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


                     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 October 2, 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.

             (Exact name of registrant as specified in its charter)

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

                            246 INDUSTRIAL WAY WEST,
                              EATONTOWN, NJ 07724
               (Address of Principal Executive Offices) (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
November 5, 2001:  17,391,450


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



<PAGE>



                        NEW WORLD RESTAURANT GROUP, INC.

              Index to financial statements and financial schedules

                                 October 2, 2001



                                                                            Page
                                                                            ----
PART I   FINANCIAL INFORMATION

         Item 1.   Financial Statements

         Condensed Consolidated Balance Sheets as of
         October 2, 2001 and December 31, 2000.................................3

         Condensed Consolidated Statements of Operations for
         the third quarter and year to date periods ended
         October 2, 2001 and September 24, 2000................................4

         Condensed Consolidated Statements of Cash Flows for
         the yearto date period ended October 2, 2001 and
         September 24, 2000....................................................5

         Notes to Consolidated Financial Statements............................7

         Item 2.   Management's Discussion and Analysis of
                   Financial Condition and Results of Operations..............15

PART II  OTHER INFORMATION....................................................20

SIGNATURE.....................................................................21



<PAGE>
                        NEW WORLD RESTAURANT GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS

             (In thousands, except share and per share information)

<TABLE>
<CAPTION>
                                                           October 2 2001     December 31,
                                                             (Unaudited)          2000
                                                           --------------     ------------
                                                             (Revised)

<S>                                                           <C>             <C>
CURRENT ASSETS
Cash and cash equivalents..............................       $   9,204       $   2,271
Franchise and other receivables, net...................           5,802           3,068
Due from bankruptcy estate.............................           9,751              --
Current maturities of notes receivables................             668             677
Inventories............................................           9,654           1,436
Prepaid expenses and other current assets..............           3,143             621
Deferred income taxes - current portion................             500             500
Investment in debt securities..........................          34,156          13,889
Assets held for resale.................................           1,940           5,141
                                                              -----------     -----------

       Total current assets............................          74,818          27,603

Property, plant and equipment, net.....................         118,032           6,970
Notes and other receivables, net.......................             925           1,222
Trademarks and recipes, net............................         113,120          15,724
Goodwill, net..........................................           2,241           2,326
Deferred income taxes..................................           8,934           9,100
Debt issuance costs and other assets...................           7,920           2,754
                                                              -----------     -----------
       Total Assets....................................       $ 325,990       $  65,699
                                                              ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................       $  18,450       $   2,708
Accrued expenses.......................................          43,025           3,731
Short term debt and current portion of
   long-term debt......................................          34,090           4,423
Current portion of obligations under capital leases....             206             200
Other current liabilities..............................              30              14
                                                              -----------     -----------
       Total current liabilities.......................          95,801          11,076

Senior notes and other long-term debt..................         117,183          13,690
Obligations under capital leases.......................             114             363
Other liabilities......................................          31,152           1,829
                                                              -----------     -----------
       Total Liabilities...............................         244,250          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; 72,192
   and 0 shares issued and outstanding.................          40,875               -
Stockholders' equity:
Preferred Stock, $.001 par value;
   2,000,000 shares authorized;
   0 issued and outstanding............................               -               -
Series A convertible preferred stock, $.001                           -               -
   par value; 400 shares authorized;
   0 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; 150,000,000
   shares authorized; 17,391,450 and
   15,404,828 shares issued and outstanding............              17              15
Additional paid-in capital.............................         100,479          45,181
Accumulated deficit....................................         (59,631)        (18,463)
                                                              -----------     -----------
Total stockholders' equity.............................          40,865          26,733
                                                              -----------     -----------
Total liabilities and stockholders' equity.............       $ 325,990       $  65,699
                                                              ===========     ===========
</TABLE>

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

                                       3
<PAGE>


                        NEW WORLD RESTAURANT GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
       FOR THE THIRD QUARTER ENDED OCTOBER 2, 2001 AND SEPTEMBER 24, 2000
      AND YEAR TO DATE PERIODS ENDED OCTOBER 2, 2001 AND SEPTEMBER 24, 2000
                                   (UNAUDITED)
             (In thousands, except share and per share information)


<TABLE>
<CAPTION>


                                                         Third Quarter Ended              Year to Date Ended
                                                    ------------------------------    ------------------------------
                                                     October 2,      September 24,    October 2,      September 24,
                                                        2001             2000            2001             2000
                                                    -------------    -------------    ------------    --------------
                                                     (Revised)                        (Revised)

<S>                                                 <C>              <C>              <C>             <C>
Revenues:
Retail sales..................................      $   92,506       $    4,434       $  114,261      $    7,595
Manufacturing revenues........................           6,506            7,030           17,391          19,705
Franchise related revenues....................           1,436            2,098            4,503           5,576
                                                    -------------    -------------    ------------    --------------
    Total revenues............................         100,448           13,562          136,155          32,876

Cost of sales.................................          82,870            9,590          110,763          22,210
General and administrative expenses...........           9,722            1,681           15,953           4,856
Depreciation and amortization.................           5,625              679            7,950           1,838
                                                    -------------    -------------    ------------    --------------

Income before provision for reorganization
   costs and noncash charges..................           2,231            1,612            1,489           3,972
Provision for integration and
   reorganization costs.......................               -                -            4,391
Noncash charge in connection with
   realization of assets......................               -                -            2,800               -
                                                    -------------    -------------    ------------    --------------
Income (loss) from operations.................           2,231            1,612           (5,702)          3,972
Interest expense, net.........................          12,123              448           15,678           1,387
Gain from sale of investments.................               -                -              241               -
Permanent impairment in the value of
   investmetns................................               -                -            5,806               -
                                                    -------------    -------------    ------------    --------------
Income (loss) before income taxes and
   minority interest..........................          (9,892)           1,164          (26,945)          2,585
Provision (benefit) for income taxes..........               -           (1,966)             167          (1,966)
Minority interest.............................               -                -            1,578               -
                                                    -------------    -------------    ------------    --------------

Net (loss) income.............................          (9,892)           3,130          (28,690)          4,551
Dividends and accretion on preferred
   stock......................................           5,860            1,709           12,484           1,709
                                                    -------------    -------------    ------------    --------------

Net (loss) income available to
   common stockholders........................      $  (15,752)      $    1,421       $  (41,174)     $    2,842
                                                    =============    =============    ============    ==============

Net (loss) income per common
   share - Basic..............................          ($0.93)           $0.12           ($2.50)          $0.24
                                                    =============    =============    ============    ==============

Net (loss) income per common
   share - Diluted............................          ($0.93)           $0.09           ($2.50)          $0.21
                                                    =============    =============    ============    ==============

Weighted average number of common
   shares outstanding:

Basic.........................................      17,017,567       12,120,104       16,490,656      11,751,153
                                                    =============    =============    ============    ==============

Diluted.......................................      17,017,567       15,845,625       16,490,656      13,380,807
                                                    =============    =============    ============    ==============

</TABLE>

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


                                       4

<PAGE>


                        NEW WORLD RESTAURANT GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
   FOR THE YEAR TO DATE PERIODS ENDED OCTOBER 2, 2001 AND SEPTEMBER 24, E2000
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                  October 2,           September 24,
                                                                                     2001                  2002
                                                                                 ------------          ------------
                                                                                  (Revised)

<S>                                                                               <C>                    <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income .......................................................         ($ 28,690)             $  4,551
Adjustments to reconcile net income to net cash used in
  operating activities:
Depreciation and amortization ...........................................             7,950                 1,838
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 ......................             4,215
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 ...................             3,289                     -
Accretion of warrant value and investment return ........................             2,591                     -
Deferred income tax asset ...............................................               167                (1,966)
Increase/(decrease) in cash as a result of changes in ...................            (1,067)               (2,115)
Receivables
Inventories .............................................................              (200)                  158
Prepaid expenses ........................................................              (462)                  (23)
Deposits and other assets ...............................................              (998)                 (274)
Receipts of notes receivable ............................................               332                   257
Additions to notes receivable ...........................................               (27)                 (119)
Accounts payable ........................................................            (1,131)                3,392
Accrued expenses and other liabilities ..................................             2,972                (1,447)
                                                                                 ------------           -----------

Net cash (used in)/provided by operating activities .....................              (298)                4,371
                                                                                 ------------           -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures ....................................................            (1,441)                 (282)
Net cash paid for acquisitions ..........................................          (161,702)               (1,771)
Additions to assets held for resale .....................................                 -                (1,812)
Investment in debt securities ...........................................           (28,911)              (17,412)
Proceeds from the sale of debt securities ...............................             3,885                     -
                                                                                 ------------           -----------

Net cash used in investing activities ...................................          (188,169)              (21,277)
                                                                                 ------------           -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of stock, net ....................................            47,264                19,220
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)                    -
Proceeds from long-term borrowings ......................................                 -                 1,500
Payment of liabilities in connection with acquired assets ...............              (987)               (1,989)
Repayments of capital leases ............................................              (386)                 (366)
Repayment of notes payable ..............................................           (14,137)                 (140)
                                                                                 ------------           -----------

Net cash provided by financing activities ...............................           195,400                18,225
                                                                                 ------------           -----------

Net increase in cash ....................................................             6,933                 1,319
CASH, beginning of period ...............................................             2,271                 2,880
                                                                                 ------------           -----------
CASH, end of period .....................................................         $   9,204              $  4,199
                                                                                 ============           ===========

</TABLE>

                                       5

<PAGE>


<TABLE>
<CAPTION>

                                                                                   October 2,          September 24,
                                                                                      2001                 2002
                                                                                  ------------         ------------
                                                                                   (Revised)

<S>                                                                                <C>                 <C>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:

Interest ................................................................              6,132               1,524

Non-cash Investing and Financing Activities:
Non-cash dividends and accretion on preferred stock .....................             12,484               1,709

Equipment purchased under capital leases ................................                143                 389

    Stock issued to extinguish liabilities ..............................                437                   -
    Stock issued for services ...........................................                304

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

DETAILS OF ACQUISITION
Tangible assets acquired ................................................            133,689               3,021
Intangible assets acquired ..............................................             98,596                   -
Due from Bankruptcy Estate ..............................................              9,751                   -
Notes receivable extinguished ...........................................                  -               (1,250)
Estimated accruals and liabilities assumed ..............................            (70,861)                  -
Accrued acquisition costs ...............................................             (4,100)                  -
                                                                                  ------------        -----------

Cash paid for acquisition ...............................................            167,075               1,771
                                                                                  ------------        -----------

Less cash acquired ......................................................              5,373                   -
                                                                                  ------------        -----------
Net cash paid for acquisition ...........................................          $ 161,702           $   1,771
                                                                                  ============        ===========
</TABLE>


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


                                       6

<PAGE>



                        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 generally accepted accounting principles 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 October
2, 2001 and September 24, 2000 and the results of its operations and its cash
flows for the year to date 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 year to date period ended October 2, 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 an
amendment to the Form 10-Q for the quarter ended July 3, 2001, the Company
revised its financial statements to adjust for unauthorized bonus accruals
accounted for as a part of the purchase accounting in connection with the
Einstein Acquisition. During the quarter ended October 2, 2001, payments made to
certain former executive officers and former employees in the amount of $1.0
million were charged against the original bonus accruals established. This $1.0
million charge is now being reflected as a charge to operations in this amended
Form 10-Q for the quarter ended October 2, 2001. In addition, there was an
unauthorized payment of $0.2 million to a former executive officer that was also
charged against the bonus accrual. This $0.2 million charge is now being
reflected as a charge to operations in this amended 10-Q filing for the quarter
ended October 2, 2001. In an amendment to the Form 10-Q for the quarter ended
July 3, 2001, the Company revised its financial statements to adjust for the
reclassification of approximately $1.0 million of financing costs relating to
the sale of Series F Preferred Stock. In conjunction with this transaction, we
are reflecting the related accretion of $0.1 million in this amended Form 10-Q
for the quarter ended October 2, 2001.

In the  previously  filed Form 10-Q for the quarter ended  October 2, 2001,  the
Company   erroneously   applied  $1.0  million   against  the   integration  and
reorganization  accrual.  Such  amounts are now  reflected in  operations  ($0.2
million in cost of goods sold and $0.8 million in general and administrative
expenses).

In addition, the accretion of issuance costs related to the Bond Purchase
Agreement (the Bond Purchase  Agreement) with Greenlight Capital L.L.C. were not
initially reflected in the Company's financial statements. The amended financial
statements reflect these charges of $0.5 million as interest expense.

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


                                       7
<PAGE>


<TABLE>


<CAPTION>

                                                            Third Quarter Ended           Year to Date Ended
                                                            October 2, 2001               October 2, 2001
                                                            ------------------------      -------------------------
                                                                             As                             As
                                                              As          Originally         As          Originally
                                                            Revised        Reported       Revised         Reported
                                                            -------       ----------      -------        ----------
                                                             (Amount in thousands, except per share amounts)


<S>                                                         <C>            <C>            <C>            <C>

Net loss .................................................  $  (9,892)     $  (7,123)     $ (28,690)     $ (25,020)
                                                            ===========    ===========    ===========    ===========

Net loss available to common stockholders ................  $ (15,752)     $ (12,895)     $ (41,174)     $ (37,401)
                                                            ===========    ===========    ===========    ===========

Net loss per common share - Basic ........................  $   (0.93)     $   (0.76)     $   (2.50)     $   (2.27)
                                                            ===========    ===========    ===========    ===========

Net loss per common share - Diluted ......................  $   (0.93)      $  (0.76)     $   (2.50)     $   (2.27)
                                                            ===========    ===========    ===========    ===========

</TABLE>


3.    Change in Fiscal Year

Effective for the quarter ended July 3, 2001 and as a result of the Einstein
Acquisition for fiscal 2001, the Company 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 was effective for the
Company's quarter which was originally scheduled to end July 1, 2001 and which,
as a result of the change, was 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 of
Einstein/Noah Bagel Corp. and its majority-owned subsidiary, Einstein/Noah Bagel
Partners, L.P. 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..................................   $  17,097,798
      Plant Property & Equipment......................     116,590,972
      Trademarks and other intangible assets..........      97,746,347

      Liabilities assumed:
      Current liabilities.............................      51,731,135
      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


                                       8

<PAGE>

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

Pursuant to the Asset Purchase Agreement, the Company is entitled to a reduction
in purchase price to the extent that assumed current liabilities (as defined)
exceed $30,000,000 as of the acquisition date. The accompanying balance sheet as
of October 2, 2001 reflects approximately $9,751,000 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 year to date periods ended October 2, 2001 and September 24, 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.

                                                       Pro Forma
                                                  For the Year to Date
                                                      Period Ended
                                         --------------------------------------
                                             (In thousands, except per share

                                         September 24, 2000     October 2, 2001
                                         ------------------     ---------------

Revenues..............................        $318,096             $305,757
                                             ==========           ==========
Loss before extraordinary items.......        ($22,856)            ($45,401)
                                             ==========           ==========
Net (loss)............................        ($22,856)            ($45,401)
                                             ==========           ==========
Net (loss) available to common
  stockholders........................        ($33,212)            ($63,219)
                                             ==========           ==========
Earnings per share - Basic............          ($2.83)              ($3.83)
                                             ==========           ==========

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 FAS 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
commenced quarterly interest payments 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 the Company to repurchase the notes at a price equal to 101% of
the face amount


                                       9

<PAGE>

plus accrued and unpaid interest. The notes are secured by a security interest
in all of the Company's assets and the assets of the Company's subsidiaries
(other than the assets of an unrestricted subsidiary (Bondco) holding the
Einstein Bonds (as defined below)). The Indenture also contains certain
restrictive covenants. 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 provides for 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


                                       10


<PAGE>

being accreted over the three year period to the earliest fixed redemption date.
The Series F Purchase Agreement provides that for so long as the Series F
Preferred Stock has not been redeemed for cash (including payment of any Notes),
Halpern Denny shall receive additional warrants equal to 1.5% of the fully
diluted common stock of the Company (excepting certain options and warrants) on
January 22, 2002 and on each succeeding June 30 and December 31. The warrant
agreement further provides that it would be exercisable for additional shares
under certain events, as set forth in the warrant agreement.

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


                                       11


<PAGE>

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

In connection with the sale of the June 2001 Series F Preferred Stock, the
Company sold warrants to purchase 21,153,934 shares of the Company's common
stock at a price per share of $.01 (subject to adjustment as provided in the
warrant agreement) pursuant to the Second Purchase and Third Purchase Agreement.
The warrants have a term of five years and further provide that they would be
exercisable for additional shares under certain events, as set forth in the
warrant agreement. The fair value of the warrants at the date of grant in the
amount of $21,174,000 was recorded as a reduction in the carrying amount of the
Series F Preferred Stock and is being accreted over the three year period to the
earliest fixed redemption date. Due to insufficient authorized common stock
available to settle certain warrants, the Company initially 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 balance sheet. Pursuant to a vote held at
a special meeting of the Company's shareholders on September 20, 2001, the
authorized shares of the Company's common stock was increased to 150,000,000
shares, an amount sufficient to provide for the exercise of the above warrants.
Consequently, the fair value of the warrants previously included in temporary
equity has been reclassified to additional paid in capital in the accompanying
balance sheet as of October 2, 2001.

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


                                       12



<PAGE>

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, 2002.

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.
In addition, the 15% investment return due to Greenlight is included as interest
expense in the accompanying income statement.

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 October 2, 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................................         6,329,099
                                                      -----------
        Total..................................        63,794,555
                                                      ===========



                                     13


<PAGE>

10.   Investment in Debt Securities

Investment in debt securities are reported at realizable value. During the
period ended 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 investment impairment.

11.    Accrued Expenses

As of October 2, 2001, accrued expenses consist of the following:


          Compensation and employee benefits..................      $ 10,284
          Accrued taxes.......................................         4,111
          Accrued interest....................................         2,685
          Acquisition related expenses........................         2,203
          Utilities...........................................         2,198
          Reorganization and integration......................         3,214
          Other...............................................        18,330
                                                                   ----------

                                                                    $ 43,025
                                                                   ==========

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

Our Common Stock is currently traded on the Nasdaq National Market and is quoted
on the Nasdaq National Market under the symbol NWCI. Continuation of listing on
the Nasdaq National Market is subject to continued compliance with the
requirements imposed by Nasdaq. If our Common Stock is no longer listed on the
Nasdaq National Market, the liquidity of our Common Stock would be adversely
affected. The staff of Nasdaq has issued a staff determination delisting our
Common Stock from the Nasdaq National Market. According to the Nasdaq staff, the
Company violated Marketplace Rule 4350(i)(I)(C)(ii)(b) - issuing more than
twenty (20%) percent of its Common Stock in connection with an acquisition and
marketplace and Marketplace Rule 4350(i)(I)(D)(ii) - issuing more than twenty
(20%) percent of its Common Stock below market or book value - in each case
without prior stockholder approval. Based on the nature of such violations, the
Nasdaq staff also raised a Public Interest Concern under Marketplace Rule 4330
(a)(3). The Company appealed this determination before an appeal panel with
Nasdaq. On or about October 30, 2001, the appeal panel determined that the
Company could continue to list its securities on the Nasdaq National Market
provided that the Company satisfy the following conditions:

1.    On or before November 19, 2001, the Company must provide documentation to
Nasdaq evidencing that the potential common share issuances (and voting
interests associated with the issuances) in relation to the acquisition of
Einstein have been reduced to less than twenty (20%) percent of the total shares
outstanding on a pre-transaction basis, or 3,079,425 common shares, which
constitutes 19.99% of the 15,404,828 total common shares outstanding as of
November 30, 2000.


                                       14



<PAGE>

2.    In addition, on or before November 19, 2001, the Company must provide
documentation to Nasdaq evidencing the formation of a compliance committee. The
documentation must include a charter, including the purpose and obligations of
the compliance committee, and a biography for every member of the committee.

3.    On or about November 19, 2001, the Company must file its report on Form
10-Q for the quarter ended October 3, 2001, which shall set forth shareholder's
equity of at least $10,000,000 and/or net tangible assets of at least
$4,000,000.

The appeal panel also reserves the right to modify, alter or extend the terms of
this exception subsequent to a review of the Company's reported financial
results for the quarter ended October 3, 2001. The panel indicated that if the
Company is able to satisfy the terms as set forth above, the Company would avoid
delisting and mitigate the Public Interest Concerns raised by the Nasdaq staff
and appeal panel. The failure to comply with the such terms could result in a
delisting determination which would have a public interest component. The
Company is presently attempting to satisfy these conditions. However, there can
be no assurance that the Company will satisfy these conditions nor maintain its
listing on the Nasdaq National Market. The failure to maintain its listing on
the NASDAQ National Market or another national or regional exchange, would have
a material adverse effect on the liquidity and trading market for our Common
Stock, which in turn may have an adverse effect on the price of our Common
Stock.

14.   Non-cash 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 FAS 121. Such impairment was
required to write down the net book value of certain assets held for resale to
their fair value.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

General

New World Restaurant Group, Inc. is a leading company in the quick casual
sandwich industry and the largest company in the bagel bakery 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 October 2, 2001 the Company's retail system
consists of 494 company-owned stores and 294 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.


                                       15

<PAGE>

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 franchising,
licensing and company store growth. Franchising will allow the Company to expand
its presence in existing markets and enter new markets with a lower capital
requirement than would be 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 October 2, 2001 Compared to Fiscal Quarter Ended
September 24, 2000

Revenues. Total revenues increased 640.6% to $100.4 million for the fiscal
quarter ended October 2, 2001 from $13.6 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 1986.5% to $92.5 million or 92.1% of total revenues for the
fiscal quarter ended October 2, 2001 from $4.4 million or 32.7% 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 7.5% to $6.5
million or 6.5% of total revenues for the fiscal quarter ended October 2, 2001
from $7.0 million or 51.8% 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 31.6% to $1.4 million or 1.4% of total revenues for the
fiscal quarter ended October 2, 2001 from $2.1 million or 15.5% of total
revenues for the comparable 2000 period. The decrease in franchise related
revenues reflects a lower store base in the fiscal quarter ended October 2,
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 remained
consistent at 83.7% for the fiscal quarter ended October 2, 2001 versus the
comparable 2000 period. The Company's decision to outsource its low-margin
distribution business was offset, in part, by margin differentials associated
with changes in the Company's sales mix.

General and administrative expenses increased to $9.7 million for the fiscal
quarter ended October 2, 2001 from $1.7 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 unauthorized bonus
payments 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 declined to 9.7% of total revenues for the fiscal
quarter ended October 2, 2001 from 12.4% of total revenues for the comparable
2000 period. The decline is the result of the higher revenue base during the
2001 quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased to $7.9 million or 7.8% of total revenues for the fiscal quarter ended
October 2, 2001 from $2.3 million or 16.9% of total revenues for the comparable
2000 period. The increase was primarily the result of the increase in gross
margin approximating $13.6 million offset by a corresponding increase in general
and administrative expenses of approximately $8.0 million.

Depreciation and amortization expenses increased to $5.6 million or 5.6% of
total revenues for the fiscal quarter ended October 2, 2001 from $0.7 million or
5.0% 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 pursuant to the Einstein Acquisition.


                                       16

<PAGE>

Interest expense, net for the fiscal quarter ended October 2, 2001 increased to
$12.1 million, or 12.1% of total revenues from $0.4 million or 3.3% of total
revenues for the comparable 2000 period. The increase was primarily the result
of interest and related borrowing costs incurred on debt associated with the
Einstein Acquisition.

Net Income/(Loss)

Net loss for the fiscal quarter ended October 2, 2001 was $9.9 million compared
to net income of $3.1 million for the comparable 2000 period. The decrease in
net income is primarily the result of increases in general and administrative
expenses of $8.0 million, depreciation of $5.0 million and additional borrowing
costs associated with the Einstein Acquisition totaling $11.2 million which were
offset in part by a $13.6 million increase in gross margin predominantly
attributable to store operations resulting from the Einstein Acquisition and a
decline of approximately $2.0 million in income tax benefit realized for the
2000 period.

Year to Date Period Ended October 2, 2001 Compared to Year to Date Period Ended
September 24, 2000

Revenues. Total revenues increased 314.1% to $136.2 million for the year to date
period ended October 2, 2001 from $32.9 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 1404.4% to $114.3 million or 83.9% of total revenues for the
year to date period ended October 2, 2001 from $7.6 million or 23.1% 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 11.7% to
$17.4 million or 12.8% of total revenues for the year to date period ended
October 2, 2001 from $19.7 million or 59.9% 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 19.2% to $4.5 million or 3.3% of total revenues for
the year to date period ended October 2, 2001 from $5.6 million or 17.0% of
total revenues for the comparable 2000 period. The decrease in franchise related
revenues reflects a lower store base in the year to date period ended October 2,
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 84.1% for the year to date period ended October 2, 2001 from 81.4%
for the comparable 2000 period. The increase primarily resulted from a shift in
sales mix towards retail store revenues.

General and administrative expenses increased to $16.0 million for the year to
date period ended October 2, 2001 from $4.9 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 the
unauthorized bonus payments 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 declined to 11.7% of total
revenues for the year to date period ended October 2, 2001 from 14.8% of total
revenues for the comparable 2000 period. The decline is the result of the higher
revenue base during the 2001 year to date period.

Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased to $9.4 million or 6.9% of total revenues for the year to date period
ended October 2, 2001 from $5.8 million or 17.7% of total revenues for the
comparable 2000 period. The increase was primarily the result of the increase in
gross margin approximating $14.7 million offset by a corresponding increase in
general and administrative expenses of approximately $11.1 million.

Depreciation and amortization expenses increased to $8.0 million or 5.8% of
total revenues for the year to date period ended October 2, 2001 from $1.8
million or 5.6% 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.


                                       17

<PAGE>

Provision for integration and reorganization costs was $4.4 million or 3.2% of
total revenues for the year to date period ended October 2, 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
2.1% of total revenues for the year to date period ended October 2, 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 FAS 121.

Interest expense, net for the year to date period ended October 2, 2001
increased to $15.7 million, or 11.5% of total revenues from $1.4 million or 4.2%
of total revenues for the comparable 2000 period. The increase was primarily the
result of interest and related borrowing costs incurred on debt associated with
the Einstein Acquisition.

Permanent impairment in the value of investments was $5.8 million, or 4.3% of
total revenues for the year to date period ended October 2, 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 income taxes increased to $0.2 million or 0.1% of total revenues
for the year to date period ended October 2, 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 1.2% or total revenues for the year to
date period ended October 2, 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 year to date period ended October 2, 2001 was $28.7 million
compared to net income of $4.5 million for the comparable 2000 period. The
decrease in net income is primarily a result of the non-cash charges for
impairment in the value of investments, store closing and reorganization costs,
and the non-cash charge in connection with the realization of assets as well as
the allocation of earnings to the minority interest which were offset in part by
improved operating income derived from company store operations as the result of
the Einstein Acquisition.

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


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<PAGE>

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 October 2, 2001 the Company had a working capital deficit of $21.0 million
compared to a working capital surplus of $16.5 million at December 31, 2000. The
decline results from additional liabilities assumed and debt incurred in
connection with the Einstein Acquisition.

The Company had net cash used in operating activities of $0.3 million for the
year to date period ended October 2, 2001 compared with net cash provided by
operating activities of $4.4 million for the comparable 2000 period. The
decrease in cash provided by operating activities was attributable to changes in
operating assets and liabilities related to the Einstein Acquisition.

The Company had net cash used in investing activities of $188.2 million for the
year to date period ended October 2, 2001 compared with net cash used in
investing activities of $21.3 million for the comparable 2000 period. 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 $195.4 million for
the year to date period ended October 2, 2001 compared with net cash provided by
financing activities of $18.2 million for the comparable 2000 period. The
increase in cash provided by financing activities relates to the issuance of
preferred stock, proceeds from sale of an interest in an affiliated entity and
proceeds from borrowings in connection with the Einstein Acquisition during
2001.

Seasonality and General Economic Trends

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



                                       19

<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

A stockholders' meeting was held on September 20, 2001 to consider and act on
the following

1.    To consider and vote upon a proposed amendment to our Certificate of
Incorporation to increase the authorized Common Stock from 50,000,000 shares to
150,000,000 shares.

2.    To consider and vote upon a proposed amendment to our Certificate of
Incorporation to change our name to New World Restaurant Group, Inc.

3.    To consider and vote upon a proposed amendment to our Certificate of
Incorporation to increase the maximum number of directors from nine (9) to ten
(10).

4.    To approve the issuance of warrants to purchase an aggregate of 13,720,000
shares of our Common Stock in connection with the sale of senior secured
increasing rate promissory notes and warrants to purchase an aggregate of
42,950,564 shares of our Common Stock in connection with the sale of Series F
Preferred Stock, and the issuance of the underlying Common Stock for purposes of
the Nasdaq National Market listing of our Common Stock.

The first three items were approved at the meeting held on September 20, 2001
and the last item was approved at an adjourned session of the stockholders'
meeting held on October 10,2001

Item 5.    Other Information

Not applicable

Item 6.    Exhibits and Reports on Form 8-K

(a)      Exhibits

None.

(b)      Reports on Form 8-K

None.


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<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.

Date:  May 31, 2002

                                           /s/ Anthony Wedo
                                        ----------------------------------------
                                        By: Anthony Wedo
                                        Chief Executive Officer
                                        Principal Executive Officer
                                        (Principal Accounting Officer)


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