--------------------------------------------------------------------------------


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

                                   FORM 10-Q/A

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

                   For the quarterly period ended July 3, 2001

                                       OR

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

                Delaware                                3-3690261
      (State or other jurisdiction                   (I.R.S. Employer
    of Incorporation or organization)               Identification No.)

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

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




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

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

--------------------------------------------------------------------------------



<PAGE>


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.

              INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES

                                  July 3, 2001

<TABLE>
<CAPTION>

                                                                                            Page

<S>       <C>                                                                               <C>
PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Condensed Consolidated Balance Sheets as of July 3, 2001
          and December 31, 2000 .............................................................. 3

          Condensed Consolidated Statements of Operations for the second quarter
          and year to date periods ended July 3, 2001 and June 25, 2000 ...................... 5

          Condensed Consolidated Statements of Cash Flows for the year to date
          periods ended July 3, 2001 and June 25, 2000 ....................................... 6

          Notes to Consolidated Financial Statements ......................................... 8

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations ......................................................... 16

PART II:  OTHER INFORMATION ................................................................. 21

          SIGNATURES ........................................................................ 23


</TABLE>


                                       2

<PAGE>



                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)


<TABLE>
<CAPTION>

                                                                 July 3, 2001    December 31,
                                                                 (Unaudited)        2000
                                                                 ------------    ------------
                                                                  (Revised)

<S>                                                              <C>             <C>
ASSETS
Current Assets:
    Cash and cash equivalents................................    $  14,734       $  2,271
    Franchise and other receivables, net ....................        4,932          3,068
    Due from bankruptcy estate...............................       10,751             --
    Current maturities of notes receivables..................          668            677
    Inventories..............................................        9,732          1,436
    Prepaid expenses and other current assets................        4,464            621
    Deferred income taxes - current portion..................          500            500
    Investment in debt securities............................       34,156         13,889
    Assets held for resale...................................        2,089          5,141
                                                                 ----------      ---------

       Total current assets..................................       82,026         27,603

Property, plant and equipment, net...........................      121,195          6,970
Notes and other receivables, net.............................          958          1,222
Trademarks and recipes, net..................................       57,451         15,724
Goodwill, net ...............................................       51,957          2,326
Deferred income taxes........................................        8,934          9,100
Debt issuance costs and other assets.........................        8,301          2,754
                                                                 ----------      ---------

      Total Assets...........................................    $ 330,822       $ 65,699
                                                                 ==========      =========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Accounts payable.........................................     $  20,982       $  2,708
   Accrued expenses.........................................        41,001          3,731
   Short term debt and current portion of long-term debt....        33,657          4,423
   Current portion of obligations under capital leases......           227            200
   Other current liabilities................................            35             14
                                                                        --             --
                                                                 ----------      ---------
      Total current liabilities.............................        95,902         11,076

Senior notes and other long-term debt ......................       113,589         13,690
Obligations under capital leases............................            73            363
Other liabilities...........................................        30,625          1,829
                                                                 ----------      ---------
      Total liabilities.....................................       240,189         26,958
                                                                 ==========      =========

Series D Preferred Stock, $.001 par value; 25,000 shares
   authorized; 0 and 16,216 shares
   issued and outstanding ..................................            --         12,008
Series F Preferred Stock, $.001 par value; 116,000 shares
   authorized; 69;393 and 0 shares
   issued and outstanding ..................................        35,015             --
Warrants issued in connection with Series F
   Preferred stock .........................................        23,693             --

Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares
   authorized; 0 issued and outstanding ....................            --             --


</TABLE>



                                       3

<PAGE>



<TABLE>
<CAPTION>

                                                                 July 3, 2001    December 31,
                                                                 (Unaudited)        2000
                                                                 ------------    ------------
                                                                  (Revised)

<S>                                                              <C>             <C>
Series A convertible preferred stock, $.001 par value;
   400 shares authorized; 0 shares
   issued and outstanding ..................................            --             --
Series B convertible preferred stock, $.001 par value;
   225 shares authorized, 0 shares
   outstanding .............................................            --             --
Series C convertible preferred stock, $.001 par value;
   500,000 shares authorized, 0 shares
   outstanding .............................................            --             --
Common stock, $.001 par value; 50,000,000 shares
   authorized; 16,668,447 and 15,404 shares
   issued and outstanding ..................................            17             15
Additional paid-in capital..................................        75,787         45,181
Accumulated deficit.........................................       (43,879)       (18,463)
                                                                 ----------      ---------

      Total stockholders' equity............................        31,925         26,733
                                                                 ----------      ---------
      Total liabilities and stockholders' equity............     $ 330,822       $ 65,699
                                                                 ==========      =========

</TABLE>



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



                                       4

<PAGE>



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

<TABLE>
<CAPTION>


                                             Second Quarter Ended             Year to Date Ended
                                         ----------------------------    -----------------------------
                                              July 3,     June 25,           July 3,       June 25,
                                               2001         2000              2001           2000
                                         -------------  -------------   --------------  -------------
                                            (Revised)                       (Revised)

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

  Cost of sales ......................       20,526           6,759          27,895         12,619
  General and administrative
  expenses ...........................        4,022           1,590           6,232          3,175
  Depreciation and amortization.......        1,538             587           2,324          1,159
                                         ------------   ------------    -------------   ------------
Income before provision for
  reorganization costs and
  noncash charges ....................         (854)          1,232            (743)         2,361
Provision for integration and
  reorganization costs ..............         4,391               -           4,391              -
Noncash charge in connection with
  realization of assets ..............        2,800               -           2,800              -
                                         ------------   ------------   -------------   ------------
Income (loss) from
  operations .........................       (8,045)          1,232          (7,934)         2,361

Interest expense, net ................        3,111             461           3,555            939
Gain from sale of investments.........            -               -             241              -
Permanent impairment in the value
  of investments .....................        5,806               -           5,806              -
                                         ------------   ------------    -------------   ------------
Income (loss) before income taxes
  and minority interest ..............      (16,962)            771         (17,054)         1,422

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

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

Net (loss) income ....................      (17,817)            771         (18,798)         1,422

Dividends and accretion on
  preferred stock ....................        3,307               -           6,623              -
                                         ------------   ------------    -------------   ------------
Net (loss) income available to
  common stockholders ................     ($21,124)           $771        ($25,421)        $1,422
                                         ============   ============    =============   ============

Net (loss) income per common
  share - Basic ......................       ($1.29)           $.07          ($1.58)          $.12

Net (loss) income per common
  share - Diluted.....................       ($1.29)           $.06          ($1.58)          $.12
                                         ============   ============    =============   ============

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

  Diluted ............................   16,327,804      12,619,689      16,112,320     12,156,540
                                         ============   ============    =============   ============

</TABLE>

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


                                       5


<PAGE>



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

<TABLE>
<CAPTION>

                                                                 July 3, 2001       June 25, 2000
                                                                --------------     ---------------
                                                                  (Revised)

<S>                                                              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income ........................................           ($18,798)         $1,422
Adjustments to reconcile net income to net cash used in
   operating activities:
   Depreciation and amortization..........................              2,324           1,159
   Minority interest .....................................              1,578               -
   Gain on sale of debt securities........................              (241)               -
   Stock issued as compensation...........................                818               -
   Loss on sale of fixed assets...........................                  -             119
   Provision for integration and reorganization costs ....              4,391               -
   Noncash charge in connection with the realization
       of assets .........................................              2,800               -
   Permanent impairment in value of debt securities.......              5,806               -
   Amortization of debt issuance costs and
       debt discount .....................................                464               -
   Accretion of warrant value and investment return.......                367
   Deferred income tax asset .............................                166
Increase/(decrease) in cash as a result of changes in
       operating assets and liabilities:
   Receivables ...........................................               (199)           (975)
   Inventories .........................................                 (279)           (239)
   Prepaid expenses ......................................             (1,230)           (354)
   Other assets ..........................................               (380)           (255)
   Receipts of notes receivable...........................                299             161
   Additions to notes receivable..........................                (27)              -
   Accounts payable ......................................              1,394            (406)
   Accrued expenses ......................................              2,946            (512)
   Other liabilities .....................................              2,312             357
                                                                 -------------     -----------
       Net cash provided by operating activities..........              4,511             477
                                                                 -------------     -----------


CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures ..................................               (243)           (216)
   Net cash paid for acquisitions.........................           (161,702)           (984)
   Investment in debt securities..........................            (28,911)              -
   Proceeds from the sale of debt securities .............              3,885               -
                                                                 -------------     -----------
       Net cash used in investing activities..............           (186,971)         (1,200)
                                                                 -------------     -----------


CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of stock, net...................             46,639           4,148
   Minority owners' capital contributions to
       affiliated entity .................................              9,166               -
   Proceeds from bridge loan..............................             33,250               -
   Proceeds from issuance of senior notes.................            128,450               -
   Debt issuance costs ...................................             (7,220)              -
   Payment of liabilities in connection with
       acquired assets ...................................               (987)         (1,620)
   Repayments of capital leases...........................               (263)           (236)
   Repayment of notes payable.............................            (14,112)            (83)
                                                                 -------------     -----------

       Net cash provided by financing activities..........            194,923           2,209
                                                                 -------------     -----------




                                       6


<PAGE>




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

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

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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
   Interest ..............................................              1,736           1,245
Non-cash Investing and Financing Activities:
   Non-cash Dividends and accretion on
       preferred stock....................................              6,623               -

   Equipment purchased under capital leases ..............                  -             376

   Stock issued to extinguish liabilities ................                 62               -
   Stock issued for services..............................                304

Stock issued in exchange for debt securities..............                805               -


</TABLE>


<TABLE>
<CAPTION>



<S>                                                                        <C>
DETAILS OF ACQUISITION
Tangible assets acquired..................................            134,261
Intangible assets acquired................................             91,820
Due from bankruptcy estate................................             10,751
Estimated accruals and liabilities assumed................            (65,507)
Accrued acquisition costs ................................             (4,250)
                                                                   -----------

Cash paid for acquisition ................................            167,075
                                                                   -----------

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

Net cash paid for acquisition.............................           $161,702
                                                                   ===========

</TABLE>


                                       7

<PAGE>


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   Basis of Presentation

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

2.   Revised Financial Statements

On June 19, 2001, the Company purchased substantially all of the assets (the
Einstein Acquisition) of Einstein/Noah Bagel Corp. and its majority-owned
subsidiary, Einstein/Noah Bagel Partners, L.P. (collectively, Einstein). In
connection with the Einstein Acquisition, the Company originally reported
accruals for bonuses which were unauthorized in the aggregate amount of $3.5
million as a part of the purchase price paid for the Einstein Acquisition. In
addition, payments made to certain former executive officers and former
employees in the form of restricted stock of approximately $0.8 million as well
as approximately $1.0 million of financing costs relating to the sale of Series
F Preferred Stock were erroneously included as a part of the cost of the
Einstein Acquisition. As none of the aforementioned items are properly allocable
to the cost of the Einstein Acquisition, these revised financial statements
reflect the reversal of the aforementioned accruals for bonuses ($3.5 million),
a charge to general and administrative expense relating to the restricted stock
payments ($0.8 million) and reclassification of Series F financing costs ($1.0
million) with a corresponding reduction in the cost of the Einstein Acquisition.

In an amendment to its previously filed Form 10-Q for the quarter ended April 1,
2001, the Company revised its financial statements to include the issuance of
717,863 shares of its common stock which had previously not been reported as
issued. As the result of this revision, additional costs approximating $0.8
million were assigned to the value of the Company's investment in debt
securities, consisting of 7.25% Convertible Debentures due 2004 of Einstein/Noah
Bagel Corp. During the fiscal quarter ended July 3, 2001, the Company determined
that a permanent decline in the value of such debt securities had occurred.
Consequently, the accompanying revised financial statements reflect an
additional impairment charge of approximately $0.8 million, representing the
aforementioned costs.

The Company originally recorded a provision for integration and reorganization
costs of approximately $6.7 million for the quarter ended July 3, 2001. This
provision included approximately $1.1 million of costs that should have been
classified as a part of ongoing operations. In addition, the provision for
integration and reorganization costs included approximately $2.3 million of
accrued costs that did not qualify for this treatment. Consequently, the
accompanying revised financial statements include the reclassification of
approximately $1.1 million of costs to cost of goods sold ($0.6 million) and
general and administrative expenses ($0.5 million), as well as the reversal of
the previously accrued items that did not qualify as integration and
reorganization costs.


                                       8

<PAGE>



The effect of these changes on previously reported amounts are set forth below:


<TABLE>
<CAPTION>

                                                        Second Quarter Ended July 3, 2001   Year to Date Ended July 3, 2001
                                                        ---------------------------------   -------------------------------
     `                                                        As           As Originally         As          As Originally
                                                            Revised          Reported          Revised         Reported
                                                        --------------   ----------------   -------------   ---------------
                                                                 (Amounts in thousands, except per share amounts)

<S>                                                      <C>              <C>               <C>             <C>
Net loss .........................................       $  (17,817)      $  (17,423)       $  (18,798)     $  (17,894)
                                                         =============    =============     ============    =============

Net loss avialable to common stockholders ........       $  (21,124)      $  (20,715)       $  (25,421)     $  (24,503)
                                                         =============    =============     ============    =============

Net loss per common share - Basic ................       $    (1.29)      $    (1.27)       $    (1.58)     $    (1.52)
                                                         =============    =============     ============    =============

Net loss per common share - Diluted ..............       $    (1.29)      $    (1.27)       $    (1.58)     $    (1.52)
                                                         =============    =============     ============    =============

</TABLE>

3.   Change in Fiscal Year

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

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

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

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

In connection with the Einstein Acquisition, the Company incurred approximately
$12,489,000 of acquisition costs. The acquisition has been accounted for under
the purchase method of accounting. The aggregate purchase price of $160,573,634
is being allocated based on the preliminary estimates of the fair value of the
tangible and intangible assets acquired and liabilities assumed as follows:

Assets acquired:
Current assets..............................................      $ 17,669,476
Plant Property & Equipment..................................       116,590,972
Trademarks and other intangible assets......................        42,000,000
Goodwill....................................................        49,819,983

Liabilities assumed:
Current liabilities ........................................        46,376,449
Long term liabilities.......................................        19,130,348
                                                                 --------------
Total purchase price........................................      $160,573,634
                                                                 ==============


The preliminary estimation of the fair value of assets acquired and liabilities
assumed was determined by the Company's management based on information
currently available. The Company has obtained preliminary appraisals of the fair
value of certain acquired property, plant and equipment as well as certain
identified intangibles.


                                       9


<PAGE>
The Company is also in process of the review and determination of the fair value
of other assets acquired and liabilities assumed. Accordingly, the allocation of
the purchase price is subject to revisions.

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

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

<TABLE>
<CAPTION>

                                                                    For the Year to Date
                                                                       Period Ended
                                                            (In thousands, except per share data)
                                                             June 25, 2000        July 3, 2001

<S>                                                         <C>                  <C>
Revenues...............................................       $ 221,786            $ 205,310
                                                            ==============       ==============
Loss before extraordinary items........................       ($ 18,403)           ($ 35,681)
                                                            ==============       ==============
Net (loss).............................................       ($ 18,403)           ($ 35,681)
                                                            ==============       ==============
Net (loss) available to common stockholders............       ($ 23,992)           ($ 47,471)
                                                            ==============       ==============
Earnings per share - Basic.............................         ($ 2.07)           ($   2.95)
                                                            ==============       ==============
</TABLE>

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

In June 2001, as a result of the Einstein acquisition, the Company recorded
approximately $4.4 million as an integration and reorganization charge. This
amount includes an impairment charge of approximately $1.0 million associated
with the planned disposal of certain existing facilities as part of the
integration of similar facilities acquired in the Einstein acquisition. Such
impairment was estimated in accordance with the provisions of SFAS 121. Also, as
part of the integration process, a charge of approximately $3.4 million was
recorded in connection with organizational restructuring. Further charges may be
required in the integration process, which the Company expects to complete
within the next 12 months.

5.   Senior Notes

The Company consummated a private placement of 140,000 units consisting of $140
million of senior secured increasing rate notes (the $140 Million Facility) and
140,000 Common Stock purchase warrants. The $140 million Facility was placed
through Jefferies & Company, Inc. (Jefferies). The notes under the $140 Million
Facility, the terms of which are governed by a certain Indenture (the Indenture)
dated as of June 19, 2001, by and among the Company, Jefferies and the United
States Trust Company of New York (U.S. Trust), mature on June 15, 2003 and bear
interest at an initial annual rate of 13%, increasing by 100 basis points each
quarter commencing September 15, 2001 to a maximum rate of 18%. The Company will
begin making interest payments quarterly commencing on September 15, 2001. The
Company may redeem all or a portion of the notes at any time for their face
value plus accrued and unpaid interest. If there is a Change in Control (as such
term is defined in the Indenture) of the Company, the holders of the notes will
have the right to require from the Company to repurchase the notes at a price
equal to 101% of the face amount plus accrued and unpaid interest. The notes are
secured by a security interest in

                                       10
<PAGE>


all of the Company's assets and the assets of the Company's subsidiaries (other
than the assets of an unrestricted subsidiary (Bondco) holding the Einstein
Bonds (as defined below)). The Indenture also contains certain restrictive
covenants as defined in the Indenture. The proceeds were $128,450,000. The debt
discount aggregating $11,550,000 is being amortized over the term of the notes
(2 years) using the effective interest method.

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

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

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

6.   Bridge Loan

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

7.   Series F Private Placement

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

                                       11


<PAGE>


Company (excepting certain options and warrants) on January 22, 2002 and on each
succeeding June 30 and December 31. The warrant agreement further provides that
it would be exercisable for additional shares under certain events, as set forth
in the warrant agreement.

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

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

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

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

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

The Company, Halpern Denny, Brookwood, Greenlight and Special Situations entered
into an agreement which stated that notwithstanding the provisions concerning
the mandatory redemption date of the Series F Preferred Stock contained in the
Second Amended Certificate of Designation, the Series F Preferred Stock shall be
redeemable on the later of (a) January 18, 2004 for all shares of Series F
Preferred Stock issued on or prior to March 31, 2001, and June 30, 2004 for all
shares of Series F Preferred Stock issued after March 31, 2001, and (b) the
maturity date of any notes (the Refinancing Senior Notes), the proceeds of which
are used to repay the outstanding notes issued under the $140 Million Facility,
provided that the indenture for the Refinancing Senior Notes includes language
which permits the Company to make certain specified restricted payments (a
Restricted Payment) (including payments to redeem Series F Preferred Stock) so
long as certain covenants contained therein are satisfied. The amount of any
Restricted

                                       12

<PAGE>




Payment, together with any aggregate amount of all other Restricted Payments
made by the Company and its subsidiaries must be less than the sum of (x) fifty
(50%) percent of the consolidated net income of the Company for the period from
the issue date of the Refinancing Senior Notes to the end of the Company's most
recently ended fiscal quarter, plus (y) one hundred (100%) percent of the
aggregate net cash proceeds received by the Company from the issuance or sale of
equity interests in the Company or any subsidiary, plus (z) one hundred (100%)
percent of the net cash proceeds received by the Company from the issuance or
sale, other than to a subsidiary of the Company, of any debt security of the
Company that has been converted into equity interests of the Company. In the
event that the maturity date of the Refinancing Senior Notes is after January
18, 2004 or June 30, 2004, as the case may be, then the Mandatory Redemption
Date for such Series F Preferred Stock will be the maturity date of the
Refinancing Senior Notes.

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

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

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

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

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

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

                                       13


<PAGE>


In connection with the issuance of the Series F Preferred shares, the Company
incurred approximately $3.6 million of issuance costs. Such amount was recorded
as a reduction in the carrying amount of the Series F Preferred shares and is
being accreted over 3 years to the earliest fixed redemption date.

8.   Greenlight New World, LLC

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

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

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

9.   Income (Loss) Per Share

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


              Warrants.........................    57,465,456
              Options..........................     2,108,429
                                                 ---------------

              Total............................    59,573,885
                                                 ===============

10.  Investment in Debt Securities

Investments in debt securities are reported at realizable value. At July 3,
2001, the Company determined that a permanent decline of $5,806,000 in fair
value had occurred. Accordingly, the Company recorded such amount as an
investment impairment.


                                       14

<PAGE>



11.  Accrued Expenses

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


             Compensation and employee benefits...       $10,106
             Accrued taxes........................         3,996
             Acquisition related expenses.........         3,100
             Reorganization and integration.......         3,391
             Utilities............................         2,187
             Other................................        18,221
                                                       -------------
                                                         $41,001
                                                       =============

12.  Recent Accounting Pronouncements

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

13.  Contingencies

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

14.  Noncash Charge in Connection with Realization of Assets.

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


                                       15


<PAGE>


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

General

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

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

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

Results of Operations

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

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

                                       16


<PAGE>


Costs and Expenses.

Cost of Sales as a percentage of related manufacturing and retail sales
increased to 86.2% for the fiscal quarter ended July 3, 2001 from 79.8% for the
comparable 2000 period. The increase primarily resulted from a shift in sales
mix towards retail store revenues. In addition, the 2001 quarter includes the
operations of company-owned units that were converted to the Manhattan Bagel
Brand in the fall of 2000 which have not yet turned profitable.

General and administrative expenses increased to $4.0 million for the fiscal
quarter ended July 3, 2001 from $1.6 million for the comparable 2000 period. The
increase was primarily the result of assumption of certain costs resulting from
the Einstein Acquisition, compensation charges for bonuses as well as the cost
of certain legal settlements relating to litigation with former franchisees.
General and administrative expenses expressed as a percentage of total revenues
increased to 15.9% of total revenues for the fiscal quarter ended July 3, 2001
from 15.6% of total revenues for the comparable 2000 period.

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

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

Permanent impairment in the value of investments was $5.8 million, or 23.0% of
total revenues for the fiscal quarter ended July 3, 2001. There was no such
charge in the comparable 2000 period. The charge reflects management's estimate
of the proceeds the Company will receive from the bankruptcy estate of Einstein
Noah Bagel Corp. on account of its investment in certain debentures of Einstein
Noah Bagel Corp.

Provision for integration and reorganization costs was $4.4 million or 17.4% of
total revenues for the fiscal quarter ended July 3, 2001. There was no such
charge for the comparable 2000 quarter. The charge in 2001 reflects expenses
related to the reorganization and integration of existing facilities and
operations with those acquired in the Einstein Acquisition.

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

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

Net Income/(Loss).

Net loss for the fiscal quarter ended July 3, 2001 was $17.8 million compared to
net income of $0.8 million for the comparable 2000 period. The decrease in net
income is primarily a result of the decrease in margins resulting from a change
in sales mix to retail sales, noncash charges for impairment in the value of
investments, store closing and reorganization costs, and the noncash charge in
connection with the realization of assets as well as the allocation of earnings
to the minority interest.

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

Revenues. Total revenues increased 84.9% to $35.7 million for the year to date
period ended July 3, 2001 from $19.3 million for the comparable 2000 period. The
increase in revenues was primarily attributable to additional retail sales from
the Einstein Bros. and Noah's NY Bagel brands acquired in June 2001. Retail
sales increased 588.0% to $21.8 million or 60.9% of total revenues for the year
to date period ended July 3, 2001 from $3.2 million or 16.4% of total revenues
for the comparable 2000 period. The increase was attributable to the addition of
458 company-owned stores that were acquired as the result of the Einstein
Acquisition in June 2001. Manufacturing revenues decreased 14.1% to $10.9
million or 30.5% of total revenues for the year to date period ended July 3,
2001


                                       17


<PAGE>



from $12.7 million or 65.6% of total revenues for the comparable 2000 period.
The decrease in manufacturing revenues was primarily the result of the Company's
decision to outsource its low-margin distribution business (which had been
included in manufacturing revenues in the 2000 period). In addition, the Company
experienced extreme weather in its core markets during the first quarter of
2001, also having a negative impact on manufacturing revenues. Franchise related
revenues decreased 11.8% to $3.1 million or 8.6% of total revenues for the year
to date period ended July 3, 2001 from $3.5 million or 18.0% of total revenues
for the comparable 2000 period. The decrease in franchise related revenues was
partially attributable to extreme weather conditions experienced during the year
to date period ended July 3, 2001 in the Company's core markets. In addition,
the decline reflects a lower store base in the year to date period ended July 3,
2001, in part, resulting from Management's decision to terminate certain
franchisees whose operations did not comply with the Company's policies.

Costs and Expenses.

Cost of Sales as a percentage of related manufacturing and retail sales
increased to 85.5% for the year to date period ended July 3, 2001 from 79.7% for
the comparable 2000 period. The increase primarily resulted from a shift in
sales mix towards retail store revenues. In addition, the 2001period includes
the operations of company-owned units that were converted to the Manhattan Bagel
Brand in the fall of 2000 which have not yet turned profitable.

General and administrative expenses increased to $6.2 million for the year to
date period ended July 3, 2001 from $3.2 million for the comparable 2000 period.
The increase was primarily the result of assumption of certain costs resulting
from the Einstein Acquisition, compensation charges for bonuses as well as the
cost of certain legal settlements relating to litigation with former
franchisees. General and administrative expenses expressed as a percentage of
total revenues increased to 17.5% of total revenues for the year to date period
ended July 3, 2001 from 16.4% of total revenues for the comparable 2000 period.

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

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

Permanent impairment in the value of investments was $5.8 million, or 16.3% of
total revenues for the year to date period ended July 3, 2001. There was no such
charge in the comparable 2000 period. The charge reflects management's estimate
of the proceeds the Company will receive from the bankruptcy estate of Einstein
Noah Bagel Corp. on account of its investment in certain debentures of Einstein
Noah Bagel Corp.

Provision for integration and reorganization costs was $4.4 million or 12.3% of
total revenues for the year to date period ended July 3, 2001. There was no such
charge for the comparable 2000 period. The charge in 2001 reflects expenses
related to the reorganization and integration of existing facilities and
operations with those acquired in the Einstein Acquisition.

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

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

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


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<PAGE>



Net Income/(Loss).

Net loss for the year to date period ended July 3, 2001 was $18.8 million
compared to net income of $1.4 million for the comparable 2000 period. The
decrease in net income is primarily a result of the decrease in margins
resulting from a change in sales mix to retail sales, monkish charges for
impairment in the value of investments, store closing and reorganization costs,
and the monkish charge in connection with the realization of assets as well as
the allocation of earnings to the minority interest.

Liquidity and Capital Resources

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

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

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

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

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

At July 3, 2001 the Company had a working capital deficit of $13.9 million
compared to a working capital surplus of $7.1 million at June 25, 2000. The
decline results from additional liabilities assumed and debt incurred in
connection with the Einstein Acquisition.

The Company had net cash provided by operating activities of $4.5 million for
the first six months of 2001 compared with net cash provided by operating
activities of $0.5 million for the first six months of 2000. The increase in
cash provided by operating activities was attributable to the shift in revenues
to retail sales which typically generate cash at the time of sale. In the past
the Company's revenues were predominantly derived from manufacturing sales and
royalty revenues which generally are not paid at the time of sale.

The Company had net cash used in investing activities of $187.0 million for the
first six months of 2001 compared with net cash used in investing activities of
$1.2 million for the first six months of 2000. The increase in cash used in
investing activities was attributable to the Company's investment in debt
securities and the Einstein Acquisition.

The Company had net cash provided by financing activities of $194.9 million for
the first six months of 2001 compared with net cash provided by financing
activities of $2.2 million for the first six months of 2000. The increase in
cash provided by financing activities relates to the issuance of preferred
stock, proceeds from sale of an interest in an affiliated entity and proceeds
from borrowings in connection with the Einstein Acquisition during 2001.

Seasonality and General Economic Trends

The Company anticipates that its business will be affected by general economic
trends that affect retailers in general. While the Company has not operated
during a period of high inflation, it believes based on industry experience that


                                       19


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it would generally be able to pass on increased costs resulting from inflation
to its customers. The Company's business may be affected by other factors,
including increases in the commodity prices of green coffee and/or flour,
acquisitions by the Company of existing stores, existing and additional
competition, marketing programs, weather, and variations in the number of store
openings. The Company has few, if any, employees at the minimum wage level and
therefore believes that an increase in the minimum wage would have minimal
impact on its operations and financial condition.


                                       20

<PAGE>


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities

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

Item 3. Defaults upon Senior Securities

Not applicable

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

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

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

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

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

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

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

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

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

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

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

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

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


                                       21

<PAGE>



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

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

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

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

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

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

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

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

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

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

(2)  To be filed by amendment.

(b)  Reports on Form 8-K

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

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

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

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


                                       22

<PAGE>


                                   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.
                                        (formerly, New World Coffee - Manhattan
                                           Bagel, Inc.)



Date: May 31, 2002                      By:  /s/ Anthony Wedo
                                             -----------------------------------
                                             Anthony Wedo
                                             Chief Executive Officer
                                             (Principal Executive Officer and
                                             Principal Accounting Officer)