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

                                    FORM 10-Q


[ 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, 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 November 5, 2001: 17,391,450



                        NEW WORLD RESTAURANT GROUP, INC.

              INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES

                                 October 2, 2001

<TABLE>
<CAPTION>

                                                                               Page

PART I.  FINANCIAL INFORMATION

Item 1.      Financial Statements
<S>                                                                             <C>
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 year to date
periods ended October 2, 2001 and September 24, 2000...................         -5-

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


Item 2.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations.................................         -14-

PART II: OTHER INFORMATION.............................................         -19-

         SIGNATURES....................................................         -20-

</TABLE>




                        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
                                                                                       -----------------  --------------
ASSETS
Current Assets:
<S>                                                                                             <C>              <C>
Cash and cash equivalents.....................................................                  $ 9,204          $2,271
Franchise and other receivables, net..........................................                    5,756           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                                                                             74,772          27,603

Property, plant and equipment, net............................................                  115,033           6,970
Notes and other receivables, net..............................................                      925           1,222
Trademarks and recipes, net...................................................                  119,852          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..................................................................                $ 329,677         $65,699
                                                                                       =================  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..............................................................                 $ 18,450          $2,708
Accrued expenses..............................................................                   40,957           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.....................................................                       31              14
                                                                                       -----------------  --------------
Total current liabilities.....................................................                   93,734          11,076

Senior notes and other long-term debt.........................................                  117,183          13,690
Obligations under capital leases..............................................                      114             363
Other liabilities.............................................................                   32,182           1,829

Series D Preferred Stock, $.001 par value; 25,000 shares
authorized; 0 and 16,216 shares issued and outstanding........................                        -          12,008
Series F Preferred Stock, $.001 par value; 116,000 shares
authorized; 72,192 and 0 shares issued and outstanding........................                   41,826              --

Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized; 0 issued and
outstanding...................................................................                        -              --
Series A convertible preferred stock, $.001 par value; 400 shares authorized;
0 shares issued and outstanding.............................................                          -              --
Series B convertible preferred stock, $.001 par value; 225 shares authorized,
0 shares outstanding..........................................................                        -              --
Series C convertible preferred stock, $.001 par value; 500,000 shares
authorized, 0 shares outstanding..............................................                        -              --
Common stock, $.001 par value; 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...........................................................                 (55,858)        (18,463)
                                                                                       -----------------  --------------
Total stockholders' equity....................................................                   44,638          26,733
                                                                                       -----------------  --------------
Total liabilities and stockholders' equity....................................                $ 329,677         $65,699
                                                                                       =================  ==============
</TABLE>


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



                        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
Revenues:
<S>                                                                        <C>            <C>          <C>            <C>
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.............................................                  82,650          9,590       109,972         22,210
General and administrative expenses.......................                   7,642          1,681        12,050          4,856
Depreciation and amortization.............................                   5,625            679         7,950          1,838
                                                                             -----            ---         -----          -----

Income before provision for reorganization costs
and noncash charges.......................................                   4,531          1,612         6,183          3,972

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

Noncash charge in connection with realization of assets...                       -              -         2,800              -
                                                                                                          -----
Income (loss) from operations.............................                   4,531          1,612       (3,307)          3,972

Interest expense, net.....................................                  11,654            448        15,209          1,387
Gain from sale of investments.............................                       -              -           241              -
Permanent impairment in the value of investments..........                       -              -         5,000              -
                                                                                                          -----

Income (loss) before income taxes and minority interest...                 (7,123)          1,164      (23,275)          2,585

Provision (benefit) for income taxes......................                       -        (1,966)           167        (1,966)
Minority interest.........................................                       -              -         1,578              -
                                                                                                          -----

Net (loss) income.........................................                 (7,123)          3,130      (25,020)          4,551

Dividends and accretion on preferred stock................                   5,772          1,709        12,381          1,709
                                                                             -----          -----        ------          -----

Net (loss) income available to common stockholders........              $ (12,895)        $ 1,421    $ (37,401)        $ 2,842
                                                                        =========         =======    =========         =======

Net (loss) income per common share - Basic................                 ($0.76)          $0.12       ($2.27)          $0.24
                                                                           ======           =====       ======           =====

Net (loss) income per common share - Diluted..............                 ($0.76)          $0.09       ($2.27)          $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.




                        NEW WORLD RESTAURANT GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
    FOR THE YEAR TO DATE PERIODS ENDED OCTOBER 2, 2001 AND SEPTEMBER 24, 2000
                                   (UNAUDITED)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                           October 2, 2001   September 24,
                                                                                                  2000
                                                                           ---------------- -----------------

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                              <C>                 <C>
Net (loss) income..............................................                  ($25,020)           $ 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)                 -
Loss on sale of fixed assets...................................                          -               119
Provision for integration and reorganization costs.............                      6,690                 -
Noncash charge in connection with the realization of assets....                      2,800                 -
Permanent impairment in value of debt securities...............                      5,000                 -
Amortization of debt issuance costs and debt discount..........                      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
operating assets and liabilities:
Receivables....................................................                    (1,019)           (2,115)
Inventories....................................................                      (200)               158
Prepaid expenses...............................................                      (462)              (23)
Deposits and other assets......................................                        891             (274)
Receipts of notes receivable...................................                        332               257
Additions to notes receivable..................................                       (27)             (119)
Accounts payable...............................................                    (1,131)             3,392
Accrued expenses and other liabilities.........................                        284           (1,447)
                                                                           ---------------- -----------------
Net cash provided by operating activities......................                      3,472             4,371
                                                                           ---------------- -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...........................................                    (1,441)             (282)
Net cash paid for acquisitions.................................                  (157,833)           (1,771)
Additions to assets held for resale............................                          -           (1,812)
Due from bankruptcy estate.....................................                   (10,751)                 -
Investment in debt securities..................................                   (28,911)          (17,412)
Proceeds from the sale of debt securities......................                      3,885                 -
                                                                           ---------------- -----------------
Net cash used in investing activities..........................                   (195,051)          (21,277)
                                                                           ---------------- -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net...........................                     50,376            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......................                    198,512            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
                                                                           ================ =================


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...........                      12,381             1,709

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

DETAILS OF ACQUISITION
Tangible assets acquired......................................                     133,689             3,021
Intangible assets acquired....................................                     104,478                 -
Notes receivable extinquished.................................                           -           (1,250)
Estimated accruals and liabilities assumed....................                    (70,861)                 -
Accrued acquisition costs.....................................                     (4,100)                 -
                                                                           ---------------- -----------------
Cash paid for acquisition.....................................                     163,206             1,771
                                                                           ---------------- -----------------
Less cash acquired............................................                       5,373                 -
                                                                           ---------------- -----------------

Net cash paid for acquisition.................................                    $157,833           $ 1,771
                                                                           ================ =================
</TABLE>

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



                        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. Change in Fiscal Year

Effective  for the  quarter  ended July 3, 2001 and as a result of the  Einstein
Acquisition  (as defined in Note 3), 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.

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

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

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


Assets acquired:
Current assets                                                   $17,097,798
Plant Property & Equipment                                       116,590,972
Trademarks and other intangible assets                           104,478,086

Liabilities assumed:
Current liabilities                                               51,731,135
Long term liabilities                                             19,130,348
                                                         --------------------

Total purchase price                                            $167,305,373
                                                         ====================




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

Pursuant to the Asset Purchase Agreement, the Company is entitled to a reduction
in purchase price to the extent that assumed  current  liabilities  (as defined)
exceed $30,000,000 as of the acquisition date. The accompanying balance sheet as
of 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.

<TABLE>
<CAPTION>
                                                                    Pro Forma
                                                              For the Year to Date
                                                                  Period Ended
                                                  ---------------------------------------------
                                                     (In thousands, except per share data)


                                                     September 24, 2000      October 2, 2001
                                                     ------------------      ---------------
<S>                                                        <C>                 <C>
Revenues                                                   $318,096            $305,757
                                                           ========            ========
Loss before extraordinary items                            ($18,490)           ($41,518)
                                                           ========            ========
Net (loss)                                                 ($18,490)           ($41,518)
                                                           ========            ========
Net (loss) available to common stockholders                ($26,873)           ($52,457)
                                                           ========            ========
Earnings per share - Basic                                   ($2.29)             ($3.20)
                                                             ======              ======
</TABLE>


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

4. Senior Notes

The Company  consummated a private placement of 140,000 units consisting of $140
million of senior secured  increasing  rate notes (the "$140 Million  Facility")
and 140,000 Common Stock purchase warrants. The $140 million Facility was placed
through  Jefferies  &  Company,  Inc.  ("Jefferies").  The notes  under the $140
Million  Facility,  the terms of which are governed by a certain  Indenture (the
"Indenture") dated as of June 19, 2001, by and among the Company,  Jefferies and
the United States Trust Company of New York ("U.S.  Trust"),  mature on June 15,
2003 and bear interest at an initial annual rate of 13%, increasing by 100 basis
points each quarter commencing  September 15, 2001 to a maximum rate of 18%. The
Company 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 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.

5. Bridge Loan

The Company also  obtained a $35 million  asset-based  secured loan due June 15,
2002 to a  wholly-owned  unrestricted  subsidiary of the Company.  The aggregate
proceeds were  $33,250,000.  The debt discount  aggregating  $1,750,000 is being
amortized  over  the  term of the loan (1 year)  using  the  effective  interest
method.  Pursuant to the terms of a certain Note Purchase and Security Agreement
dated as of June 19, 2001, by and among the Company,  Bondco and Jefferies  (the
"Purchase and Security Agreement"),  Bondco sold $35 million aggregate principal
amount of secured  increasing rate notes. The notes are secured by $61.5 million
aggregate principal amount of 7.25% subordinated convertible debentures due June
2004 of Einstein/Noah  Bagel Corp.(the  "Einstein  Bonds").  Interest on the $35
million of notes  initially  accrues at a rate of 14% per annum,  increasing  by
 .35% on the fifteenth day of each month following issuance.  Interest is payable
on the fifteenth day of every month and may be paid in kind at Bondco's  option.
The Purchase and Security Agreement 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.

6. Series F Private Placement

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

On  January  22,  2001  BET  Associates  L.P.("BET")  and  Brookwood  New  World
Investors,  LLC  ("Brookwood")  entered  into an  Exchange  Agreement  with  the
Company,  whereby they  exchanged  all of their  outstanding  Series D Preferred
Stock,  including accrued but unpaid dividends (all of which were retired) for a
total of 16,398.33  shares of Series F Preferred  Stock.  BET and Brookwood also
exchanged the warrants  received by them in August 2000 for warrants to purchase
an aggregate  of 6,526,356  shares of common stock of the Company at an exercise
price of $0.01 per share. The form of these warrants is substantially  identical
to the form of the warrant  issued to Halpern  Denny  including  the  provisions
thereof  relating  to the  increase  of the  warrant  shares,  except  that  the
semi-annual  increases  are an aggregate of 1.154% of the fully  diluted  common
stock of the Company (excepting certain options and warrants). The fair value of
the warrants at the date of grant of  $4,970,088  was recorded as a reduction in
the carrying  amount of the Series F Preferred  Stock and is being accreted over
the three year period to the earliest fixed  redemption  date. The difference in
the fair value of securities  exchanged of $1,171,806 was 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 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 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 $2.6 million of issuance costs. Such amount was recorded
as a reduction  in the carrying  amount of the Series F Preferred  shares and is
being accreted over 3 years to the earliest fixed redemption date.

7. Greenlight New World, LLC

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

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

In connection with the letter agreement, Greenlight gave up its secured interest
in  the  bonds.  Accordingly,   the  Contribution  Amount  that  was  previously
classified as minority interest is currently  classified as long term liability.
In addition, the 15% investment return due to Greenlight is included as interest
expense in the accompanying income statement.

8. Income (Loss) Per Share

Basic  income  (loss) per share is  calculated  by  dividing  net income  (loss)
attributable to common  shareholders by the weighted average number of shares of
common stock outstanding  during the period.  Diluted income (loss) per share is
calculated by dividing net income (loss)  attributable to common shareholders by
the  weighted  average  number  of  common  shares  outstanding,   adjusted  for
potentially dilutive  securities.  The following table summarizes the equivalent
number of common shares assuming the related securities that were outstanding as
of 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
                ================

9. 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
$5,000,000 in fair value had occurred.  Accordingly,  the Company  recorded such
amount as an investment impairment.

10. 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                            2,783
Other                                                    16,693
                                                    ------------
                                                        $40,957
                                                    ============


11. Recent Accounting Pronouncements

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

12. Contingencies

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.

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.

13. Noncash Charge in Connection with Realization of Assets.

In the second  quarter of 2001,  the  Company  recorded an asset  impairment  of
approximately  $2.8 million in  accordance  with 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.

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
decreased to 83.5% for the fiscal  quarter  ended October 2, 2001 from 83.7% for
the  comparable  2000 period.  The decline  reflects the  Company's  decision to
outsource its low-margin  distribution  business,  which was offset, in part, by
margin differentials associated with changes in the Company's sales mix.

General and  administrative  expenses  increased  to $7.6 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.  General and administrative expenses expressed as
a percentage of total revenues declined to 7.6% 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 $10.2  milliion or 10.1% 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  $13.8 million  which was offset by a  corresponding
increase in general and administrative expenses of approximately $6.0 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.

Interest expense,  net for the fiscal quarter ended October 2, 2001 increased to
$11.7  million,  or 11.6% 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 $7.1 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 $6.0 million,  depreciation of $5.0 million and additional borrowing
costs associated with the Einstein  Acquistion totaling $11.2 Million which were
offset  in  part by a $13.8  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.


Results of Operations

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).  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  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  was  partially  attributable  to  extreme  weather
conditions  experienced  during the year to date period ended October 2, 2001 in
the Company's core markets. In addition, the decline 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 83.5% 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 $12.0 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.  General and  administrative  expenses
expressed as a percentage of total  revenues  declined to 8.9% 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 $14.1  milliion  or 10.4% 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  $15.5  million  which was offset by a
corresponding  increase in general and administrative  expenses of approximately
$7.2 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.

Provision for integration and  reorganization  costs was $6.7 million or 4.9% 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 $15.2 million, or 11.2% 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 $5.0 million,  or 3.7% 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 $25.0  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  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 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 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 $19.0
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  provided by operating  activities of $3.5 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  which were related to the Einstein
Acquistion.

     The Company had net cash used in investing activities of $195.0 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 $198.5 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.


                           PART II - OTHER INFORMATION
                        NEW WORLD RESTAURANT GROUP, INC.
                                 OCTOBER 2, 2001

Item 1. Legal Proceedings

     Not applicable

Item 2. Changes in Securities

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

Item 3. Defaults upon Senior Securities

     Not applicable

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

     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.



                                   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: November 16, 2001            By: /s/ R. Ramin Kamfar
                                       -------------------
                                       R. Ramin Kamfar
                                       Chairman



Date: November 16, 2001            By: /s/ Jerold E. Novack
                                       --------------------
                                       Jerold E. Novack
                                       Chief Financial Officer