---

---

SECURITIES AND EXCHANGE COMMISSIONWashington, 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 April 1, 2003
|OR                                          
|o                                            | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934     

Commission File Number 0-27148

New World Restaurant Group, Inc.(Name of Registrant as Specified in its Charter)

|Delaware(State or other jurisdiction
of Incorporation or Organization)                              |  | 13-3690261(I.R.S. Employer
Identification No.)
|--------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1687 Cole Blvd., Golden, Colorado 80401(Address of principal executive offices, including zip code)
|(303) 568-8000(Registrant's telephone number, including area code)                                 
|Securities registered pursuant to Section 12(b) of the Act: None                                   
|Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value          

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 ý    No o.

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of
1934). Yes o    No ý.

As
of April 30, 2003, 51,016,857 shares of Common Stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

---

---

---



NEW WORLD RESTAURANT GROUP, INC.

APRIL 1, 2003

FORM 10-Q
INDEX

|         |  |                                                                                                                                                  |  | Page
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                            |  |     
|Item 1.  |  | Financial Statements                                                                                                                             |  |     
|         |  | Consolidated Balance Sheets as of April 1, 2003 and December 31, 2002                                                                            |  | 3   
|         |  | Consolidated Statements of Operations for the three months ended April 1, 2003 and April 2, 2002                                                 |  | 4   
|         |  | Consolidated Statements of Cash Flows for the three months ended April 1, 2003 and April 2, 2002                                                 |  | 5   
|         |  | Notes to Consolidated Financial Statements                                                                                                       |  | 6   
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations for the three months ended April 1, 2003 and April 2, 2002 |  | 17  
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                       |  | 27  
|Item 4.  |  | Controls and Procedures                                                                                                                          |  | 27  
|PART II: |  | OTHER INFORMATION                                                                                                                                |  | 28  
|Item 1.  |  | Legal Proceedings                                                                                                                                |  | 28  
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                                        |  | 28  
|Item 3.  |  | Defaults upon Senior Securities                                                                                                                  |  | 28  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                              |  | 28  
|Item 5.  |  | Other Information                                                                                                                                |  | 29  
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                                 |  | 29  
|         |  | SIGNATURES                                                                                                                                       |  | 30  
|         |  | CERTIFICATIONS                                                                                                                                   |  | 31  

2

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NEW WORLD RESTAURANT GROUP, INC.  CONSOLIDATED BALANCE SHEETS  AS OF APRIL 1, 2003 AND DECEMBER 31, 2002  (in thousands, except share information)

|                                                                                                                          |                                                       | April 1, 2003               |          | December 31, 2002 |         
|------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | --------------------------- | -------- | ----------------- | --------
|
|ASSETS                                                                                                                    |                                                       |                             |          |                   |         
|Current Assets:                                                                                                           |                                                       |                             |          |                   |         
|                                                                                                                          | Cash and cash equivalents                             |                             | $        | 6,258             |         
|                                                                                                                          | Franchise and other receivables, net                  |                             |          | 6,183             |         
|                                                                                                                          | Current maturities of notes receivables               |                             |          | 192               |         
|                                                                                                                          | Inventories                                           |                             |          | 4,710             |         
|                                                                                                                          | Prepaid expenses and other current assets             |                             |          | 8,782             |         
|                                                                                                                          |                                                       |                             |          |                   |         
|                                                                                                                          |                                                       | Total current assets        |          |                   | 26,125  
|Property, plant and equipment, net                                                                                        |                                                       |                             | 78,086   |                   |         
|Trademarks and other intangibles, net                                                                                     |                                                       |                             | 96,178   |                   |         
|Goodwill, net                                                                                                             |                                                       |                             | 4,875    |                   |         
|Debt issuance costs and other assets                                                                                      |                                                       |                             | 1,383    |                   |         
|                                                                                                                          |                                                       |                             |          |                   |         
|                                                                                                                          |                                                       | Total Assets                |          | $                 | 206,647 
|                                                                                                                          |                                                       |                             |          |                   |         
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                     |                                                       |                             |          |                   |         
|Current Liabilities:                                                                                                      |                                                       |                             |          |                   |         
|                                                                                                                          | Accounts payable                                      |                             | $        | 8,529             |         
|                                                                                                                          | Accrued expenses                                      |                             |          | 32,899            |         
|                                                                                                                          | Short term debt and current portion of long-term debt |                             |          | 153,460           |         
|                                                                                                                          | Current portion of obligations under capital leases   |                             |          | 101               |         
|                                                                                                                          |                                                       |                             |          |                   |         
|                                                                                                                          |                                                       | Total current liabilities   |          |                   | 194,989 
|Senior notes and other long-term debt                                                                                     |                                                       |                             | 10,130   |                   |         
|Obligations under capital leases                                                                                          |                                                       |                             | 265      |                   |         
|Derivative liability                                                                                                      |                                                       |                             | 1,783    |                   |         
|Other liabilities                                                                                                         |                                                       |                             | 10,555   |                   |         
|                                                                                                                          |                                                       |                             |          |                   |         
|                                                                                                                          |                                                       | Total liabilities           |          |                   | 217,722 
|Series F Preferred Stock, $.001 par value; 116,000 shares authorized;
    78,255 and 78,255 shares issued and outstanding |                                                       |                             | 89,534   |                   |         
|Stockholders' deficit:                                                                                                    |                                                       |                             |          |                   |         
|Common stock, $.001 par value; 150,000,000 shares authorized; 51,016,857 and
    51,016,857 shares issued and outstanding |                                                       |                             | 51       |                   |         
|Additional Paid-In capital                                                                                                |                                                       |                             | 87,014   |                   |         
|Accumulated deficit                                                                                                       |                                                       |                             | (187,674 | )                 |         
|                                                                                                                          |                                                       |                             |          |                   |         
|                                                                                                                          |                                                       | Total stockholders' deficit |          |                   | (100,609
|                                                                                                                          |                                                       |                             |          |                   |         
|Total Liabilities and Stockholders' Deficit                                                                               |                                                       | $                           | 206,647  |                   | $       
|                                                                                                                          |                                                       |                             |          |                   |         

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

3

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NEW WORLD RESTAURANT GROUP, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  FOR THE FIRST QUARTER ENDED APRIL 1, 2003 AND APRIL 2, 2002  (UNAUDITED)  (in thousands, except earnings per share and related
share information)

|                                                             |                            | April 1, 2003     |         | April 2, 2002 |            
|------------------------------------------------------------ | -------------------------- | ----------------- | ------- | ------------- | -----------
|Revenues:                                                    |                            |                   |         |               |            
|                                                             | Retail sales               |                   | $       | 88,449        |            
|                                                             | Manufacturing revenues     |                   |         | 5,424         |            
|                                                             | Franchise related revenues |                   |         | 1,338         |            
|                                                             |                            |                   |         |               |            
|                                                             |                            | Total revenues    |         |               | 95,211     
|Cost of sales                                                |                            |                   | 79,037  |               |            
|General and administrative expenses                          |                            |                   | 9,212   |               |            
|Depreciation and amortization                                |                            |                   | 7,205   |               |            
|Provision for integration and reorganization                 |                            |                   |        |               |            
|                                                             |                            |                   |         |               |            
|Loss from operations                                         |                            |                   | (243    | )             |            
|Interest expense, net                                        |                            |                   | (8,295  | )             |            
|Cumulative change in the fair value of derivatives (expense) |                            |                   | 657     |               |            
|Other income                                                 |                            |                   | 249     |               |            
|                                                             |                            |                   |         |               |            
|Loss before income taxes                                     |                            |                   | (7,632  | )             |            
|Provision for income taxes                                   |                            |                   | (110    | )             |            
|                                                             |                            |                   |         |               |            
|Net loss                                                     |                            |                   | (7,742  | )             |            
|Dividends and accretion on preferred stock                   |                            |                   | (4,602  | )             |            
|                                                             |                            |                   |         |               |            
|Net loss available to common stockholders                    |                            | $                 | (12,344 | )             | $          
|                                                             |                            |                   |         |               |            
|Net loss per common share  Basic and Diluted                |                            | $                 | (0.12   | )             | $          
|                                                             |                            |                   |         |               |            
|Weighted average number of common shares outstanding:        |                            |                   |         |               |            
|                                                             |                            | Basic and Diluted |         |               | 100,766,965
|                                                             |                            |                   |         |               |            

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

4

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NEW WORLD RESTAURANT GROUP, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  FOR THE FIRST QUARTER ENDED APRIL 1, 2003 AND APRIL 2, 2002  (UNAUDITED)  (in thousands)

|                                                                            |                                                     | April 1, 2003 |        | April 2, 2002 |  
|--------------------------------------------------------------------------- | --------------------------------------------------- | ------------- | ------ | ------------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                                                     |               |        |               |  
|Net loss                                                                    |                                                     | $             | (7,742 | )             | $
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                     |               |        |               |  
|Depreciation and amortization                                               |                                                     |               | 7,205  |               |  
|Provision for integration and reorganization                                |                                                     |               |       |               |  
|Cumulative change in fair value of derivatives                              |                                                     |               | (657   | )             |  
|Amortization of debt issuance costs                                         |                                                     |               | 144    |               |  
|Amortization of debt discount                                               |                                                     |               | 430    |               |  
|Notes issued as paid in kind for interest on Bridge Loan                    |                                                     |               | 227    |               |  
|Greenlight interest                                                         |                                                     |               | 517    |               |  
|Stock issued for compensation and consulting                                |                                                     |               |       |               |  
|Changes in operating assets and liabilities:                                |                                                     |               |        |               |  
|Accounts receivable and notes receivable                                    |                                                     |               | (405   | )             |  
|Accounts payable and accrued expenses                                       |                                                     |               | 2,273  |               |  
|Other assets and liabilities                                                |                                                     |               | (5,409 | )             |  
|                                                                            |                                                     |               |        |               |  
|                                                                            | Net cash used in operating activities               |               |        | (3,417        | )
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                                                     |               |        |               |  
|Purchase of property and equipment                                          |                                                     |               | (2,080 | )             |  
|Proceeds from the sale of assets held for resale                            |                                                     |               |       |               |  
|                                                                            |                                                     |               |        |               |  
|                                                                            | Net cash provided by (used in) investing activities |               |        | (2,080        | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |                                                     |               |        |               |  
|Proceeds from issuance of debt                                              |                                                     |               | 1,500  |               |  
|Repayment of notes payable                                                  |                                                     |               | (450   | )             |  
|                                                                            |                                                     |               |        |               |  
|Net cash provided by (used in) financing activities                         |                                                     |               | 1,050  |               |  
|Net decrease in cash                                                        |                                                     |               | (4,447 | )             |  
|Cash and cash equivalents, beginning of period                              |                                                     |               | 10,705 |               |  
|                                                                            |                                                     |               |        |               |  
|Cash and cash equivalents, end of period                                    |                                                     | $             | 6,258  |               | $
|                                                                            |                                                     |               |        |               |  

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

5

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NEW WORLD RESTAURANT GROUP, INC.  Notes to Consolidated Financial Statements  (Unaudited)

1.    Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America 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 accounting principles generally accepted in the United States of America 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 April 1, 2003 and the results of its operations and its cash flows for the
three-month periods ended April 1, 2003 and April 2, 2002. 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 three-month period ended April 1, 2003 are not necessarily indicative of the operating results that may be expected for
future periods. The consolidated balance sheet as of December 31, 2002 has been derived from the audited consolidated financial statements at that date but does not include all of the
information and notes required by accounting principles generally accepted in the United States of America 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-K for the fiscal year ended December 31, 2002.

Certain
reclassifications have been made to conform previously reported data to the current presentation.

2.    Liquidity

The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate
continuation of the Company as a going concern. However, the Company has sustained substantial losses in recent years, and such losses have continued through unaudited periods in 2003. The Company
also has a deficit in stockholders' equity of approximately $100,609,000 as of April 1, 2003, and, as of that date, the Company's current liabilities exceeded its current assets by
approximately $168,864,000. During the years ended January 1, 2002 and December 31, 2002, and continuing into 2003, the Company was in violation of certain covenants on the indenture for
the Company's $140 million aggregate principal amount of notes due June 15, 2003 (the "$140 Million Facility"). This could be considered an event of default under the indenture if the
Company was unable to cure the violation within thirty days of receiving written notice from the trustee or holders specifying the default; however, such notice has not been received as of the date of
this filing. If such notice and failure to cure were to occur, the entire amount of the $140 Million Facility could become immediately due and payable. In any event, the $140 Million Facility matures
on June 15, 2003. These factors raise substantial doubt about the Company's ability to continue as a going concern.

In
view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon
continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to obtain new financing, and to succeed in its
future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in existence.

6

---

The
Company has engaged an investment bank to assist it in developing alternatives to rationalize its capital structure. The Company is actively pursuing options to affect the
refinancing or retiring of the $140 Million Facility on or before its maturity on June 15, 2003. Such options currently under consideration by the Company include the sale of all or part of the
Company, which could result in an investment of equity and a refinancing or retirement of the Company's primary debt obligations, and the refinancing of the $140 Million Facility with a new debt
facility, which may entail a new 144A senior note offering.

The
Company has also initiated cost reduction programs that stem primarily from the integration of Einstein/Noah Bagel Corp. and its majority-owned subsidiary, Einstein/Noah Bagel
Partners, L.P. (collectively, "Einstein") into the Company, including supply chain efficiencies and reductions in overhead as a result of the elimination of duplicative functions and the
streamlining of various functional areas. While most of these initiatives commenced in fiscal 2002, the full year effect is not expected to be realized until 2003 and beyond. In addition, the Company
incurred substantial expenses in 2002 related to (1) the payment of unauthorized bonuses to certain members of former management as well as the internal investigation that ensued and
(2) legal and advisory fees related to various efforts to refinance the $140 Million Facility and the Company's revolving line of credit, which are not anticipated to recur at similar levels in
2003. Although there is no assurance that funding will be available to refinance or retire the $140 Million Facility, the Company believes that its current business plan, if successfully funded, will
improve its operating results and cash flow in the future.

3.    Earnings Per Share

In
accordance with SFAS No. 128, Earnings Per Share, basic earnings per common share amounts (basic EPS) are computed by dividing net earnings by the weighted average number of
common shares outstanding (which include warrants exercisable for a nominal price of $0.01 per share) and exclude any potential dilution. The Company has included both issued and obligations to issue
$0.01 warrants in the calculation described above. Diluted earnings per common share amounts assuming dilution (diluted EPS) are computed by reflecting potential dilution of the Company's common stock
equivalents. Common stock equivalents are not reflected in diluted EPS if their effect would be anti-dilutive. The following table summarizes the weighted average shares used in the basic
and diluted EPS computations:

For the Quarter EndedApril 1, 2003

April 2, 2002Weighted average shares outstanding

51,016,857

17,481,394Weighted average warrants exercisable for $0.01

49,750,108

58,436,801100,766,965

75,918,195


All
stock options and warrants outstanding (excluding those exercisable for $0.01) during the quarters ended April 1, 2003 and April 2, 2002 were excluded from the
computation because of their anti-dilutive effect.

4.    Recent Pronouncements

In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated retirement costs. This statement is effective for fiscal years

7

---

beginning
after June 15, 2002. The adoption of this new standard had no impact on its consolidated financial statements.

In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which is effective for exit or disposal activities initiated
after December 31, 2002, with early application encouraged. This statement requires a liability for a cost associated with an exit or disposal activity to be recognized at fair value in the
period in which the liability is incurred, except for liabilities for one-time termination benefits requiring future employee service, which is to be recognized ratably over the remaining
service period. The Company early-implemented SFAS No. 146 upon its issuance in fiscal 2002, for its 2002 restructuring accrual (Note 11).

In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. This statement requires all entities with
stock-based employee compensation arrangements to provide additional disclosures in their summary of significant accounting policies note, as well as in the notes to the interim financial statements.
For entities that use the intrinsic value method of APB 25, to account for employee stock compensation, their accounting policies note should include a tabular presentation of pro forma net income and
earnings per share using the fair value method. This statement also permits entities changing to the fair value method of accounting for employee stock compensation to choose from one of three
transition methodsthe prospective method, the modified prospective method, or the retroactive restatement method. The main provisions of this statement are effective for fiscal years
ending after December 15, 2002. The Company currently follows the intrinsic value method of APB 25 to account for its employee stock compensation, but has no intention to change to the fair
value method to account for employee stock-based compensation; however, the disclosure provision was implemented within the Company's fiscal 2002 financial statements.

Had
compensation cost for the Company's two stock option plans (the 1994 Stock Plan and 1995 Directors' Plan) been recognized under the fair value method specified in SFAS 123,
the Company's net loss and loss per share would have been increased to the following pro forma amounts:

April 1, 2003

April 2, 2002(amounts in thousands, except per share data)Net loss available to common stockholders:As reported

$
(12,344
)
$
(34,132
)Deduct: total stock-based employee compensation expense determined under fair value based method for all awards


(45
)

(49
)Pro forma

$
(12,389
)
$
(34,181
)Basic and diluted net loss available to common stockholders per common share:As reported

$
(.12
)
$
(.45
)Pro forma

$
(.12
)
$
(.45
)


The
Company has considered all other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements will have a material impact on its financial
statements.

8

---

5.    Goodwill, Trademarks and Other Intangibles

The
Company uses a two-step approach to assess its goodwill impairment. This requires that the Company first compare the estimated fair value of each reporting unit that
houses goodwill to the carrying amount of the unit's assets and liabilities, including its goodwill and intangible assets. If the fair value of the reporting unit is below its carrying amount, then
the second step of the impairment test is performed, in which the current fair value of the unit's assets and liabilities will determine the current implied fair value of the unit's goodwill.

During
2002, the Company completed step one of both the transitional and annual impairment tests for its only reporting unit with goodwill and completed the transitional and annual
impairment tests on indefinite-lived intangibles. The Company engaged an independent valuation expert to perform these analyses. The transitional and annual impairment analyses of goodwill indicated
that the fair value of the Manhattan Bagel Company reporting unit as of January 1, 2002 and December 31, 2002 exceeded its carrying value. Thus, the associated goodwill as of
January 1, 2002 and December 31, 2002 was not impaired, and the second step of the impairment tests was not required. Additionally, the transitional and annual impairment analyses for
the Company's indefinite-lived intangibles (trademarks) indicated that, in each instance, their respective fair values exceeded their carrying values as of January 1, 2002 and
December 31, 2002.

Goodwill
represents the excess of cost over fair value of net assets acquired in the acquisition of Manhattan Bagel Company.

The
Company's management has determined that no impairment indicators were present during the quarter ended April 1, 2003, and accordingly no interim tests for impairment of
goodwill, trademarks or intangibles were performed.

In
2002 and forward, goodwill and indefinite-lived trademarks are not amortized in accordance with SFAS 142 and other intangibles are being amortized on a
straight-line basis consistent with the associated estimated future cash flows.

|                                       |                               | Unaudited
April 1, 2003 |         | December 31, 2002 |  
|-------------------------------------- | ----------------------------- | ----------------------- | ------- | ----------------- | -
|
|Non-amortizing intangibles:            |                               |                         |         |                   |  
|                                       | Trademarks                    |                         | $       | 70,746            |  
|Amortizing intangibles (5 year lives): |                               |                         |         |                   |  
|                                       | Trade Secrets                 |                         |         | 5,385             |  
|                                       | Patents-manufacturing process |                         |         | 33,741            |  
|                                       |                               |                         |         |                   |  
|                                       |                               |                         | 39,126  |                   |  
|Less accumulated amortization          |                               |                         | (13,694 | )                 |  
|                                       |                               |                         |         |                   |  
|Total amortizing intangibles           |                               |                         | 25,432  |                   |  
|                                       |                               |                         |         |                   |  
|Total intangibles                      |                               | $                       | 96,178  |                   | $
|                                       |                               |                         |         |                   |  

9

---

6.    Accrued Expenses

Accrued expenses consist of the following:

Unaudited
April 1, 2003

December 31, 2002(amounts in thousands)Accrued payroll and related

$
14,678

$
13,949Accrued reorganization


2,492


2,768Accrued taxes


1,763


2,310Accrued interest


4,887


4,342Accrued utilities


1,182


1,789Gift certificates liability


1,379


1,115Other


6,518


4,715$
32,899

$
30,988


7.    Debt and Equity Instruments:

The major components of the Company's short-term and long-term debt are included in the accompanying balance sheet as follows:

Unaudited
April 1, 2003

December 31, 2002(amounts in thousands)Greenlight obligation

$
10,000

$
10,000Bridge Loan


4,670


4,443$140 Million Facility


138,513


138,084BET Revolver


7,500


6,000All other debt


2,907


3,356163,590


161,883Less current portion


(153,460
)

(150,872
)Long-term debt

$
10,130

$
11,011


10

---

The
components of Series F Preferred Stock, Greenlight obligation, the $35 million assets-backed loan to the Company's non-restricted subsidiary, New World
EnbcDeb Corp. (the "Bridge Loan"), and $140 Million Facility are included in the accompanying balance sheets as follows:

Series F Preferred Stock

Unaudited
April 1, 2003

December 31, 2002(amounts in thousands)Proceeds from issuance of Series F preferred stock, $16,398 of which was the value of the Series D conversion

$
66,398

$
66,398Discount attributable to fees and commissions


(3,254
)

(3,254
)Discount attributable to initial and future warrants


(33,027
)

(33,027
)Accreted PIK preferred stock


27,980


23,330Extinguishment of discount


8,271


8,271Effective dividend amortization of discount


23,166


23,214$
89,534

$
84,932


Greenlight Obligation

Unaudited
April 1, 2003

December 31, 2002(amounts in thousands)Proceeds from issuance of Greenlight obligation

$
10,000

$
10,000Discount attributable to initial and future warrants


(4,316
)

(4,316
)Extinguishment of discount


4,195


4,195Effective interest amortization of discount


121


121$
10,000

$
10,000


Bridge Loan

Unaudited
April 1, 2003

December 31, 2002(amounts in thousands)Original face value of Bridge Loan

$
35,000

$
35,000Issuance discount from face value


(1,750
)

(1,750
)Discount attributable to future warrants


(5,365
)

(5,365
)Accreted PIK interest


6,380


6,153Effective interest amortization of discount


7,116


7,116Reductions in Principal


(36,711
)

(36,711
)$
4,670

$
4,443


$140 Million Facility

Unaudited
April 1, 2003

December 31, 2002(amounts in thousands)Original face value of $140 Million Facility

$
140,000

$
140,000Issuance discount from face value


(11,550
)

(11,550
)Discount attributable to initial and future warrants


(17,312
)

(17,312
)Effective interest amortization of discount


27,375


26,946$
138,513

$
138,084


On
May 30, 2002, the Company entered into a Loan and Security Agreement with one of the Company's principal stockholders, BET Associates, L.P. ("BET"), which provides for a
$7,500,000 revolving loan facility. The facility is secured by substantially all of the Company's assets. At the time

11

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the
Company entered into this facility, the Company terminated its prior revolving loan facility. Borrowings under the facility bore interest at the rate of 11% per annum until February 2003.
The facility originally expired on March 31, 2003. In February of 2003, the Company extended the maturity of the revolving loan facility to June 1, 2003. From February 1, 2003 to
June 1, 2003, the facility will bear interest at the rate of 13%.

8.    Contingencies

The Company is subject to claims and legal actions in the ordinary course of business, including claims by franchisees. The Company does not believe that an
adverse outcome in any currently pending or threatened matter, other than described below, would have a material adverse effect on its business, results of operations or financial condition.

On
April 3, 2002, the Company was notified by the Securities and Exchange Commission that the Commission is conducting an investigation into the resignation of the former
Chairman, R. Ramin Kamfar, and the termination for cause of the former Chief Financial Officer, Jerold Novack, and the delay in filing the Form 10-K for 2001. The Company is
cooperating fully with the investigation. The Company is also cooperating fully with a recent Department of Justice inquiry relating to these issues. Further, several of the former and present
officers and directors have requested that the Company advance reasonable legal expense on their respective behalf to the extent any of them is or has been requested to provide information to the
Commission in connection with its investigation. The Company is fulfilling its obligations as required by applicable law and the Company's By-Laws.

On
July 31, 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager, filed a purported class action complaint against Einstein in the
Superior Court for the State of California, County of San Francisco. The plaintiffs allege that Noah's failed to pay overtime wages to managers and assistant managers of its California stores, whom it
is alleged were improperly designated as exempt employees in violation of California and Business Profession Code Section 17200. As a result of subsequent communications regarding the
circumstances under which the Company purchased Einstein out of bankruptcy, the plaintiffs filed a first amended complaint disclaiming back wages for the period prior to June 19, 2001. However,
the first amended complaint added as defendants certain former directors and officers of Einstein. The first amended complaint also added a second cause of action seeking to invalidate releases
obtained from Noah's assistant managers pursuant to the settlement of a Department of Labor investigation. The Company filed a demurrer to the first amended complaint, which the plaintiffs opposed.
Subsequent to the filing of that demurrer, the Company procured a dismissal without prejudice of the claims brought against Paul Murphy, the only individual defendant the Company employed subsequent
to its acquisition of Einstein. The plaintiffs subsequently stipulated to the severance of the claims against the Company and those against the remaining individual defendants. The stipulation
provides that the plaintiffs will file separate second amended complaints against the Company and against the remaining individual defendants. As a result, the Company's demurrer will be taken off
calendar. The Company will have thirty days from the date of the filing of the second amended complaint to refile the demurrer.

12

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On
March 31, 2003, Jerold E. Novack, the former Chief Financial Officer, Secretary, and shareholder of the Company, filed a complaint in the United States District Court for the
District of New Jersey against the Company, Anthony D. Wedo, Chairman and Chief Executive Officer of the Company, and William J. Nimmo, a member of the Board of Directors. The complaint purports to
state claims for breach of plaintiff's employment contract with the Company, breach of the Company's fiduciary duties to plaintiff, defamation, and violation of the New Jersey Conscientious Employee
Protection Act, and in addition seeks a declaration that the termination of plaintiff "for cause" was invalid. As a basis for his purported claims, the plaintiff alleges that the Company wrongfully
contended certain bonuses he received were unauthorized and that he was wrongfully terminated for cause in order to deny him certain other benefits allegedly owed under his employment agreement.
Furthermore, the plaintiff asserts that he was defamed by certain of defendants' public statements regarding his dismissal and also that his termination was in retaliation for certain actions he
believes were protected by the New Jersey Conscientious Employee Protection Act. The Company intends to vigorously oppose the plaintiff's purported claims. The Company was served with the complaint on
May 2, 2003 and has not yet answered or otherwise responded to it.

In
July 2002, the New Jersey Division of Taxation entered judgment in the amount of $5,744,902, plus costs, against Manhattan Bagel Construction Company, a wholly owned subsidiary
of Manhattan Bagel Company. This judgment represents amounts for corporate income taxes for the period from 1996 to 2000, and sales
and use taxes for the period from 1995 to 1997. At that same time, the Division of Taxation provided Manhattan Bagel Construction Company with a Notice and Demand for Payment of Tax in the additional
amount of $130,200, for corporate income taxes and sales and use taxes for the period from October 2001 through June 2002. Manhattan Bagel Construction Company ceased operations in or
about early 1997 and has existed since that time only as a non-operating entity with no assets. Therefore, the Company is currently working with the New Jersey Division of Taxation to have
all tax assessments for the period after Manhattan Bagel Construction Company ceased operations removed, and that portion of the judgment deemed satisfied. With regard to taxes imposed for the period
prior to early 1997, the Company believes those amounts are barred from being asserted against Manhattan Bagel Company, to the extent they otherwise could have been, because they were not asserted in
Manhattan Bagel Company's November 1997 bankruptcy proceeding.

On
February 23, 2000, New World Coffee of Forest Hills, Inc., a franchisee, filed a demand for arbitration with the American Arbitration Association
(American Arbitration Association, New York, New York, Case No. 13-114-237-00) against the Company alleging
fraudulent inducement and violations of New York General Business Law Article 33. The franchisee seeks damages in the amount of $750,000. New World has asserted a counterclaim in the
arbitration seeking amounts owed under the franchisee's franchise agreement and monies owed for goods purchased by the franchisee in the amount of $200,000. An arbitrator has been selected and
document exchange is complete. Hearings were scheduled for June 2002 but have been postponed by order of the arbitrator.

On
October 28, 2002, Sansim Patel, Inc., a subfranchisee of Manhattan Bagel Company, filed suit against Manhattan Bagel Company, the master franchisee, and others in Orange
County (Orlando, Florida). The plaintiff alleges claims of civil conspiracy and unjust enrichment against Manhattan Bagel Company and seeks rescission of its franchise agreement with Manhattan Bagel
Company. The plaintiff also seeks damages in an unspecified amount. In December 2002, the Company filed a motion to dismiss all of the claims asserted against it by the plaintiff, based in part
on a general release the plaintiff had previously executed in favor of Manhattan Bagel Company. That motion remains pending with the Court. However, on March 18, 2003, default judgments were
obtained against the other named defendants.

On
March 17, 2003, Jason and Andrew Gennusa, former employees of the Company and founders of Manhattan Bagel Company, filed suit against the Company in the Superior Court of New
Jersey, Monmouth County. As the founders of Manhattan Bagel Company, the plaintiffs claim to be reproducing the "original formula" Manhattan Bagel dough, and selling it to franchisees at a competitive
price. Their complaint seeks a judgment declaring that their production and sale of this bagel dough to franchisees does not violate various non-competition covenants and confidentiality
agreements they previously entered into with the Company. Furthermore, the plaintiffs seek a declaration that the "original recipe" bagel dough they manufacture is not a trade secret of the Company
and that their manufacture and sale of the dough is not in

13

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violation
of intellectual property law. The Company has not yet answered or otherwise responded to plaintiffs' complaint.

On
April 7, 2003, General Electric Capital Corp. filed an action in the Supreme Court for the State of New York, County of New York, against the Company and its franchisee,
captionedGeneral Electric Capital Corp. v. New World Coffee/Manhattan Bagels, Inc. et al.In its complaint, plaintiff asserts that it entered
into certain equipment lease agreements with the Company on April 18, 2001, and with the franchisee on February 26,
2001, upon which the Company and its franchisee subsequently defaulted. As a result of those alleged defaults, plaintiff purports to state claims against defendants for breach of contract, conversion,
unjust enrichment, foreclosure of security interest, and replevin, and demands damages from defendants, jointly and severally, in the total specified amount of $118,555.49, plus late charges, taxes,
interest, costs and attorneys' fees. The Company has not yet answered or otherwise responded to plaintiff's complaint.

On
December 28, 2001, Robert Higgs, a franchisee, filed a complaint against the Company and its officers and agents in New Jersey (Superior Court of New
Jersey, Case No. OCN-L-2153-99) alleging breach of contract, breach of fiduciary duties and tortuous interference with contract and business
opportunities. The complaint was subsequently withdrawn by the franchisee without prejudice. In February 2002, the franchisee filed a new complaint against the Company and its officers and
agents alleging breach of contract, breach of fiduciary duties, tortuous interference with contract and business opportunities, and violations of New Jersey's franchise law. The franchisee seeks
damages in an unspecified amount, punitive damages, costs and attorneys' fees. The Company moved to dismiss all of the claims in the new complaint. The court dismissed the breach of fiduciary duty
claims and one of the breach of contract claims. Discovery requests have been served by the Company.

Given
the early stage of these matters, the Company cannot predict their outcome. However, there can be no assurance that the Company will not be subject to regulatory sanctions, civil
penalties and/or claims for monetary damages or other relief.

Special
Situations Fund, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P. (collectively, "Special Situations"), holders of
Series F preferred stock, had notified the Company that they believe that material misrepresentations were made to them in June 2001 in connection with their purchase of the stock.
Special Situations filed a complaint in the United States District Court for the Southern District of New York regarding this claim. Special Situations alleged various contractual and tort claims
against the Company, as well as Ramin Kamfar, the former Chairman of the Board of Directors, Jerold Novack, the former Chief Financial Officer, and Greenlight Capital, L.P., Greenlight Capital
Qualified, L.P. and Greenlight Capital Offshore, Ltd. (collectively, "Greenlight"), another holder of the Series F preferred stock. Special Situations sought, among other relief, damages in the
amount of at least $5,166,000 and the equitable remedy of rescission of its purchase of stock. Prior to responding to Special Situations' complaint, the Company and Special Situations entered into a
settlement agreement and release on April 29, 2003, pursuant to which the Company agreed to settle Special Situations' claims against the Company and its present and former officers, directors,
agents and other representatives, and Special Situations agreed to release those entities and individuals, in exchange for payment to Special Situations of $176,000. A Notice of Voluntary Withdrawal
was filed by Special Situations with the United States District Court for the Southern District of New York on May 5, 2003.

On
February 28, 2003, the Company's former insurance broker of record filed suit in Superior Court of the State of California, County of Orange, against the Company and its
subsidiaries, alleging wrongful termination of the Company's brokerage contract with plaintiff, Pension & Benefit Insurance Services, Inc. ("PBIS"), which deprived PBIS of brokerage
commissions. PBIS's complaint asserts claims for breach of contract, reasonable value of services, intentional interference with prospective advantage and negligent interference with prospective
advantages. Plaintiff seeks $500,000 in consequential damages and $20 million in punitive damages. Prior to responding to PBIS's complaint, the Company entered into a settlement agreement with
PBIS on April 2, 2003. As consideration for PBIS's agreement to settle and dismiss this matter, the Company agreed to list PBIS as its insurance broker of record until at least the end of 2003.
A Request for Dismissal of the suit was filed by PBIS with the Superior Court of the State of California, County of Orange on April 9, 2003.

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9. Derivative Instruments

Effective January 1, 2000, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires
that all derivatives be recognized in the balance sheet at their fair value. Changes in the fair values of derivatives that do not qualify for hedge accounting under SFAS 133 are recognized
through earnings. In conjunction with certain debt and preferred stock issuances in 2000 and 2001, the Company issued freestanding warrants and rights to receive additional warrants based either on
the passage of time or upon the occurrence (or non-occurrence) of certain contingent future events (contingently-issuable warrants). In June 2001, certain of the Series F
preferred stock holders agreed not to exercise their warrants if, in doing so, the authorized number of shares remaining after exercise by the holders of the Series F preferred stock was not
sufficient to permit warrants associated with the $140 Million Facility to be exercised. The Company determined the contingently-issuable warrants cannot be classified within stockholders' equity
based on the application of the criteria in EITF Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, and accordingly
have classified those warrants as a liability in the balance sheet. To the extent that the number of freestanding warrants and the maximum number of additional warrants that could potentially be
issued in the future exceed the maximum number of authorized shares (the Share Cap) at the time the debt or preferred stock instrument is issued, the Company determines the classification of, and
accounting for, the freestanding and additional warrants as follows: (1) freestanding warrants (those that are immediately exercisable) are considered first for equity treatment, to the extent
of the maximum number of authorized shares; (2) among various outstanding instruments, those with the earlier issuance dates are considered first for equity treatment; and
(3) contractual priorities are considered where applicable.

Issued
$0.01 warrants classified as liabilities, if any, are recognized in the balance sheet at their fair value, as determined periodically based on quoted market prices of the
underlying Common Stock. As of April 1, 2003 and December 31, 2002, there were no issued warrants classified as liabilities. Contingently-issuable $0.01 warrants classified as
liabilities are also recorded at fair value based on quoted market prices of the underlying common stock and considering the probability of issuance, the Company's assessments of the probability of
refinancing its debt, and other pertinent factors. Changes in the fair value of derivative liabilities are recorded within the statement of operations. If reclassification from liability to permanent
equity is required under EITF 00-19, prior to reclassification the liability is adjusted to fair value, with the change recorded in cumulative change in derivative fair value within the
statement of operations. In the event of reclassification from permanent equity to liability, the related warrants are adjusted to fair value, with the change recorded in additional
paid-in capital.

10. Additional Paid-In Capital

Additional paid-in capital increased from $86.6 million as of December 31, 2002, to $87 million as of April 1, 2003 due to
the issuance of additional warrants under the terms of the Series F preferred stock and the $140 Million Facility agreements, that had previously been classified as derivative liabilities in
accordance with the policy outlined in Note 9.

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11. Reorganization and Integration

The following table displays the activity for the quarter ended April 1, 2003 and April 2, 2002, respectively and balances of the restructuring
accrual accounts.

2002 Restructuring Accrual  (amounts in thousands)

|2003 Activity               |  | Balance
at
Beginning
of Period |       | Initial
Accrual |   | Application
of Costs
Against
Accrual |      | Net Accrual
Adjustments |   | Balance at
End of Period
|--------------------------- |  | ------------------------------ | ----- | --------------- | - | ------------------------------------ | ---- | ----------------------- | - | ------------------------
|Quarter ended
April 1, 2003 |  | $                              | 1,704 |                 |  |                                      | (191 | )                       |  |                         
|                            |  |                                |       |                 |   |                                      |      |                         |   |                         

2001 Restructuring Accrual  (amounts in thousands)

|2003 Activity               |  | Balance
at
Beginning
of Period |       | Initial
Accrual |   | Application
of Costs
Against
Accrual |     | Net Accrual
Adjustments |   | Balance at
End of Period
|--------------------------- |  | ------------------------------ | ----- | --------------- | - | ------------------------------------ | --- | ----------------------- | - | ------------------------
|Quarter ended April 1, 2003 |  | $                              | 1,064 |                 |  |                                      | (85 | )                       |  |                         
|                            |  |                                |       |                 |   |                                      |     |                         |   |                         

2001 Restructuring Accrual  (amounts in thousands)

|2002 Activity               |  | Balance
at
Beginning
of Period |       | Initial
Accrual |   | Application
of Costs
Against
Accrual |      | Net Accrual
Adjustments |     | Balance at
End of Period
|--------------------------- |  | ------------------------------ | ----- | --------------- | - | ------------------------------------ | ---- | ----------------------- | --- | ------------------------
|Quarter ended April 2, 2002 |  | $                              | 2,936 |                 |  |                                      | (220 | )                       | 104 |                         
|                            |  |                                |       |                 |   |                                      |      |                         |     |                         

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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 1995 with respect to the Company's financial condition and business. 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 Company's actual results, performance and achievements 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: success of the integration of New World and acquired businesses; success of
cost-saving strategies; competition; success of operating, franchising and licensing 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-K.

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

Overview

The Company is a leader in the quick casual segment of the restaurant industry and the largest operator of bagel bakeries in the United States. With 741 locations
in 32 states, the Company operates and licenses locations primarily under the Einstein Bros. and Noah's brand names and franchise locations primarily under the Manhattan and Chesapeake brand names.
The Company's locations specialize in high-quality foods for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on a variety of breads and
bagels, soups, salads, desserts, premium coffees and other cafe beverages, and offer a cafe experience with a neighborhood emphasis. As of April 1, 2003, the Company's retail system consisted
of 463 company-operated locations and 251 franchised and 27 licensed locations. The Company also operates dough production and coffee roasting facilities.

On
June 19, 2001, the Company purchased (the "Einstein Acquisition") substantially all of the assets of Einstein. Einstein was the largest bagel bakery chain in the United States,
with 458 stores, nearly all of which were company-operated. The Einstein Acquisition was made pursuant to an asset purchase agreement entered into by us 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 million in cash plus the assumption of
certain liabilities, subject to adjustment in the event that Assumed Current Liabilities (as defined under the asset purchase agreement) exceed $30 million. The acquisition was accounted for
using the purchase method of accounting.

In
January and March 2001, the Company issued Series F preferred stock and warrants to purchase its Common Stock and equity in a newly formed affiliate, Greenlight New
World, L.L.C. ("GNW"). The aggregate net proceeds of those financings of approximately $23.7 million were used to purchase Einstein bonds and pay related costs. In June 2001, the Company
issued additional Series F preferred stock and warrants to purchase its Common Stock for aggregate net proceeds of $22.7 million, which were used to fund a portion of the purchase price
of the Einstein Acquisition. In January 2001, the Company entered into a Bond Purchase Agreement with Greenlight. Pursuant to the agreement, Greenlight formed a limited liability company and
contributed $10.0 million to be utilized for the purchase of Einstein bonds. The Company consolidated the limited liability company as debt given the terms of the agreement. In
June 2001, the Company issued $140 million of Senior Increasing Rate Notes due 2003 (the "$140 Million Facility") and warrants to purchase its Common Stock. The net proceeds of
approximately $122.4 million were used to fund a portion of the purchase price of the Einstein Acquisition, to repay then-outstanding bank debt and for general working capital
purposes. Also in June 2001, the Company obtained a $35 million asset-backed loan to a non-restricted subsidiary, New World EnbcDeb Corp. ("EnbcDeb Corp."), for net proceeds
of $32.2 million, which were used to fund a portion of the purchase price of the Einstein Acquisition.

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Unauthorized
bonus payments in the aggregate amount of $3.5 million were made to certain former executive officers and former employees. A portion of those payments (approximately
$1.0 million) was made in the third quarter of the Company's fiscal year ended January 1, 2002 and the balance (approximately $2.5 million) in the first quarter ended
April 2, 2002. An aggregate of $2.5 million of such payments was offset against payments to be made in connection with the separation of certain officers and employees from the Company.
With respect to that portion of the unauthorized payments that has not been repaid or offset plus certain other unauthorized payments that have not been recovered of $0.2 million, or an
aggregate of $1.2 million, the Company has recorded a receivable from the former officer. Based on its evaluation of the collectibility of this amount, the Company has recorded an allowance for
uncollectible receivable.

Critical Accounting Policies and Estimates

The Consolidated Financial Statements and Notes to the Consolidated Financial Statements contain information that is pertinent to management's discussion and
analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities.

The
Company believes the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions, and estimates necessary in
determining the related asset and liability amounts.

Revenue Recognition

Manufacturing revenues are recognized upon shipment to customers. Retail sales are recognized when payment is tendered at the point of sale. Pursuant to the
franchise agreements, franchisees are generally required to pay an initial franchise fee and a monthly royalty payment equal to a percentage of the franchisees' gross sales. Initial franchise fees are
recognized as revenue when the Company performs substantially all of its initial services as required by the franchise agreement. Royalty fees from franchisees are accrued each month pursuant to the
franchise agreements. Royalty income and initial franchise fees are included in franchise revenues.

Accounts Receivable

The majority of the Company's accounts receivable are due from the Company's franchisees. Accounts receivable are due within 15 to 30 days and are stated
at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by
considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the customer's current ability to pay its obligation to us, and the
condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.

Deferred Tax Assets

The Company has recorded a full valuation allowance to eliminate its deferred tax assets related to net operating loss carryforwards and other deductible
temporary differences. The Company limited the amount of tax benefits recognizable based on an evaluation of the benefits that are expected to be ultimately realized. An adjustment to income could be
required if the Company determined it could realize these deferred tax assets in excess of the net recorded amount.

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Goodwill, Trademarks and Other Intangibles

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assts, effective January 2, 2002. SFAS 142 provides that goodwill and other
indefinite-lived intangibles should not be amortized, but be subject to an annual assessment for impairment, or more frequently if circumstances indicate potential impairment, through a comparison of
fair value to its carrying amount. The two-step approach to assess its goodwill impairment requires that the Company first compare the estimated fair value of each reporting unit that
houses goodwill to the carrying amount of the unit's assets and liabilities, including its goodwill and intangible assets. If the fair value of the reporting unit is below its carrying amount, then
the second step of the impairment test is performed, in which the current fair value of the unit's assets and liabilities will determine the current implied fair value of the unit's goodwill.

In
conducting its impairment analyses, the Company utilized independent valuation experts to perform the analyses and tests of the Company's indefinite lived assets with respect to its
reporting units. The test methods employed involved assumptions concerning useful lives of intangible assets, interest and discount rates growth projections and other assumptions of future business
conditions. The assumptions employed were based on management's judgment using internal and external data. The Company also utilized independent valuation experts to assist it in determining useful
lives for its intangibles other than goodwill including the assessment that its Einstein trademarks have indefinite useful lives. Its determination that this trademark, as well as its other trademarks
have indefinite useful lives, is based on the fact that there are no legal, regulatory, competitive or other factors, which limit their useful lives.

The
Company's management has determined that no impairment indicators were present during the quarter ended April 1, 2003, and accordingly no interim tests for impairment of
goodwill, trademarks or intangibles were performed.

The
transitional and annual impairment analyses of goodwill conducted by us indicated that the fair value of the Manhattan Bagel Company reporting unit (the only reporting unit with
goodwill) as of December 31, 2002 and January 1, 2002 exceeded its carrying value. Thus, the associated goodwill on the Company's consolidated balance sheets as of December 31,
2002 and January 1, 2002 was not impaired, and the second step of the impairment tests was not required. Additionally, the transitional and annual impairment analyses for the Company's
indefinite-lived intangibles (trademarks) indicated that, in each instance, their respective fair values exceeded their carrying values as of December 31, 2002 and January 1, 2002.

Derivative Instruments

See
Note 9Derivative Instruments

Interest and Dividends

Interest
expense and dividends on the $140 Million Facility and Series F preferred stock, respectively, is determined, in part, by assumptions related to expected maturity of such
instruments. These assumptions are reviewed and adjusted as the Company's circumstances change.

Fiscal Quarter Ended April 1, 2003 Compared to Fiscal Quarter Ended April 2, 2002

Revenues

Total
revenues decreased 2.5% to $95.2 million for the first three months of fiscal 2003 from $97.6 million for the first three months of fiscal 2002. The overall
$2.4 million decrease in revenues consists of decreases of approximately $1.7 million in retail (i.e., company-operated store sales) and $0.7 million manufacturing sales (i.e.,
food and beverage sales to third-party customers, franchisees and licensees), respectively. The retail sales decline was primarily due to the closing of 22 company-owned

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New
World stores in fiscal 2002 and a 0.8% comparable store sales decrease at Einstein Bros. and Noah's company-owned units for the first three months of fiscal 2003.

Costs and Expenses

Cost
of sales decreased 0.8% to $79.0 million for the first three months of fiscal 2003 from $79.7 million for the first three months of fiscal 2002. The overall
$0.7 million decrease was primarily comprised of a $0.2 million and a $0.4 million decrease in retail-related and manufacturing-related costs, respectively. The overall decrease
was primarily due to the closing of 22 company-operated New World stores in
fiscal 2002 and the overall decrease in the New World franchise store base between the beginning of fiscal 2002 and the end of the first quarter of fiscal 2003, partially offset by higher costs
related to Einstein Bros. and Noah's retail operations. Cost of sales, expressed as a percentage of the related retail and manufacturing sales, increased to 84.2% for the first three months of fiscal
2003 from 82.7% for the first three months of fiscal 2002. The percentage increase was primarily attributable to higher labor and utility expenses partially due to unseasonable weather in the first
three months of fiscal 2003 as well as a decline in operating leverage due to the sales decrease.

General
and administrative expenses decreased 30.8% to $9.2 million for the first three months of fiscal 2003 from $13.3 million for the first three months of fiscal 2002.
The $4.1 million decrease in general and administrative expenses was primarily attributable to prior year unauthorized bonus payments, prior year internal investigation costs and infrastructure
consolidation. As a percentage of total revenues, general and administrative expenses decreased to 9.7% in the first three months of fiscal 2003 from 13.6% in the first three months of fiscal 2002.

Depreciation
and amortization expenses increased by $1.1 million to $7.2 million for the first three months of fiscal 2003 from $6.1 million for the first three
months of fiscal 2002. The increase was primarily attributable to depreciation related to additions of equipment throughout fiscal 2002 and into 2003.

Operating
loss decreased $1.3 million to a $0.2 million loss for the first three months of fiscal 2003 from a $1.5 million loss for the first three months of fiscal
2002. The decrease was primarily due to the decrease in general and administrative expenses and cost of sales, partially offset by the revenue decline and the increase in depreciation and amortization
expenses, discussed above.

Interest
expense, net for the fiscal quarter ended April 1, 2003 decreased to $8.3 million from $12.3 million for the comparable 2002 period. The decrease was
primarily the result of assumptions regarding the expected maturity of the $140 Million Facility. The Company anticipated a refinancing would occur during 2002, which compressed the time period over
which the related effective interest was recognized.

The
cumulative change in the fair value of derivatives was a $0.6 million gain for the quarter ended April 1, 2003 compared to a $13.6 million expense for the
quarter ended April 2, 2002. The change is due to the change in the fair value of warrants classified as a derivative liability based on the underlying fair value of Common Stock to which they
are indexed and, for contingently-issuable warrants classified as a derivative liability, the estimated probability of issuance and other pertinent factors.

Provision
for income taxes was $0.1 million for the fiscal quarter ended April 1, 2003 compared to no provision for the comparable 2002 period. The 2003 provision reflects
the Company's current tax position.

Net
loss for the fiscal quarter ended April 1, 2003 was $7.7 million compared to a net loss of $27.4 million for the comparable 2002 period. The decrease in net loss
is primarily the result of the cumulative change in the fair value of derivatives, as discussed above, as well as lower interest expense incurred in the fiscal quarter 2003.

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Liquidity and Capital Resources

At April 1, 2003, the Company had a working capital deficit of $168.9 million compared to a working capital deficit at December 31, 2002 of
$164.8 million. The working capital deficit is due primarily to the classification of the $140 Million Facility as a current liability. The $140 Million Facility matures on June 15,
2003. The Indenture to the $140 Million Facility contains certain restrictive covenants, including certain financial covenants that are required to be measured on an annual basis, such as minimum
consolidated cash flow and capital expenditures, each defined in the Indenture. The Company has violated certain of these covenants, which could trigger an event of default if the Company was to
receive a written notice of default from the trustee or holders that was not cured in 30 days. The Company has not obtained waivers from the trustee or holders.

The
increase in the working capital deficit of $4.1 million is primarily due to cash used in operating activities and the increase in certain current liabilities, which includes a
reclass of a portion of long term debt to short term during the quarter ended April 1, 2003.

The
Company had net cash used in operating activities of $3.4 million for the fiscal quarter ended April 1, 2003 compared with net cash used in operating activities of
$11.0 million for the fiscal quarter ended April 2, 2002. The decrease in cash used in operating activities was attributable to changes in operating assets and liabilities, primarily due
to a shift in average days payable related to the termination of a major vendor distribution agreement.

The
Company had net cash used in investing activities of $2.1 million for the fiscal quarter ended April 1, 2003 compared with net cash provided by investing activities of
$0.7 million for the fiscal quarter ended April 2, 2002. The cash used in investing activities represented the purchase of property, plant and equipment.

The
Company had $1.1 million net cash provided by financing activities for the fiscal quarter ended April 1, 2003 compared with net cash used in financing activities of
$0.3 million for the fiscal quarter ended April 2, 2002. The cash provided by financing activities was due to a draw on its revolving loan facility.

On
May 30, 2002, the Company entered into a Loan and Security Agreement with BET, one of the Company's principal stockholders, which provides for a $7.5 million revolving
loan facility. The facility is secured by substantially all of the Company's assets. Borrowings under the facility bear interest at the rate of 11.0% per annum. The facility was to expire on
March 31, 2003. In February 2003, the Company and BET executed an amendment to the facility to extend the maturity of the facility to June 1, 2003. From February 1, 2003 to
June 1, 2003, the facility will bear interest at the rate of 13.0% per annum. BET will receive an extension fee of $187,500 in connection with the amendment, payable at maturity, and an
additional fee of $112,500 if the facility is not paid in full by June 2, 2003.

On
June 19, 2001, the Company consummated a private placement of 140,000 units consisting of $140.0 million of Senior Increasing Rate Notes due 2003 with detachable
warrants for the purchase of 13.7 million shares of the Company's Common Stock, exercisable at $0.01 per share (the "$140 Million Facility"). The proceeds, net of discount and related
offering expenses, were $122.4 million. The proceeds were utilized to fund a portion of the purchase price for the Einstein Acquisition, to repay the Company's then-existing bank
debt and for general working capital purposes. The $140 Million Facility initially bore interest at 13.0% per annum increasing by 100 basis points each quarter commencing September 15, 2001 to
a maximum of 18.0%. In addition, since the Company has not completed a registered exchange offer for the $140 Million Facility, the Company began paying additional interest on the $140 Million
Facility on November 17, 2001 at the rate of 0.25% per annum increasing by 0.25% each 90 days that such default continues up to a maximum rate of additional

21

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interest
of 1.0% per annum. As of April 1, 2003, the $140 Million Facility bore interest at a rate of 19.0%.

On
June 19, 2001, the Company obtained a $35.0 million asset-backed secured loan to its wholly owned non-restricted subsidiary, EnbcDeb Corp. The proceeds, net
of discount and related offering expenses, were $32.2 million. The proceeds were utilized to fund a portion of the purchase price for the Einstein Acquisition. The asset-backed loan, for which
EnbcDeb Corp. issued increasing rate notes (the "EnbcDeb Notes"), is secured by Einstein bonds owned by EnbcDeb Corp. The EnbcDeb Notes matured on June 15, 2002. Because EnbcDeb Corp. is a
non-restricted subsidiary, a default on the EnbcDeb Notes does not result in a default under the Notes or the Company's revolving loan facility. Interest on the EnbcDeb Notes initially
accrues at the rate of 14.0% per annum, increasing by 0.35% on the fifteenth day of each month following issuance, plus 2.0% per annum penalty on overdue amounts. As previously mentioned, since the
EnbcDeb Notes matured on June 15, 2002, the additional 2.0% penalty is effective as a result of the default. Interest is payable on the fifteenth day of every month and may be paid in kind at
the Company's option. As of April 1, 2003, the EnbcDeb Notes had a carrying value of $4.7 million and bore interest at 23.0%. The Company must apply all proceeds relating to the Einstein
bonds to the repayment of the EnbcDeb Notes. To the extent that the proceeds received are insufficient to repay the EnbcDeb Notes in full, the holders of the EnbcDeb Notes will have the option to
require the Company to issue them 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 17.0% 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 its fully diluted Common Stock. If the amount of the
deficiency is $5.0 million or greater, then the preferred stock will be entitled to an annual cash dividend equal to 18.0% 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 its fully diluted Common Stock. The Company has classified these contingently issued warrants as a derivative
liability within its consolidated balance sheet.

On
January 17, 2001, the Company entered into a Bond Purchase Agreement with Greenlight. Pursuant to the agreement, Greenlight formed a limited liability company, Greenlight New
World, L.L.C. ("GNW"), and contributed $10 million to GNW to purchase Einstein bonds. The Company is the exclusive manager of GNW. The agreement provided Greenlight with a secure interest in
GNW and a right to receive the return of its original contribution plus a guaranteed accretion of 15% per year, increasing to 17% on January 17, 2002 and by an additional 2% each six months
thereafter (the "Guaranteed Return"). As of April 1, 2003 the interest rate was 19%. In connection with the agreement, the Company issued Greenlight warrants to purchase an aggregate of
4,242,056 shares of its Common Stock at $0.01 per share. On June 19, 2001, GNW, Greenlight, and the Company entered into a letter agreement, pursuant to which, among other things, Greenlight
consented to the pledge of the Einstein bonds owned by GNW to secure the EnbcDeb Notes. The Company is required to apply all proceeds received with respect to the Einstein bonds to repay the EnbcDeb
Notes. To the extent that there are any excess proceeds, the Company is required to pay them to Greenlight. If Greenlight does not receive a return equal to its Guaranteed Return, the Company is
obligated to issue Greenlight Series F preferred stock with a face amount equal to the deficiency and warrant coverage equal to 1.125% of its fully diluted Common Stock for each
$1 million of deficiency. The Company has classified these contingently issuable warrants as a derivative liability within its consolidated balance sheet.

The
Company plans to satisfy its capital requirements for the balance of fiscal 2003 through cash flow from operations and borrowings under its revolving loan facility. However, the $140
Million Facility and the revolving loan facility mature in June 2003. The Company has engaged an investment

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bank
to assist in developing alternatives to rationalize its capital structure. The Company is actively pursuing options to effect the refinancing of the $140 Million Facility on or before its
maturity.

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, management believes based on industry experience that the Company 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. Although few, if any, of the Company's employees are paid at the minimum wage level, an increase in the
minimum wage may create pressure to increase the pay
scale for its employees, which would increase its labor costs and those of the Company's franchisees and licensees.

Risk Factors

Risk Factors Relating to the Company's Financial Condition

The Company has $140 Million Aggregate Principal Amount of Notes Outstanding that Mature on June 15, 2003, and the Company Must
Raise Additional Capital to Refinance these Notes and for Other General Corporate Purposes.

The
Company must raise significant additional capital before June 15, 2003 to refinance the $140 Million Facility and for other general corporate purposes. The Company cannot
assure you that it will be able to raise such capital on satisfactory terms and conditions, if at all. In addition, the existing revolving loan facility expires on June 1, 2003. The Company
intends to pursue refinancing the $140 Million Facility and replacing the revolving loan facility through the issuance of debt or equity or a combination thereof and obtaining additional bank
financing, but the Company currently has no commitments with respect to any refinancing. Even if the Company refinances its current indebtedness, the Company may seek additional financing in the
future to expand our business. If the Company is unable to obtain sufficient financing on satisfactory terms and conditions, the Company may not be able to expand its business. The Company's ability
to obtain additional financing will depend upon a number of factors, many of which are beyond its control. For example, the Company may not be able to obtain additional financing because it already
has substantial debt and because the Company may not have sufficient cash flow to service or repay its existing or additional debt. In addition, any additional equity financing may not be available on
satisfactory terms or at all. As of April 30, 2003, the Company had outstanding warrants to purchase 54,723,480 shares of its Common Stock, which may adversely affect the Company's ability to
raise additional equity financing in the future.

The Company has and expects to continue to have a substantial amount of debt.

The Company has a high level of debt and is highly leveraged. In addition, the Company may, subject to certain restrictions, incur substantial additional
indebtedness in the future. The Company's high level of debt could:



23

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The Company may not be able to generate sufficient cash flow to make payments under its indebtedness due to events that are beyond the Company's control.

Economic, financial, competitive, legislative and other factors beyond the Company's control may affect its ability to generate cash flow from operations to make
payments on its indebtedness and to fund necessary working capital. A significant reduction in operating cash flow would likely increase the need for alternative sources of liquidity. If the Company
is unable to generate sufficient cash flow to make payments on its debt, the Company will have to pursue one or more alternatives, such as reducing or delaying capital expenditures, refinancing its
debt, selling assets or raising equity. The Company cannot assure you that any of these alternatives could be accomplished on satisfactory terms, if at all, or that they would yield sufficient funds
to service the Company's debt.

Risk Factors Relating to the Company's Business

The Company faces potential regulatory sanctions and civil and criminal penalties and claims for monetary damages and other relief.

The
Securities and Exchange Commission has initiated an investigation relating to the reasons for the Company's delay in filing its Form 10-K for fiscal 2001 and the
resignation of the Company's former Chairman, R. Ramin Kamfar, and the termination for cause of its former Chief Financial Officer, Jerold E. Novack. The Company is cooperating fully with the
Commission's investigation. The Company is also cooperating fully with a Department of Justice inquiry relating to the above-referenced issues. Given the early stage of these matters, the Company
cannot predict the outcome, and it cannot assure you that the Company will not be subject to regulatory sanctions, civil penalties and/or claims for monetary damages and other relief that may have a
material adverse effect on its business, prospects and financial condition.

The Company is vulnerable to fluctuations in the cost, availability and quality of its ingredients.

The
cost, availability and quality of the ingredients the Company uses to prepare its food is subject to a range of factors, many of which are beyond the Company's control. Fluctuations
in economic and political conditions, weather and demand could adversely affect the cost of the Company's ingredients. The Company has no control over fluctuations in the price of commodities, and no
assurance can be given that the Company will be able to pass through any cost increases to its customers. The Company is dependent on frequent deliveries of fresh ingredients, thereby subjecting the
Company to the risk of shortages or interruptions in supply. All of these factors could adversely affect the Company's business and financial results.

The Company heavily depends on its suppliers and distributors.

The Company currently purchases its raw materials from various suppliers. Though to date the Company has not experienced any difficulties with its suppliers, the
Company's reliance on its suppliers subjects the Company to a number of risks, including possible delays or interruption in supplies, diminished control over quality and a potential lack of adequate
raw material capacity. Any disruption in the supply of or degradation in the quality of the raw materials provided by the Company's suppliers could have a material adverse effect on the Company's
business, operating results and financial

24

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condition.
In addition, such disruptions in supply or degradations in quality could have a long-term detrimental impact on the Company's efforts to develop a strong brand identity and a
loyal consumer base.

The
Company depends on its distributors to distribute frozen dough and other materials to the Company's locations. The Company recently replaced a single national distributor with six
regional custom distributors. If any one or more of such distributors fails to perform as anticipated, or if there is any disruption in any of the Company's distribution relationships for any reason,
it could have a material adverse effect on the Company's business, financial condition and results of operations.

The Company faces the risk of increasing labor costs that could adversely affect the Company's continued profitability.

The Company is dependent upon an available labor pool of unskilled employees, many of whom are hourly employees whose wages may be impacted by an increase in the
federal or state minimum wage. Numerous proposals have been made on state and federal levels to increase minimum wage levels. Although few, if any, of the Company's employees are paid at the minimum
wage level, an increase in the minimum wage may create pressure to increase the pay scale for the Company's employees, which would increase its labor costs and those of the Company's franchisees and
licensees. A shortage in the labor pool or other general inflationary pressures or changes could also increase labor costs. An increase in labor costs could have a material adverse effect on the
Company's income from operations and decrease the Company's profitability and cash available to service its debt obligations if the Company is unable to recover these increases by raising the prices
the Company charges its consumers.

The Company is vulnerable to changes in consumer preferences and economic conditions that could harm its financial results.

Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. Factors such as
traffic patterns, local demographics and the type, number and location of competing restaurants may adversely affect the performance of individual locations. In addition, inflation and increased food
and energy costs may harm the restaurant industry in general and the Company's locations in particular. Adverse changes in any of these factors could reduce consumer traffic or impose practical limits
on pricing, which could harm the Company's business, prospects, financial condition, operating results or cash flow. The Company's continued success will depend in part on its ability to anticipate,
identify and respond to changing consumer preferences and economic conditions.

There is intense competition in the restaurant industry.

The Company's industry is intensely competitive and there are many well established competitors with substantially greater financial and other resources. In
addition to current competitors, one or more new major competitors with substantially greater financial, marketing and operating resources could enter the market at any time and compete directly
against the Company. In addition, in virtually every major metropolitan area in which the Company operates or expect to enter, local or regional competitors already exist.

The Company faces the risk of adverse publicity and litigation in connection with its operations.

The Company is from time to time the subject of complaints or litigation from its consumers alleging illness, injury or other food quality, health or operational
concerns. Adverse publicity resulting from these allegations may materially adversely affect the Company, regardless of whether the allegations are valid or whether the Company is liable. In addition,
employee claims against the

25

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Company
based on, among other things, discrimination, harassment or wrongful termination may divert the Company's financial and management resources that would otherwise be used to benefit the future
performance of the Company's operations. The Company has been subject to claims from time to time, and although these claims have not historically had a material impact on the Company's operations, a
significant increase in the number of these claims or an increase in the number of successful claims could materially adversely affect the Company's business, prospects, financial condition, operating
results or cash flows.

The Company relies in part on its franchisees.

The Company relies in part on its franchisees and the manner in which they operate their locations to develop and promote the Company's business. Although the
Company has developed criteria to evaluate and screen prospective franchisees, there can be no assurance that franchisees will have the business acumen or financial resources necessary to operate
successful franchises in their franchise areas. The failure of franchisees to operate franchises successfully could have a material adverse effect on the Company, its reputation, its brands and the
Company's ability to attract prospective franchisees.

The Company faces risks associated with government regulation.

Each of the Company's locations is subject to licensing and regulation by the health, sanitation, safety, building and fire agencies of the respective states and
municipalities in which they are located. A failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of facilities for an indeterminate period
of time, or third-party litigation, any of which could have a material adverse effect on the Company and the results of our operations.

In
addition, the Company's franchise operations are subject to regulation by the Federal Trade Commission. The Company's franchisees and the Company must also comply with state
franchising laws and a wide range of other state and local rules and regulations applicable to the Company's business. The failure to comply with federal, state and local rules and regulations would
have an adverse effect on the Company's franchisees and the Company

Under
various federal, state and local laws, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on or in
such property. Such liability may be imposed without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Although the Company
is not aware of any environmental conditions that require remediation by the Company under federal, state or local law at the Company's properties, the Company has not conducted a comprehensive
environmental review of its properties or operations and no assurance can be given that the Company has identified all of the potential environmental liabilities at its properties or that such
liabilities would not have a material adverse effect on the Company's financial condition.

The Company may not be able to protect its trademarks and other proprietary rights.

The Company believes that its trademarks and other proprietary rights are important to its success and the Company's competitive position. Accordingly, the
Company devotes substantial resources to the establishment and protection of its trademarks and proprietary rights. However, the actions taken by the Company may be inadequate to prevent imitation of
the Company's products and concepts by others or to prevent others from claiming violations of their trademarks and proprietary rights by the Company. In addition, others may assert rights in the
Company's trademarks and other proprietary rights.

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The holders of our Series F Preferred Stock control the Company.

Halpern Denny III, L.P. ("Halpern Denny"), one of the holders of Series F preferred stock, currently beneficially owns 50.1% of the Company's Common Stock.
The other holders of the Company's Series F preferred stock currently beneficially own an aggregate of an additional 39.5% of the Company's Common Stock. In addition, because the
Series F preferred stock has remained outstanding for more than one year, the holders of Series F preferred stock are entitled to receive additional warrants. In addition, the holders of
Series F preferred stock currently have the right to designate up to four members of the Company's board of directors and, in the event that any dividends on the Series F preferred stock
are in arrears, or if the Series F preferred stock is not redeemed in accordance with its terms, the holders of the Series F preferred stock will be entitled to designate at least 50% of
the members of the Company's board of directors. Pursuant to applicable law, we have been unable to pay the Series F preferred stock dividends that were due to them on June 30, 2002,
September 30, 2002, December 31, 2002 and March 31, 2003. Such dividends are being accrued. This concentration of voting power could allow Halpern Denny and/or the other holders
of the Series F preferred stock to direct the Company's affairs, and may also have the effect of delaying or preventing a change of control.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Through
April 1, 2003, our results of operations, financial position and cash flows have not been materially affected by changes in the relative values of non-U.S.
currencies to the U.S. dollar. We do not use derivative financial instruments to limit our foreign currency risk exposure.

Our
accounts receivable are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to
protect against the adverse effects of collection risks.

Our
debt at April 1, 2003 is principally comprised of the Senior Increasing Rate Notes due 2003, the revolving loan facility and the EnbcDeb Notes. A 100 basis point increase in
market interest rates would have no effect on our borrowing costs, as interest is paid at rates defined under the respective agreements. However, an increase in prevailing market interest rates could
negatively affect the market value of our Senior Increasing Rate Notes due 2003.

Item 4. Controls and Procedures

In the 90 days prior to the filing date of this Quarterly Report on Form 10-Q, our Chief Executive Officer (who also serves as the
Company's principal financial officer) evaluated the effectiveness of the Company's "disclosure controls and procedures," as that term is defined in Rule 13a-14(c) promulgated under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chief Executive Officer concluded that the disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms, and to ensure that such information is made known to the Chief Executive Officer as appropriate to allow timely decisions regarding required disclosure.

There
have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date the Chief Executive
Officer completed his evaluation. There were no significant deficiencies or material weaknesses, and therefore no corrective action with regard thereto.

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PART IIOTHER INFORMATION        NEW WORLD RESTAURANT GROUP, INC.  APRIL 1, 2002

|Item 1. |  | Legal Proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | On March 31, 2003, Jerold E. Novack, the former Chief Financial Officer, Secretary, and shareholder of the Company, filed a complaint in the United States District Court for the District of New Jersey against the Company, Anthony D. Wedo,
Chairman and Chief Executive Officer of the Company, and William J. Nimmo, a member of the Board of Directors. The complaint purports to state claims for breach of plaintiff's employment contract with the Company, breach of the Company's fiduciary
duties to plaintiff, defamation, and violation of the New Jersey Conscientious Employee Protection Act, and in addition seeks a declaration that the termination of plaintiff "for cause" was invalid. As a basis for his purported claims, the plaintiff
alleges that the Company wrongfully contended certain bonuses he received were unauthorized and that he was wrongfully terminated for cause in order to deny him certain other benefits allegedly owed under his employment agreement. Furthermore, the
plaintiff asserts that he was defamed by certain of defendants' public statements regarding his dismissal and also that his termination was in retaliation for certain actions he believes were protected by the New Jersey Conscientious Employee
Protection Act. The Company intends to vigorously oppose the plaintiff's purported claims. The Company was served with the complaint on May 2, 2003 and has not yet answered or otherwise responded to it.
|        |  | On March 17, 2003, Jason and Andrew Gennusa, former employees of the Company and founders of Manhattan Bagel Company, filed suit against the Company in the Superior Court of New Jersey, Monmouth County. As the founders of Manhattan Bagel Company,
 the plaintiffs claim to be reproducing the "original formula" Manhattan Bagel dough, and selling it to franchisees at a competitive price. Their complaint seeks a judgment declaring that their production and sale of this bagel dough to franchisees
does not violate various non-competition covenants and confidentiality agreements they previously entered into with the Company. Furthermore, the plaintiffs seek a declaration that the "original recipe" bagel dough they manufacture is not a trade
secret of the Company and that their manufacture and sale of the dough is not in violation of intellectual property law. The Company has not yet answered or otherwise responded to plaintiffs' complaint.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  | On February 28, 2003, the Company's former insurance broker of record filed suit in Superior Court of the State of California, County of Orange, against the Company and its subsidiaries, alleging wrongful termination of the Company's brokerage
contract with plaintiff, Pension & Benefit Insurance Services, Inc. ("PBIS"), which deprived PBIS of brokerage commissions. PBIS's complaint asserts claims for breach of contract, reasonable value of services, intentional interference
with prospective advantage and negligent interference with prospective advantages. Plaintiff seeks $500,000 in consequential damages and $20 million in punitive damages. Prior to responding to PBIS's complaint, the Company entered into a
settlement agreement with PBIS on April 2, 2003. As consideration for PBIS's agreement to settle and dismiss this matter, the Company agreed to list PBIS as its insurance broker of record until at least the end of 2003. A Request for Dismissal
of the suit was filed by PBIS with the Superior Court of the State of California, County of Orange on April 9, 2003.                                                                                                                                                                                                                                                                                                                                                                 
|Item 2. |  | Changes in Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Item 3. |  | Defaults upon Senior Securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Item 4. |  | Submission of Matters to a Vote of Security Holders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|Item 5. |  | Other Information.                                                                                                                                                                                                                                             
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | Not applicable                                                                                                                                                                                                                                                 
|Item 6. |  | Exhibits and Reports on Form 8-K.                                                                                                                                                                                                                              
|        |  | (a)    Exhibits                                                                                                                                                                                                                                                
|        |  | 99.1    Certification of Principal Executive Officer and Principal Financial Officer of the Company pursuant to Section 906 of the Sarbanes Oxley Act of 2002, with respect to the Company's quarterly report on Form 10-Q
for the quarter ended April 1, 2003.
|        |  | (b)    Reports on Form 8-K filed during the quarter ended April 1, 2003                                                                                                                                                                                        
|        |  | None.                                                                                                                                                                                                                                                          

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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 RESTAURANT GROUP, INC.
|------------------ |  | --------------------------------
|Date: May 16, 2003 |  | By:                             

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Certifications

I, Anthony D. Wedo, certify that:

1.     I
have reviewed this quarterly report on Form 10-Q of New World Restaurant Group, Inc.;

2.     Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and the Company have:



5.     The
registrant's other certifying officers and I have disclosed, based on the Company's most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):



6.     The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of the Company's most recent evaluation, including any corrective actions with regard to significant deficiencies and
all material weaknesses.

|Dated: May 16, 2003 |  | /s/ANTHONY D. WEDOAnthony D. Wedo
Chairman and Chief Executive
Officer and Principal
Accounting Officer
|------------------- |  | -------------------------------------------------------------------------------------------------------

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