........................................................                 8,934            9,100
Debt issuance costs and other assets............................................                 8,301            2,754
                                                                                                 -----            -----
    Total Assets................................................................             $ 334,554         $ 65,699
                                                                                             =========         ========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable..............................................................              $ 20,981          $ 2,708
  Accrued expenses..............................................................                40,277            3,731
  Short term debt and current portion of long-term debt.........................                33,657            4,423
  Current portion of obligations under capital leases...........................                   227              200
  Other current liabilities.....................................................                    36               14
                                                                                                    --               --
    Total current liabilities...................................................                95,178           11,076

Senior notes and other long-term debt...........................................               113,589           13,690
Obligations under capital leases................................................                    73              363
Other liabilities...............................................................                30,625            1,829

Series D Preferred Stock, $.001 par value; 25,000 shares
  authorized; 0 and 16,216 shares issued and outstanding........................                    --           12,008
Series F Preferred Stock, $.001 par value; 116,000 shares
  authorized; 69,393 and 0 shares issued and outstanding........................                36,054               --
Warrants issued in connection with Series F Preferred stock.....................                23,693               --

Stockholders' equity:
  Preferred stock, $.001 par value; 2,000,000 shares authorized; 0 issued and
     outstanding................................................................                    --               --
  Series A convertible preferred stock, $.001 par value; 400 shares authorized;
    0 shares issued and outstanding.............................................                    --               --
  Series B convertible preferred stock, $.001 par value; 225 shares authorized,
    0 shares outstanding........................................................                    --               --
  Series C convertible preferred stock, $.001 par value; 500,000 shares
    authorized, 0 shares outstanding...........................................                     --               --
  Common stock, $.001 par value; 50,000,000 shares
    authorized; 16,668,447 and 15,404,828 shares issued and outstanding.........                    17               15
  Additional paid-in capital....................................................                78,287           45,181
  Accumulated deficit...........................................................              (42,962)         (18,463)
                                                                                              --------         --------
    Total stockholders' equity..................................................                35,342           26,733
                                                                                                ------           ------
    Total liabilities and stockholders' equity..................................             $ 334,554         $ 65,699
                                                                                             =========         ========
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE SECOND QUARTER ENDED JULY 3, 2001 AND JUNE 25, 2000
         AND YEAR TO DATE PERIODS ENDED JULY 3, 2001 AND JUNE 25, 2000
                                   UNAUDITED
     (In thousands, except earnings per share and related share information)
<TABLE>
<CAPTION>

                                                                     Second Quarter Ended             Year to Date Ended
                                                                     --------------------             ------------------
                                                                    July 3,       June 25,          July 3,         June 25,
                                                                    -------       --------          -------         --------
                                                                      2001          2000             2001             2000
                                                                      ----          ----             ----             ----
Revenues:

<S>                                                                 <C>            <C>            <C>              <C>
  Manufacturing revenues....................................         $ 5,734        $ 6,525        $ 10,884         $ 12,675
  Franchise related revenues................................           1,414          1,702           3,068            3,477
  Retail sales..............................................          18,084          1,941          21,756            3,162
                                                                      ------          -----          ------            -----
Total revenues..............................................          25,232         10,168          35,708           19,314

  Cost of sales.............................................          19,955          6,759          27,322           12,619
  General and administrative expenses.......................           2,706          1,590           4,408            3,175
  Depreciation and amortization.............................           1,538            587           2,324            1,159
                                                                       -----            ---           -----            -----
 Income before provision for reorganization costs
  and noncash charges.......................................           1,033          1,232           1,654            2,361

Provision for integration and reorganization costs..........           6,690              -           6,690                -

Noncash charge in connection with realization of assets.....           2,800              -           2,800                -
                                                                       -----              -           -----                -
Income (loss) from operations...............................          (8,457)         1,232          (7,836)           2,361

Interest expense, net.......................................           3,111            461           3,555              939
Gain from sale of investments...............................               -              -             241                -
Permanent impairment in the value of investments............           5,000              -           5,000                -
                                                                       -----          -----           -----            -----

Income (loss) before income taxes and minority interest.....        (16,568)            771        (16,150)            1,422

Provision for income taxes..................................             -               -             166                -

Minority interest...........................................            855              -           1,578                -
                                                                        ---              -           -----                -

Net (loss) income...........................................       (17,423)            771        (17,894)            1,422

Dividends and accretion on preferred stock..................          3,292              -           6,609                -
                                                                      -----              -           -----                -

Net (loss) income available to common stockholders..........      ($20,715)           $771       ($24,503)           $1,422
                                                                  =========           ====       =========           ======

Net (loss) income per common share - Basic..................        ($1.27)          $ .07         ($1.52)            $ .12
                                                                    =======          =====         =======            =====

Net (loss) income per common share - Diluted................        ($1.27)          $ .06         ($1.52)            $ .12
                                                                    =======          =====         =======            =====

Weighted average number of common shares outstanding:
   Basic....................................................     16,327,804     11,746,579      16,112,320       11,566,678
                                                                 ==========     ==========      ==========       ==========

   Diluted..................................................     16,327,804     12,619,689      16,112,320       12,156,540
                                                                 ==========     ==========      ==========       ==========
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        FOR THE YEAR TO DATE PERIODS ENDED JULY 3, 2001 AND JUNE 25, 2000
                                    UNAUDITED
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                      July 3, 2001         June 25, 2000
                                                                                      ------------         -------------
CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                                      <C>                    <C>
  Net (loss) income....................................................                  ($17,894)              $1,422
  Adjustments to reconcile net income to net cash used in
    operating activities:
    Depreciation and amortization......................................                      2,324               1,159
    Minority interest..................................................                      1,578                   -
    Gain on sale of debt securities....................................                      (241)                   -
    Loss on sale of fixed assets.......................................                          -                 119
    Provision for integration and reorganization costs.................                      6,690                   -
    Noncash charge in connection with the realization of assets........                      2,800                   -
    Permanent impairment in value of debt securities...................                      5,000                   -
    Amortization of debt issuance costs and debt discount..............                        464                   -
    Accretion of warrant value and investment return...................                        367                   -
    Deferred income tax asset..........................................                        166                   -
  Increase/(decrease) in cash as a result of changes in operating assets and
     liabilities:
    Receivables........................................................                      (199)               (975)
    Inventories........................................................                      (279)               (239)
    Prepaid expenses...................................................                    (1,230)               (354)
    Other assets.......................................................                      1,508               (255)
    Receipts of notes receivable.......................................                        299                 161
    Additions to notes receivable......................................                       (27)                   -
    Accounts payable...................................................                      1,394                (406)
    Accrued expenses...................................................                      1,124                (512)
    Other liabilities..................................................                      2,312                  357
                                                                                           -------                 ---
          Net cash provided by operating activities....................                      6,156                 477
                                                                                             -----                 ---

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures.................................................                      (243)               (216)
  Net cash paid for acquisitions.......................................                  (157,833)               (984)
  Due from bankruptcy estate...........................................                   (10,751)                   -
  Investment in debt securities........................................                   (28,911)                   -
  Proceeds from the sale of debt securities............................                      3,885                   -
                                                                                             -----                   -
          Net cash used in investing activities........................                  (193,853)             (1,200)
                                                                                         ---------             -------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of stock, net.................................                     51,876               4,148
  Minority owners' capital contributions to affiliated entity..........                      9,166                   -
  Proceeds from bridge loan............................................                     33,250                   -
  Proceeds from issuance of senior notes...............................                    128,450                   -
  Debt issuance costs..................................................                    (7,220)                   -
  Payment of liabilities in connection with acquired assets............                      (987)             (1,620)
  Repayments of capital leases.........................................                      (263)               (236)
  Repayment of notes payable...........................................                   (14,112)                (83)
                                                                                          --------                ----
          Net cash provided by financing activities....................                    200,160               2,209
                                                                                           -------               -----

          Net increase in cash ........................................                     12,463               1,486

CASH, beginning of period..............................................                      2,271               2,880
                                                                                             -----               -----

CASH, end of period....................................................                    $14,734              $4,366
                                                                                           =======              ======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest.............................................................                      1,736               1,245

Non-cash Investing and Financing Activities:
  Non-cash Dividends and accretion on preferred stock..................                      6,609                   -
                                                                                             =====
  Equipment purchased under capital leases.............................                          -                 376

DETAILS OF ACQUISITION
   Tangible assets acquired............................................                    134,261
   Intangible assets acquired..........................................                     98,552
   Estimated accruals and liabilities assumed..........................                    (65,507)
   Accrued acquisition costs...........................................                     (4,100)
                                                                                           -------
Cash paid for acquisition..............................................                    163,206
                                                                                           -------

Less cash acquired.....................................................                      5,373
                                                                                             -----

Net cash paid for acquisition..........................................                   $157,833
                                                                                          ========
</TABLE>


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1. Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principals  for  interim
financial  information  and the  instructions  to Form  10-Q and  Article  10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
notes  required  by  generally  accepted  accounting   principles  for  complete
financial  statements.  In the  opinion of  management,  the  unaudited  interim
consolidated  financial  statements  furnished  herein  include all  adjustments
necessary for a fair presentation of the Company's financial position at July 3,
2001 and June 25, 2000 and the results of its  operations and its cash flows for
the six-month periods then ended. All such adjustments are of a normal recurring
nature. Interim financial statements are prepared on a basis consistent with the
Company's annual financial  statements.  Results of operations for the six-month
period  ended  July 3,  2001 are not  necessarily  indicative  of the  operating
results that may be expected for future periods.  The consolidated balance sheet
as of December 31, 2000 has been derived from the audited consolidated financial
statements  at that date but does not include all of the  information  and notes
required by generally  accepted  accounting  principles  for complete  financial
statements.  For  further  information,  refer  to  the  consolidated  financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-KSB for the fiscal year ended  December 31, 2000 on file with the  Securities
and Exchange Commission.

2. Change in Fiscal Year

Effective  with this  quarter and as a result of the  Einstein  Acquisition  (as
defined in Note 3), for  fiscal  2001,  the  Company  has  elected to change its
fiscal year end to the Tuesday closest to December 31. The Company will continue
to  report  on a 52-53  week  fiscal  year  basis,  consisting  of four  13-week
quarters.  All future fiscal quarters will end on a Tuesday as well. This change
is effective for the Company's current quarter which was originally scheduled to
end July 1, 2001 and which now,  as a result of the  change,  is extended by two
days and ended on July 3, 2001.

Comparative  periods are presented as previously  reported as the effect of this
change is immaterial.

3. Acquisition of Assets of Einstein/Noah Bagel Corp.

On June 19, 2001,  the Company  purchased  substantially  all of the assets (the
"Einstein  Acquisition")  of  Einstein/Noah  Bagel Corp. and its  majority-owned
subsidiary,  Einstein/Noah  Bagel  Partners,  L.P.  (collectively,  "Einstein").
Einstein  was the largest  bagel  bakery  chain in the United  States,  with 463
stores, nearly all of which are company-owned. The Einstein Acquisition was made
pursuant to an Asset Purchase  Agreement,  which was entered into by the Company
as the successful bidder at an auction conducted by the United States Bankruptcy
Court, District of Arizona, on June 1, 2001 in the Einstein bankruptcy case. The
purchase  price  was   $160,000,000  in  cash  and  the  assumption  of  certain
liabilities,   subject  to  adjustment  to  the  extent  that  assumed   current
liabilities (as defined in the Asset Purchase Agreement) exceed $30,000,000.

In connection with the Einstein Acquisition,  the Company incurred approximately
$18,130,000 of acquisition  costs.  The acquisition has been accounted for under
the purchase method of accounting. The aggregate purchase price of $ 167,305,373
is being allocated  based on the preliminary  estimates of the fair value of the
tangible and intangible assets acquired and liabilities assumed as follows:


Assets acquired:
Current assets                                     $  17,669,476
Plant Property & Equipment                           116,590,972
Trademarks and other intangible assets                42,000,000
Goodwill                                              56,551,722

Liabilities assumed:
Current liabilities                                   46,376,449
Long term liabilities                                 19,130,348
                                                      ----------
Total purchase price                               $ 167,305,373
                                                     ===========

The preliminary  estimation of the fair value of assets acquired and liabilities
assumed  was  determined  by  the  Company's  management  based  on  information
currently available. The Company has obtained preliminary appraisals of the fair
value of  certain  acquired  property,  plant and  equipment  as well as certain
identified  intangibles.  The  Company  is also in  process  of the  review  and
determination  of the fair  value  of  other  assets  acquired  and  liabilities
assumed.  Accordingly,  the  allocation  of the  purchase  price is  subject  to
revisions.

Pursuant to the Asset Purchase Agreement, the Company is entitled to a reduction
in purchase price to the extent that assumed  current  liabilities  (as defined)
exceed $ 30,000,000 as of the acquisition  date. The accompanying  balance sheet
as of July 3, 2001 reflects  approximately  $10,751,000 as due from the Einstein
Bankruptcy Estate. This amount is based upon the Company's  preliminary estimate
of  assumed  current  liabilities  as of the  acquisition  date,  net of certain
payments of  approximately  $2,400,000  received  from the  Einstein  Bankruptcy
Estate through the date of these financial statements.

The following unaudited pro forma consolidated statements of operations data for
the six months ended July 3, 2001 and June 25, 2000, give effect to the Einstein
Acquisition  as if it had occurred as of the beginning of each period  reported.
All of the following unaudited pro forma consolidated results of operations give
effect to  purchase  accounting  adjustments  and the  financings  necessary  to
complete  the  acquisition.  These pro forma  results  have  been  prepared  for
comparative  purposes only and do not purport to be indicative of what operating
results  would have been had the  acquisitions  actually  taken  place as of the
beginning of each period reported, and may not be indicative of future operating
results.
<TABLE>
<CAPTION>

                                                       For the Year to Date
                                                            Period Ended
                                                -------------------------------------
                                                (In thousands, except per share data)

                                                     June 25, 2000   July 3, 2001
                                                     -------------   ------------

<S>                                                    <C>            <C>
Revenues .........................................     $ 221,786      $ 205,310
                                                       =========      =========
Loss before extraordinary items ..................     ($ 18,403)     ($ 34,777)
                                                       =========      =========
Net (loss) .......................................     ($ 18,403)     ($ 34,777)
                                                       =========      =========
Net (loss) available to common stockholders ......     ($ 23,992)     ($ 46,553)
                                                       =========      =========
Earnings per share - Basic .......................     ($   2.07)     ($   2.89)
                                                       =========      =========
</TABLE>

The  proforma  amounts  presented  above are not  completely  comparable  due to
differences in the fiscal calendars of the Companies.  The proforma  information
presented  includes 28 weeks of activity for  Einstein/Noah  Bagel Corp. for the
year to date period ended June 25, 2000 and 26 weeks of activity for the year to
date period ended July 3, 2001. The Company's  normal  reporting  period for the
respective periods consists of 26 weeks.

In June 2001,  as a result of the  Einstein  acquisition,  the Company  recorded
approximately  $6.7 million as an integration and  reorganization  charge.  This
amount includes an impairment  charge of approximately  $4.0 million  associated
with  the  planned  disposal  of  certain  existing  facilities  as  part of the
integration of similar  facilities  acquired in the Einstein  acquisition.  Such
impairment was estimated in accordance with the provisions of SFAS 121. Also, as
part of the  integration  process,  a charge of  approximately  $2.7 million was
recorded in connection with organizational restructuring. Further charges may be
required  in the  integration  process,  which the  Company  expects to complete
within the next 12 months.

4. Senior Notes

The Company  consummated a private placement of 140,000 units consisting of $140
million of senior secured  increasing  rate notes (the "$140 Million  Facility")
and 140,000 Common Stock purchase warrants. The $140 million Facility was placed
through  Jefferies  &  Company,  Inc.  ("Jefferies").  The notes  under the $140
Million  Facility,  the terms of which are governed by a certain  Indenture (the
"Indenture") dated as of June 19, 2001, by and among the Company,  Jefferies and
the United States Trust Company of New York ("U.S.  Trust"),  mature on June 15,
2003 and bear interest at an initial annual rate of 13%, increasing by 100 basis
points each quarter commencing  September 15, 2001 to a maximum rate of 18%. The
Company will begin making interest  payments  quarterly  commencing on September
15,  2001.  The Company may redeem all or a portion of the notes at any time for
their face  value plus  accrued  and  unpaid  interest.  If there is a Change in
Control (as such term is defined in the  Indenture) of the Company,  the holders
of the notes will have the right to require from the Company to  repurchase  the
notes at a price  equal to 101% of the  face  amount  plus  accrued  and  unpaid
interest.  The notes are secured by a security  interest in all of the Company's
assets and the assets of the Company's subsidiaries (other than the assets of an
unrestricted  subsidiary  ("Bondco")  holding  the  Einstein  Bonds (as  defined
below)). The Indenture also contains certain restrictive covenants as defined in
the Indenture.  The proceeds were  $128,450,000.  The debt discount  aggregating
$11,550,000  is being  amortized  over the term of the notes (2 years) using the
effective interest method.

As noted above,  the Company also issued  warrants to purchase in the  aggregate
13,720,000  shares of the Company's  Common Stock at an exercise  price of $0.01
per share.  The  warrants  will expire on June 15,  2006.  The fair value of the
warrants of $19,120,000  was recorded as a debt discount and is being  amortized
over the term of the notes (2 years) using the effective  interest  method.  The
Company is required to repurchase all the outstanding warrants in the event of a
change in control (as defined in the warrant  agreement) at a price equal to the
fair market value of the common stock  issuable  upon  exercise of the warrants,
less the exercise price.

The notes and warrants were  separated  immediately  after the conclusion of the
offering.  The warrants were issued  pursuant to, and are governed by, the terms
of a  certain  Warrant  Agreement  dated as of June 19,  2001,  by and among the
Company,  Jefferies  and U.S.  Trust.  The holders of the notes and warrants are
entitled to certain  registration rights as set forth in a certain  Registration
Rights Agreement dated as of June 19, 2001, by and among the Company,  Jefferies
and U.S. Trust.

In connection with the $140 Million Facility, the Company incurred approximately
$6 million  of  issuance  costs.  Such costs are  included  in the  accompanying
consolidated balance sheet and are being amortized over the term of the notes (2
years) using the effective interest method.

5. Bridge Loan

The Company also  obtained a $35 million  asset-based  secured loan due June 15,
2002 to a  wholly-owned  unrestricted  subsidiary of the Company.  The aggregate
proceeds were  $33,250,000.  The debt discount  aggregating  $1,750,000 is being
amortized  over  the  term of the loan (1 year)  using  the  effective  interest
method.  Pursuant to the terms of a certain Note Purchase and Security Agreement
dated as of June 19, 2001, by and among the Company,  Bondco and Jefferies  (the
"Purchase and Security Agreement"),  Bondco sold $35 million aggregate principal
amount of secured  increasing rate notes. The notes are secured by $61.5 million
aggregate principal amount of 7.25% subordinated convertible debentures due June
2004 of Einstein/Noah  Bagel Corp.(the  "Einstein  Bonds").  Interest on the $35
million of notes  initially  accrues at a rate of 14% per annum,  increasing  by
 .35% on the fifteenth day of each month following issuance.  Interest is payable
on the fifteenth day of every month and may be paid in kind at Bondco's  option.
The Purchase and Security Agreement is providing a mandatory  pre-payment of the
notes upon a change of control of the Company which  requires the Company to pay
101% of the principal  amount thereof plus accrued and unpaid interest  thereon.
Bondco is required to apply all  proceeds  relating to the  Einstein  Bonds as a
repayment of the $35 million notes. The Company  anticipates that this loan will
be repaid from the proceeds of the Einstein  Bonds  distributed  in the Einstein
bankruptcy  case.  However,  to the extent that the proceeds  received by Bondco
from the Einstein  bankruptcy are insufficient to repay these notes, the holders
of the  notes  will have the  option to  require  the  Company  to issue to such
holders  preferred stock having a redemption  value equal to the deficiency.  If
the amount of such  deficiency  is less than $5.0  million,  then the  preferred
stock  will be  entitled  to an annual  cash  dividend  equal to 17% per  annum,
increasing 100 basis points per month until the preferred  stock is redeemed and
the  Company  will  be  required  to  issue  warrants  to  purchase  5%  of  the
fully-diluted  shares  of common  stock of the  Company.  If the  amount of such
deficiency  is greater than or equal to $5.0 million,  then the preferred  stock
will be entitled to an annual cash dividend  equal to 18% per annum,  increasing
100 basis points per month until the preferred stock is redeemed and the Company
will be required to issue warrants to purchase 10% of the  fully-diluted  shares
of common stock of the Company.

6. Series F Private Placement

On January 22,  2001,  the Company  consummated  a sale of 20,000  shares of its
authorized  but unissued  Series F Preferred  Stock to Halpern  Denny III,  L.P.
("Halpern Denny") in exchange for the sum of $20,000,000. In connection with the
purchase,  the  Company  issued  Halpern  Denny five year  warrants  to purchase
8,484,112 shares of the Company's common stock at an exercise price of $0.01 per
share.  The fair market value of the warrants at the date of grant of $6,431,000
was  recorded as a reduction  in the  carrying  amount of the Series F Preferred
Stock and is being  accreted  over the three year period to the  earliest  fixed
redemption  date. The Series F Purchase  Agreement  provides that for so long as
the Series F Preferred Stock has not been redeemed for cash  (including  payment
of any Notes),  Halpern Denny shall receive additional warrants equal to 1.5% of
the fully diluted  common stock of the Company  (excepting  certain  options and
warrants)  on January 22, 2002 and on each  succeeding  June 30 and December 31.
The  warrant  agreement  further  provides  that it  would  be  exercisable  for
additional shares under certain events, as set forth in the warrant agreement.

On  January  22,  2001  BET  Associates  L.P.("BET")  and  Brookwood  New  World
Investors,  LLC  ("Brookwood")  entered  into an  Exchange  Agreement  with  the
Company,  whereby they  exchanged  all of their  outstanding  Series D Preferred
Stock,  including accrued but unpaid dividends (all of which were retired) for a
total of 16,398.33  shares of Series F Preferred  Stock.  BET and Brookwood also
exchanged the warrants  received by them in August 2000 for warrants to purchase
an aggregate  of 6,526,356  shares of common stock of the Company at an exercise
price of $0.01 per share. The form of these warrants is substantially  identical
to the form of the warrant  issued to Halpern  Denny  including  the  provisions
thereof  relating  to the  increase  of the  warrant  shares,  except  that  the
semi-annual  increases  are an aggregate of 1.154% of the fully  diluted  common
stock of the Company (excepting certain options and warrants). The fair value of
the warrants at the date of grant of  $4,970,088  was recorded as a reduction in
the carrying  amount of the Series F Preferred  Stock and is being accreted over
the three year period to the earliest fixed  redemption  date. The difference in
the fair value of securities  exchanged of $1,171,806  was charge to accumulated
deficit.

On March 29, 2001, the Company  consummated a sale of 5,000 additional shares of
its  authorized,  but  unissued,  Series F Preferred  Stock to Halpern  Denny in
exchange for the sum of $5,000,000. Pursuant to the terms of the Second Series F
Preferred Stock and Warrant  Purchase  Agreement with Halpern Denny, the Company
also sold Halpern Denny five year warrants to purchase  2,121,028  shares of the
Company's  common stock at a price per share of $.01  (subject to  adjustment as
provided in the form of warrant).  The fair value of the warrants at the date of
grant of  $1,477,000  was recorded as a reduction in the carrying  amount of the
Series F Preferred Stock and is being accreted over the three year period to the
earliest fixed redemption date.

On June 7, 2001, the Company  consummated a sale of 4,000  additional  shares of
its  authorized,  but  unissued,  Series F Preferred  Stock to Halpern  Denny in
exchange  for the sum of  $4,000,000  pursuant  to the  terms  of the  Series  F
Preferred Stock and Warrant Purchase Agreement (the "Second Purchase Agreement")
with Halpern Denny, dated June 7, 2001.

In addition,  on or about June 19,  2001,  the Company  consummated  the sale of
21,000  additional  shares of its authorized,  but unissued,  Series F Preferred
Stock in exchange for  $21,000,000,  pursuant to the terms of the Third Series F
Stock and Warrant  Purchase  Agreement (the "Third  Purchase  Agreement") by and
among  the  Company,   Halpern  Denny,  Greenlight  Capital,  L.P.  ("Greenlight
Capital"),   Greenlight  Capital  Qualified,   L.P.  ("Greenlight   Qualified"),
Greenlight  Capital Offshore,  Ltd.  ("Greenlight  Offshore",  and together with
Greenlight   Capital,   Greenlight   Qualified   collectively   referred  to  as
"Greenlight"), Special Situations Private Equity Fund, L.P. ("Special Situations
Private"),  Special Situations Cayman Fund, L.P.,  ("Special Situations Cayman")
and Special Situations Fund, L.P. ("Special  Situations Fund", and together with
Special Situations Private and Special Situations Cayman,  collectively referred
to as "Special Situations").

As set  forth  in a  Second  Amended  Certificate  of  Designation,  Rights  and
Preferences  of Series F Preferred  Stock (the "Second  Amended  Certificate  of
Designation"),  the Series F Preferred Stock accrues dividends payable in shares
of Series F  Preferred  Stock at the rate of 16% per  annum for the first  year,
which rate increases  semi-annually  thereafter at the rate of 2% per annum. The
Series F Preferred Stock, including accrued dividends, is redeemable three years
from the date of issue (the "Mandatory  Redemption  Date"). If the Company fails
to redeem the Series F Preferred  Stock at the Mandatory  Redemption  Date,  the
Company  is  entitled  to  redeem  the  Series  F  Preferred  Stock  by  issuing
subordinated  senior notes (the "Notes") to the holder of the Series F Preferred
Stock.  The Notes would bear interest at a rate  comparable to the dividend rate
under the Series F Preferred Stock,  which rate increases monthly  thereafter at
the rate of 1% per month  and are due and  payable  120 days from the  Mandatory
Redemption Date.

The Company, Halpern Denny, Brookwood, Greenlight and Special Situations entered
into an agreement which stated that  notwithstanding  the provisions  concerning
the mandatory  redemption  date of the Series F Preferred Stock contained in the
Second Amended Certificate of Designation, the Series F Preferred Stock shall be
redeemable  on the  later of (a)  January  18,  2004 for all  shares of Series F
Preferred  Stock issued on or prior to March 31, 2001, and June 30, 2004 for all
shares of Series F Preferred  Stock  issued  after March 31,  2001,  and (b) the
maturity date of any notes (the  "Refinancing  Senior  Notes"),  the proceeds of
which are used to repay the  outstanding  notes  issued  under the $140  Million
Facility,  provided that the indenture for the Refinancing Senior Notes includes
language which permits the Company to make certain specified restricted payments
(a "Restricted Payment") (including payments to redeem Series F Preferred Stock)
so long as certain covenants contained therein are satisfied.  The amount of any
Restricted  Payment,  together with any aggregate amount of all other Restricted
Payments made by the Company and its  subsidiaries  must be less than the sum of
(x) fifty (50%)  percent of the  consolidated  net income of the Company for the
period  from the issue date of the  Refinancing  Senior  Notes to the end of the
Company's  most  recently  ended  fiscal  quarter,  plus (y) one hundred  (100%)
percent of the  aggregate  net cash  proceeds  received by the Company  from the
issuance or sale of equity interests in the Company or any subsidiary,  plus (z)
one hundred (100%) percent of the net cash proceeds received by the Company from
the  issuance or sale,  other than to a subsidiary  of the Company,  of any debt
security of the Company  that has been  converted  into equity  interests of the
Company.  In the event that the maturity date of the Refinancing Senior Notes is
after  January 18, 2004 or June 30, 2004, as the case may be, then the Mandatory
Redemption  Date for such Series F Preferred  Stock will be the maturity date of
the Refinancing Senior Notes.

In  connection  with the sale of the June 2001  Series F  Preferred  Stock,  the
Company sold  warrants to purchase  21,153,934  shares of the  Company's  common
stock at a price per share of $.01  (subject  to  adjustment  as provided in the
warrant agreement) pursuant to the Second Purchase and Third Purchase Agreement.
The  warrants  have a term of five years and further  provide that they would be
exercisable  for  additional  shares under certain  events,  as set forth in the
warrant  agreement.  The fair value of the  warrants at the date of grant in the
amount of $21,174,000  was recorded as a reduction in the carrying amount of the
Series F Preferred Stock and is being accreted over the three year period to the
earliest fixed  redemption  date. Due to  insufficient  authorized  common stock
available to settle certain  warrants,  the Company  classified such warrants as
well as certain  warrants to purchase  5,088,398  shares of the Company's common
stock  issued in  connection  with the  January  and March  2001  financings  as
temporary equity in the accompanying balance sheet.

In the event that the Company fails to increase the number of authorized  shares
of its common  stock to at least 125 million by October 17,  2001,  the Series F
Preferred Stock redemption price will increase by 1% per month.

In connection  with the  execution and delivery of both the Second  Purchase and
Third Purchase Agreements, each of Halpern Denny and Brookwood waived preemptive
rights they may have had concerning the issuance of additional  shares of Series
F Preferred Stock and consented to the filing of the Second Amended  Certificate
of Designation  which increased the number of shares of Series F Preferred Stock
the Company is authorized to issue from 73,000 shares to 116,000 shares.

The Third Purchase Agreement provides that for so long as the Series F Preferred
Stock has not been redeemed for cash  (including  payment of the Notes, if any),
Halpern  Denny,  Greenlight  and Special  Situations  shall  receive  additional
warrants equal to a percentage  (specified  therein) of the fully diluted common
stock of the Company  (excepting certain options and warrants) on June 19, 2002,
and on each  succeeding  June 30 and December 31. If the Company redeems all its
issued and  outstanding  shares of Series F Preferred Stock on or prior to March
19, 2002, the number of shares of Common Stock issuable upon the exercise of the
warrants  (the  "Original  Warrant  Shares")  which were issued  pursuant to the
Second  Purchase  and Third  Purchase  Agreements  shall be reduced by an amount
equal to one-third (1/3) the number of Original  Warrant Shares.  If the Company
redeems  all issued and  outstanding  shares of Series F  Preferred  Stock on or
prior to June 19, 2002,  the number of Original  Warrant Shares shall instead be
reduced by an amount equal to one-fourth (1/4) of the number of Original Warrant
Shares.

In connection  with each of the Second  Purchase and Third Purchase  Agreements,
the parties  amended the form of the Notes to be issued to the holders of Series
F Preferred  Stock upon  redemption of their shares to refer to their  agreement
with the Company's secured lender concerning subordination of their interests to
the secured lender's interests.  As a consequence of the amendment to the Notes,
the Company  amended its January 2001 Exchange  Agreement with BET and Brookwood
and the January 2001  Purchase  Agreement  with Halpern Denny to reflect the new
form of Notes.  In  addition,  the Company,  BET,  Brookwood  and Halpern  Denny
entered into  amendments to each of the  Stockholders  Agreement and Amended and
Restated  Registration  Rights Agreement executed in connection with the January
2001  financing  to  conform  certain  defined  terms  therein  to  include  the
additional   securities  issued  pursuant  to  the  Second  and  Third  Purchase
Agreements.

The  holders of warrants  issued in  connection  with  Series F Preferred  Stock
issued prior to March 31, 2001 may be entitled to purchase  additional shares of
Common  Stock as the result of the  warrants  to purchase  13,720,000  shares of
Common Stock issued in connection with the $140 Million Facility and have agreed
that such  warrants  may not be issuable  if such  Series F  Preferred  Stock is
redeemed for cash not later than June 19, 2001.

In connection  with the issuance of the Series F Preferred  shares,  the Company
incurred  approximately $2.6 million of issuance costs. Such amount was recorded
as a reduction  in the carrying  amount of the Series F Preferred  shares and is
being accreted over 3 years to the earliest fixed redemption date.

7. Greenlight New World, LLC

On January 17, 2001,  the Company  entered into a Bond Purchase  Agreement  (the
"Bond  Purchase  Agreement"  ) with  Greenlight.  Pursuant to the Bond  Purchase
Agreement,  Greenlight formed a limited liability company  Greenlight New World,
LLC ("GNW") and funded same with $10 million to be utilized  for the purchase of
Einstein Bonds. The company is the exclusive  manager of GNW.  Accordingly,  the
Company has  consolidated GNW since its inception.  The Bond Purchase  Agreement
provided  Greenlight  with a secure interest in GNW and a right for repayment of
its investment with a guaranteed  accretion of 15% per year within two years. In
connection with the Bond Purchase Agreement,  the Company issued Greenlight five
year  warrants to purchase an  aggregate of  4,242,056  shares of the  Company's
common  stock at $0.01 per share.  The fair value of the warrants at the date of
grant of  $3,230,500  was  recorded as a reduction  in minority  interest and is
being  accreted  over a two year  period to the  earliest  redemption  date.  In
addition,  warrants for an additional  1.5% of the fully diluted common stock of
the Company shall be issued at such time as the Series F Stock is redeemed.

On June 19, 2001 the Company, GNW and Greenlight entered into a letter agreement
(the "Letter  Agreement").  Under the terms of the Letter Agreement,  Greenlight
consented to the pledge (the "Pledge") by the Company, as manager of GNW, of the
Einstein  Bonds to Jefferies to secure a loan to an  unrestricted  subsidiary of
the Company in the principal  amount of $35.0 million (the "Bridge  Loan").  The
Company is required to apply all of the proceeds  related to the Einstein  Bonds
to the  repayment of the Bridge Loan.  To the extent that there are net proceeds
from the Einstein  Bonds,  after payment of the Bridge Loan in full,  the excess
shall be  payable  to GNW.  If the  excess  payment,  if any,  is less  than the
original  investment  by  Greenlight,  the  difference,  plus  a 15%  per  annum
increment, shall be payable in the Company's Series F Preferred Stock (valued at
$1,000  per share) and  warrant  coverage  comparable  to that  described  under
"Series F Private Placement" above.

In connection with the letter agreement, Greenlight gave up its secured interest
in  the  bonds.  Accordingly,   the  Contribution  Amount  that  was  previously
classified as minority interest is currently classified as long term liability.

8. Income (Loss) Per Share

Basic  income  (loss) per share is  calculated  by  dividing  net income  (loss)
attributable to common  shareholders by the weighted average number of shares of
common stock outstanding  during the period.  Diluted income (loss) per share is
calculated by dividing net income (loss)  attributable to common shareholders by
the  weighted  average  number  of  common  shares  outstanding,   adjusted  for
potentially dilutive  securities.  The following table summarizes the equivalent
number of common shares assuming the related securities that were outstanding as
of July 3, 2001 had been  exercised,  but not  included  in the  calculation  of
diluted loss per share as such shares are antidilutive:

Warrants           57,465,456
Options             2,108,429
                   ----------
Total              59,573,885
                   ==========

9. Investment in Debt Securities

Investments  in debt  securities  are reported at realizable  value.  At July 3,
2001,  the Company  determined  that a permanent  decline of  $5,000,000 in fair
value  had  occurred.  Accordingly,  the  Company  recorded  such  amount  as an
investment impairment.

10. Accrued Expenses

As of July 3, 2001, accrued expenses consist of the following:

Compensation and employee benefits      $10,106
Accrued taxes                             3,996
Acquisition related expenses              3,100
Reorganization and integration            2,657
Utilities                                 2,187
Other                                    18,231
                                        -------
                                        $40,277
                                        =======

11. Recent Accounting Pronouncements

In July 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial Accounting Standards No. 141 Business Combinations ("FAS 141") and No.
142,  Goodwill and Other  Intangible  Assets  ("FAS 142").  FAS 141 requires all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the  purchase  method.  Under  FAS 142,  goodwill  and  intangible  assets  with
indefinite  lives are no longer  amortized  but are  reviewed  annually (or more
frequently if impairment indicators arise) for impairment.  Separable intangible
assets  that  are not  deemed  to have  indefinite  lives  will  continue  to be
amortized over their useful lives (but with no maximum life).  The  amortization
provisions of FAS 142 apply to goodwill and  intangible  assets  acquired  after
June 30, 2001. With respect to goodwill and intangible  assets acquired prior to
July 1, 2001,  the  Company is required  to adopt FAS 142  effective  January 1,
2002.  The  Company is  currently  evaluating  the effect  that  adoption of the
provisions  of FAS 142  which  are  effective  January  1, 2002 will have on its
results of operations and financial position.

12. Contingencies

The Company's Common Stock is currently traded on the NASDAQ National Market and
is quoted on the NASDAQ  National  Market under symbol "NWCI."  Continuation  of
listing  on NASDAQ  National  Market is  subject to  continued  compliance  with
requirements  imposed  by NASDAQ.  If the  Company's  Common  Stock is no longer
listed on the NASDAQ National Market, the liquidity of the Common Stock would be
adversely  affected.  The staff of  NASDAQ  has  advised  the  Company  that the
issuance of the warrants and the  potential  issuance of the  underlying  Common
Stock in connection with the Einstein Acquisition are, in the view of the staff,
in violation of rules requiring prior  stockholder  approval for transactions or
issuances  that may result in a change in control of an issuer,  where more than
twenty  percent  (20%) of an  issuer's  common  stock is issued or  issuable  in
connection  with the  acquisition of the stock or assets of another  company and
where twenty  percent (20%) or more of the common stock of an issuer is issuable
at a price  below the then  market  price.  The staff of NASDAQ has  advised the
Company  that its  position is that the approval now being sought by the Company
in a proxy  statement  related to the issuance of such warrants and common stock
will not be sufficient  to remedy the failure to obtain prior  approval and that
the staff will recommend that the Company's common stock be delisted from NASDAQ
National  Market.  The  Company  will  seek  an  administrative  review  of this
determination  before an appeal panel of NASDAQ.  The Company does not know what
the outcome of such an appeal will be, and there may be a determination that the
stockholder  approval  being  sought  is  not  sufficient  to  remedy  the  rule
violations  indicated by the staff of NASDAQ,  in which event a delisting of the
Company's  common  stock would  result.  In the event a delisting  appears to be
likely,  the  Company  will apply for  relisting  of its Common  Stock on NASDAQ
National Market and/or listing on another nationally  recognized stock market. A
delisting of its common stock from NASDAQ  National Market would, in the absence
of another listing, adversely affect the liquidity of the trading market for the
Company's  common stock which,  in turn, may have an adverse effect on the price
of the Company's common stock.

13. Noncash Charge in Connection with Realization of Assets.

In the second  quarter of 2001,  the  Company  recorded an asset  impairment  of
approximately  $2.8 million in  accordance  with SFAS 121. Such  impairment  was
required  to write down the net book value of certain  assets held for resale to
their fair value.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-Q under "Management's Discussion and Analysis
of Financial  Condition and Results of Operations"  constitute  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1996 with respect to the financial condition and business of the Company. The
words "estimate", "plan", "intend", "believe", "expect", and similar expressions
are  intended  to  identify  forward-looking  statements.  Such  forward-looking
statements  involve and are subject to known and unknown  risks,  uncertainties,
and other  factors  which  could  cause the  actual  results,  performance,  and
achievements of the Company to be materially  different from any future results,
performance  (financial or operating),  or achievements  expressed or implied by
such  forward-looking  statements.  Such  factors  include,  among  others,  the
following:  competition;  success  of  operating  and  franchising  initiatives;
development schedules;  advertising and promotional efforts;  adverse publicity;
acceptance of new product offerings; availability of new locations, and terms of
sites for store development;  changes in business strategy or development plans;
availability  and terms of capital;  food,  labor,  and employee  benefit costs;
changes  in  government  regulations;  regional  weather  conditions;  and other
factors  referenced  in this Form 10-Q or in the  Company's  Form 10-KSB for its
2000 fiscal year.


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

General

     New World  Coffee - Manhattan  Bagel,  Inc.  is the largest  company in the
bagel  bakery  industry  and a leading  company  in the "fast  casual"  sandwich
industry.  The Company  operates  stores  primarily under the Einstein Bros. and
Noah's NY Bagel brands and primarily franchises stores under the Manhattan Bagel
and  Chesapeake  Bagel  Bakery  brands.  The  Company  acquired  the  assets  of
Einstein/Noah  Bagel Corp.  on June 19, 2001.  As of July 3, 2001 the  Company's
retail  system  consists  of 499  company-owned  stores and 303  franchised  and
licensed stores.

The  Company  has four  bagel  dough  production  facilities,  two cream  cheese
production  facilities  and  one  coffee  roasting  plant.  These  products  are
currently distributed to our company-operated stores, and sold to our franchised
and licensed stores, as well as to supermarket and non-traditional outlets.

The Company is focused on efforts to realize  cost savings  through  integrating
our existing  operation  with those  acquired in the Einstein  Acquisition.  The
integration will involve consolidating production, purchasing, and distribution,
and eliminating  redundant overhead and administrative  costs. The Company plans
to leverage its brand names,  and production  facilities  through  company store
growth and through franchising and licensing. Franchising will allow the Company
to continue  penetration  of existing and new markets with lower  financial  and
human capital investments required for growth through  Company-operated  stores.
The  Company  also  intends  to  expand   through   licensing   its  brands  for
non-traditional  locations such as universities,  airports, hotels and airlines.
The Company is a Delaware corporation and was organized in November 1992.


Results of Operations

Fiscal Quarter Ended July 3, 2001 Compared to Fiscal Quarter Ended June 25, 2000

     Revenues.  Total revenues  increased 148.2% to $25.2 million for the fiscal
quarter  ended July 3, 2001 from $10.2 million for the  comparable  2000 period.
The increase in revenues was primarily  attributable to additional  retail sales
from the Einstein Bros. and Noah's NY Bagel brands acquired in June 2001. Retail
sales  increased  831.7% to $18.1  million  or 71.7% of total  revenues  for the
fiscal  quarter ended July 3, 2001 from $1.9 million or 19.1% of total  revenues
for the comparable 2000 period. The increase was attributable to addition of 458
company-owned  stores that were acquired as a result of the Einstein Acquisition
in June 2001. Manufacturing revenues decreased 12.1% to $5.7 million or 22.7% of
total  revenues for the fiscal  quarter  ended July 3, 2001 from $6.5 million or
64.2%  of total  revenues  for the  comparable  2000  period.  The  decrease  in
manufacturing  revenues was primarily  the result of the  Company's  decision to
outsource  its  low-margin  distribution  business  (which had been  included in
manufacturing revenues in the 2000 period). Franchise related revenues decreased
16.9% to $1.4  million or 5.6% of total  revenues for the fiscal  quarter  ended
July 3, 2001 from $1.7  million or 16.7% of total  revenues  for the  comparable
2000 period.  The decrease in franchise  related revenues reflects a lower store
base in the  fiscal  quarter  ended  July  3,  2001,  in  part,  resulting  from
Management's  decision to terminate certain franchisees whose operations did not
comply with the Company's policies.

Costs and Expenses.

Cost of  Sales  as a  percentage  of  related  manufacturing  and  retail  sales
increased to 83.8% for the fiscal  quarter ended July 3, 2001 from 79.8% for the
comparable 2000 period.  The increase  primarily  resulted from a shift in sales
mix towards retail store revenues.

General and  administrative  expenses  increased  to $2.7 million for the fiscal
quarter ended July 3, 2001 from $1.6 million for the comparable 2000 period. The
increase was primarily the result of assumption of certain costs  resulting from
the Einstein  Acquisition.  General and  administrative  expenses expressed as a
percentage of total revenues  declined to 10.7% of total revenues for the fiscal
quarter ended July 3, 2001 from 15.6% of total revenues for the comparable  2000
period.  The  decline  is the  result of the  higher  revenue  base  during  the
2001quarter.

Depreciation  and amortization  expenses  increased by 162.0% to $1.5 million or
6.1% of total  revenues  for the  fiscal  quarter  ended  July 3, 2001 from $0.6
million or 5.8% of total revenues for the comparable  2000 period.  The increase
was primarily  attributable  to depreciation  on  company-owned  stores acquired
during 2000 and depreciation on assets acquired from the Einstein Acquisition.

Interest  expense,  net for the fiscal  quarter ended July 3, 2001  increased to
$3.1  million,  or 12.3% of total  revenues  from $0.5  million or 4.5% of total
revenues for the comparable  2000 period.  The increase was primarily the result
of interest  and related  costs  incurred on debt  associated  with the Einstein
Acquisition.

Permanent  impairment in the value of investments was $5.0 million,  or 19.8% of
total  revenues  for the fiscal  quarter  ended July 3, 2001.  There was no such
charge in the comparable 2000 period. The charge reflects  management's estimate
of the proceeds the Company will receive from the bankruptcy  estate of Einstein
Noah Bagel Corp. on account of its investment in certain  debentures of Einstein
Noah Bagel Corp.

Provision for integration and reorganization  costs was $6.7 million or 26.5% of
total  revenues  for the fiscal  quarter  ended July 3, 2001.  There was no such
charge for the  comparable  2000 quarter.  The charge in 2001 reflects  expenses
related  to the  reorganization  and  integration  of  existing  facilities  and
operations with those acquired in the Einstein Acquisition.

Noncash charge in connection  with the realization of assets was $2.8 million or
11.1% of total revenues for the fiscal quarter ended July 3, 2001.  There was no
such  charge  for  the  comparable   2000  period.   The  charge  resulted  from
management's evaluation of long lived assets in accordance with SFAS 121.

Minority  interest  was $0.9  million or 3.4% of total  revenues  for the fiscal
quarter  ended July 3, 2001.  This charge is  attributable  to  accretion of the
value assigned to warrants and the investment  return to investors in Greenlight
New World, L.L.C.

Net Income/(Loss).

Net loss for the fiscal quarter ended July 3, 2001 was $17.4 million compared to
net income of $0.8 million for the comparable  2000 period.  The decrease in net
income is primarily a result of the decrease in margins  resulting from a change
in sales mix to retail  sales,  noncash  charges for  impairment in the value of
investments,  store closing and reorganization  costs, and the noncash charge in
connection  with the realization of assets as well as the allocation of earnings
to the minority interest.


Results of Operations

Year to Date Period  Ended July 3, 2001  Compared  to Year to Date Period  Ended
June 25, 2000

Revenues.  Total revenues  increased 84.9% to $35.7 million for the year to date
period ended July 3, 2001 from $19.3 million for the comparable 2000 period. The
increase in revenues was primarily  attributable to additional retail sales from
the  Einstein  Bros.  and Noah's NY Bagel brands  acquired in June 2001.  Retail
sales increased  588.0% to $21.8 million or 60.9% of total revenues for the year
to date period ended July 3, 2001 from $3.2  million or 16.4% of total  revenues
for the comparable 2000 period. The increase was attributable to the addition of
458  company-owned  stores  that were  acquired  as the  result of the  Einstein
Acquisition  in June  2001.  Manufacturing  revenues  decreased  14.1%  to $10.9
million or 30.5% of total  revenues  for the year to date  period  ended July 3,
2001 from  $12.7  million or 65.6% of total  revenues  for the  comparable  2000
period.  The decrease in manufacturing  revenues was primarily the result of the
Company's decision to outsource its low-margin  distribution business (which had
been included in manufacturing  revenues in the 2000 period).  In addition,  the
Company experienced extreme weather in its core markets during the first quarter
of 2001,  also having a negative  impact on  manufacturing  revenues.  Franchise
related  revenues  decreased 11.8% to $3.1 million or 8.6% of total revenues for
the year to date period  ended July 3, 2001 from $3.5  million or 18.0% of total
revenues  for the  comparable  2000 period.  The  decrease in franchise  related
revenues was partially  attributable to extreme weather  conditions  experienced
during the year to date period ended July 3, 2001 in the Company's core markets.
In addition,  the decline reflects a lower store base in the year to date period
ended July 3, 2001, in part,  resulting from Management's  decision to terminate
certain franchisees whose operations did not comply with the Company's policies.

Costs and Expenses.

Cost of  Sales  as a  percentage  of  related  manufacturing  and  retail  sales
increased to 83.7% for the year to date period ended July 3, 2001 from 79.7% for
the  comparable  2000 period.  The increase  primarily  resulted from a shift in
sales mix towards retail store  revenues.

General and  administrative  expenses  increased to $4.4 million for the year to
date period ended July 3, 2001 from $3.2 million for the comparable 2000 period.
The increase was primarily  the result of assumption of certain costs  resulting
from the Einstein Acquisition.  General and administrative expenses expressed as
a percentage of total revenues  declined to 12.3% of total revenues for the year
to date  period  ended  July 3,  2001  from  16.4%  of  total  revenues  for the
comparable  2000  period.  The decline is the result of the higher  revenue base
during the 2001 quarter.

Depreciation  and  amortization  expenses  increased  to $2.3 million or 6.5% of
total  revenues for the year to date period ended July 3, 2001 from $1.2 million
or 6.0% of total  revenues  for the  comparable  2000  period.  The increase was
primarily  attributable to depreciation on company-owned  stores acquired during
2000 and depreciation on assets acquired in the Einstein Acquisition.

Interest  expense,  net for the year to date period ended July 3, 2001 increased
to $3.6 million,  or 10.0% of total  revenues from $0.9 million or 4.9% of total
revenues for the comparable  2000 period.  The increase was primarily the result
of interest  and related  costs  incurred on debt  associated  with the Einstein
Acquisition.

Permanent  impairment in the value of investments was $5.0 million,  or 14.0% of
total revenues for the year to date period ended July 3, 2001. There was no such
charge in the comparable 2000 period. The charge reflects  management's estimate
of the proceeds the Company will receive from the bankruptcy  estate of Einstein
Noah Bagel Corp. on account of its investment in certain  debentures of Einstein
Noah Bagel Corp.

Provision for integration and reorganization  costs was $6.7 million or 18.7% of
total revenues for the year to date period ended July 3, 2001. There was no such
charge for the  comparable  2000 period.  The charge in 2001  reflects  expenses
related  to the  reorganization  and  integration  of  existing  facilities  and
operations with those acquired in the Einstein Acquisition.

Noncash charge in connection  with the realization of assets was $2.8 million or
7.8% of total revenues for the year to date period ended July 3, 2001. There was
no such  charge  for the  comparable  2000  period.  The  charge  resulted  from
management's evaluation of long lived assets in accordance with SFAS 121.

Provision for income taxes  increased to $0.2 million or 0.5% of total  revenues
for the year to date period ended July 3, 2001 from $0 for the  comparable  2000
period.   The  increase  was  attributable  to  certain  deferred  tax  benefits
recognized  in the 2000 period  relating  to the  recognition  of  deferred  tax
assets.

Minority interest was $1.6 million or 4.4% or total revenues for the year to
date period ended July 3, 2001. This charge is attributable to accretion of theF
value assigned to warrants and the investment return to investors in Greenlight
New World, L.L.C.

Net Income/(Loss).

Net  loss for the year to date  period  ended  July 3,  2001 was  $17.9  million
compared  to net income of $1.4  million for the  comparable  2000  period.  The
decrease  in net  income  is  primarily  a result  of the  decrease  in  margins
resulting  from a change in sales  mix to  retail  sales,  noncash  charges  for
impairment in the value of investments,  store closing and reorganization costs,
and the noncash charge in connection  with the  realization of assets as well as
the allocation of earnings to the minority interest.

Liquidity and Capital Resources

     The  Company  plans to  satisfy  any of its  capital  requirements  in 2001
through  cash  flow  from  operations  and the sale of  Company-owned  stores to
franchisees  which should  generate  additional  cash.  The Company  continually
assesses its ongoing  capital  needs and may consider the issuance of additional
equity or debt securities in order to raise capital should  business  conditions
dictate that such is necessary.

     In January  and March  2001,  the  Company  issued  25,000  shares of newly
authorized  Series  F  Preferred  Stock  as well  as  equity  in a newly  formed
affiliate,  Greenlight New World,  L.L.C. The proceeds,  net of related offering
expenses, were $ 32.9 million. The proceeds from these stock sales were utilized
to purchase Einstein Bonds and pay certain related costs.

     In June 2001, the Company issued 25,000 shares of Series F Preferred stock.
The proceeds, net of related offering expenses, were $23.8 million. The proceeds
from this  stock  sale were  utilized  as a part of the  purchase  price for the
Einstein Acquisition.

     On June 19, 2001,  the Company  consummated a private  placement of 140,000
units  consisting of $140 million of senior  secured  increasing  rate notes due
2003 with  detachable  warrants for the  purchase of 13.7 million  shares of the
Company's  common stock,  exercisable  at $.01 per share.  The proceeds,  net of
discount and related  offering  expenses were $122.4 million.  The proceeds were
utilized to fund the Einstein  Acquisition,  repay the  Company's  existing bank
debt and for general working capital purposes.

     On June 19, 2001, the Company  obtained a $35 million  asset-based  secured
loan to a wholly-owned unrestricted subsidiary of the Company. The proceeds, net
of discount and related offering expenses were $32.3 million.  The proceeds were
utilized to fund the Einstein Acquisition.

     At July 3, 2001 the Company had a working  capital deficit of $13.2 million
compared to a working  capital  surplus of $7.1  million at June 25,  2000.  The
decline  results  from  additional  liabilities  assumed  and debt  incurred  in
connection with the Einstein Acquisition.

     The Company had net cash  provided by operating  activities of $6.2 million
for the first six months of 2001  compared  with net cash  provided by operating
activities  of $0.5  million for the first six months of 2000.  The  increase in
cash provided by operating  activities was attributable to the shift in revenues
to retail sales which  typically  generate cash at the time of sale. In the past
the Company's revenues were predominantly  derived from manufacturing  sales and
royalty revenues which generally are not paid at the time of sale.

     The Company had net cash used in investing activities of $193.9 million for
the first six months of 2001 compared with net cash used in investing activities
of $1.2  million for the first six months of 2000.  The increase in cash used in
investing  activities  was  attributable  to the  Company's  investment  in debt
securities and the Einstein Acquisition.

     The Company had net cash provided by financing activities of $200.2 million
for the first six months of 2001  compared  with net cash  provided by financing
activities  of $2.2  million for the first six months of 2000.  The  increase in
cash  provided by  financing  activities  relates to the  issuance of  preferred
stock,  proceeds from sale of an interest in an  affiliated  entity and proceeds
from borrowings in connection with the Einstein Acquisition during 2001.

Seasonality and General Economic Trends

     The  Company  anticipates  that its  business  will be  affected by general
economic  trends that  affect  retailers  in general.  While the Company has not
operated  during a period  of high  inflation,  it  believes  based on  industry
experience  that it would generally be able to pass on increased costs resulting
from inflation to its customers. The Company's business may be affected by other
factors,  including  increases in the  commodity  prices of green coffee  and/or
flour,  acquisitions by the Company of existing stores,  existing and additional
competition,  marketing programs, weather, and variations in the number of store
openings.  The Company has few, if any,  employees at the minimum wage level and
therefore  believes  that an  increase in the  minimum  wage would have  minimal
impact on its operations and financial condition.


                           PART II - OTHER INFORMATION
                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
                                  JULY 3, 2001

Item 1. Legal Proceedings

     Not applicable

Item 2. Changes in Securities

     Reference is made to the issuance of securities  described in  Managements'
Discussion and Analysis of Financial Condition and Results of Operations and the
Accompanying Notes to Financial Statements. These securities were issued without
registration pursuant to an exemption from registration under the Securities Act
of 1933.

Item 3. Defaults upon Senior Securities

     Not applicable

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

     Not applicable

Item 5. Other Information

     Not applicable

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

     10.1. Series F Preferred Stock Purchase Agreement dated June 7, 2001 by and
between the Company and Halpern Denny. (1)

     10.2. Third Series F Preferred Stock and Warrant  Purchase  Agreement dated
as of June 19, 2001, by and among the Company,  Halpern  Denny,  Greenlight  and
Special Situations. (1)

     10.3 Amendment No. 2 to Registration  Rights Agreement dated as of June 19,
2001, by and among the Company, Halpern Denny, BET and Brookwood. (1)

     10.4. Amendment No. 2 to Stockholders Agreement dated June 19, 2001, by and
among the Company, Halpern Denny, BET and Brookwood. (1)

     10.5.  Letter  Agreement  dated as of June 19,  2001,  by and  between  the
Company, BET, Brookwood and Halpern Denny. (2)

     10.6.  Amendment No. 1 to First Series F Preferred Stock Purchase Agreement
dated as of June 19,  2001 by and  among the  Company,  Halpern  Denny,  BET and
Brookwood. (1)

     10.7. Second Amended Certificate of Designation,  Preferences and Rights of
Series F Preferred  Stock as filed with the Delaware  Secretary of State on June
19, 2001. (1)

     10.8. Form of Note issuable to Halpern Denny, Greenlight, BET and Brookwood
and Special Situations. (1)

     10.9.  Form of Common  Stock  Purchase  Warrant  issued to  Halpern  Denny,
Greenlight and Special Situations. (1)

     10.10.  Indenture  Agreement  dated as of June 19,  2001 by and  among  the
Company,  certain  subsidiaries  of the  Company,  and the United  States  Trust
Company of New York. (1)

     10.11.  Purchase  Agreement  dated as of June 19,  2001 by and  between the
Company and Jefferies.  (1)

     10.12.  Pledge and Security  Agreement  dated as of June 19,  2001,  by and
among the Company,  certain  subsidiaries of the Company,  and the United States
Trust Company of New York. (1)

     10.13.  Warrant  Agreement  dated as of June 19,  2001,  by and between the
Company, Jefferies and U.S. Trust Company of New York. (1)

     10.14.  Registration  Rights  Agreement dated as of June 19, by and between
the Company and Jefferies. (1)

     10.15.  Note Purchase and Security  Agreement  dated as of June 19, 2001 by
and among the Company,  New World EnbcDeb Corp.  and Jefferies  dated as of June
19, 2001. (1)

     10.16.  Form  of  Note  issuable  under  the  Note  Purchase  and  Security
Agreement. (1)

     10.17.  Account Control  Agreement dated as of June 19, 2001 by and between
the Company New World EnbcDeb Corp. and Jefferies dated as of June 19, 2001. (1)

     10.18.  Asset  Purchase  Agreement  dated as of June 1, 2001 by and between
Einstein  Acquisition  Corp. and Greenlight New World,  LLC (as buyers) and ENBC
and ENBP, LP (as sellers). (1)

     10.19.  Transition  Services  Agreement  dated as of June  19,  2001 by and
between Einstein Acquisition Corp. and ENBC and ENBP, LP.  (1)

     10.20  Employment  Agreement  dated July 16,  2001  between the Company and
Anthony Wedo.
----------------

(1) Incorporated by reference from Registrant's Current Report on Form 8-K dated
July 3, 2001.

(2) To be filed by amendment.

     (b) Reports on Form 8-K

     On April 12, 2001, the Company filed a Form 8-K relating to the issuance of
Series F Preferred Stock to certain investors.

     On June 5, 2001,  the Company  filed a Form 8-K  relating to the  Company's
successful bid for the purchase of the assets of Einstein/ Noah Bagel Corp.

     On June 21, 2001,  the Company  filed a Form 8-K and related  press release
announcing the  consummation of the  acquisition of the assets of  Einstein/Noah
Bagel Corp.

     On July 3, 2001,  the Company filed a Form 8-K setting forth the details of
the Einstein Acquisition and related financing transactions.


                                   SIGNATURES

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.

                    New World Coffee - Manhattan Bagel, Inc.

Date: August 17, 2001              By:  /s/ R. Ramin Kamfar
                                        -------------------
                                        R. Ramin Kamfar
                                        Chairman and Chief Executive Officer



Date: August 17, 2001              By:  /s/ Jerold E. Novack
                                        --------------------
                                        Jerold E. Novack
                                        Chief Financial Officer