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

                                   ----------

                                   FORM 10-QSB

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

                  For the quarterly period ended June 28, 1998

                                       OR

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

                         Commission File Number 0-27148

                         New World Coffee & Bagels, Inc.
           (Name of small business issuer as specified in its charter)

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

                                379 West Broadway
                                    4th Floor
                               New York, NY 10012
          (Address of principal executive offices, including zip code)

                                 (212) 343-0552
                           (Issuer's telephone number)


Check 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 past 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 ___

Transitional small business disclosure format (check one): Yes ___ No _X_


Number of shares of common stock, $.001 par value per share, outstanding:
                        As of June 28, 1998: 14,338,398.


<PAGE>



                         NEW WORLD COFFEE & BAGELS, INC.

              INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES

                                  JUNE 28, 1998


                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

          Condensed  Consolidated  Balance  Sheets as of June 28, 1998
               and December 28, 1997 .....................................   -3-

          Condensed  Consolidated  Statements  of  Operations  for the
               fiscal  quarter and year to date period  ended June 28,
               1998 and June 29, 1997 ....................................   -4-

          Condensed Consolidated Statements of Cash Flows for the year
          to date period ended June 28, 1998 and June 29, 1997 ...........   -5-

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


Item 2.  

         MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS  FOR THE FISCAL QUARTER ENDED JUNE
         28, 1998 ........................................................   -9-

Item 3.  

         MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS  FOR THE YEAR TO DATE PERIOD ENDED
         JUNE 28, 1998 ...................................................  -10-


PART II: OTHER INFORMATION ...............................................  -13-

         SIGNATURES ......................................................  -14-



                                       -2-
<PAGE>



                         NEW WORLD COFFEE & BAGLES, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               June 28,      December 28,
                                                                 1998            1997
                                                             ------------    ------------
ASSETS                                                       (Unaudited)
<S>                                                          <C>             <C>         
Current Assets:
    Cash .................................................   $  1,287,782    $  1,149,013
    Receivables ..........................................      2,222,972         936,015
    Inventories ..........................................        598,767         632,606
    Prepaid expenses .....................................         59,006          33,914
                                                             ------------    ------------
       Total current assets ..............................      4,168,527       2,751,548

Property and Equipment, net ..............................      4,937,483       6,686,807
Deposits and Other Assets, net ...........................        931,698         888,959
Goodwill, net of accumulated amortization ................      3,173,619       3,274,059
Long Term Receivables ....................................      1,239,391         374,733
                                                             ------------    ------------
       Total assets ......................................   $ 14,450,718    $ 13,976,106
                                                             ============    ============


LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
    Accounts payable .....................................   $    894,185    $  1,001,123
    Accrued expenses .....................................        207,363       1,071,197
    Current portion of notes payable .....................        192,500         318,750
    Current portion of obligations under capital leases ..        230,869         230,869
    Other Current Liabilities ............................        177,314         227,314
                                                             ------------    ------------
       Total current liabilities .........................      1,702,231       2,849,253
                                                             ------------    ------------

Deferred Rent ............................................        471,258         444,785
                                                             ------------    ------------
Long Term Notes Payable ..................................      1,407,953       2,407,953
                                                             ------------    ------------
Obligations Under Capital Leases .........................        138,954         367,926
                                                             ------------    ------------
Stockholders' Equity:
    Preferred stock, $.001 par value; 2,000,000
        Shares Authorized ................................           --              --
    Series B Convertible Preferred Stock, $.001 par value;
        225 Shares Authorized, 137.5 Shares Issued, 73.5
        and 109.75 Shares Outstanding ....................           --              --
    Common stock, $.001 par value; 20,000,000 Shares
       Authorized; 14,338,398 and  11,634,143 Shares
       Issued and Outstanding ............................         14,338          11,634
    Additional Paid-In Capital ...........................     27,860,924      25,173,440
    Accumulated Deficit ..................................    (17,144,940)    (17,278,885)
                                                             ------------    ------------
       Total Stockholders' Equity ........................     10,730,322       7,906,189
                                                             ------------    ------------
       Total Liabilities and Stockholders' Equity ........   $ 14,450,718    $ 13,976,106
                                                             ============    ============
</TABLE>



                                      -3-
<PAGE>


                         NEW WORLD COFFEE & BAGELS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

          FOR THE FISCAL QUARTER ENDED JUNE 28, 1998 AND JUNE 29, 1997

          AND YEAR TO DATE PERIOD ENDED JUNE 28, 1998 AND JUNE 29, 1997

                                    UNAUDITED

<TABLE>
<CAPTION>
                                                    Fiscal Quarter Ended         Year to Date Period Ended
                                                ----------------------------    ----------------------------
                                                  June 28,        June 29,        June 28,        June 29,
                                                    1998            1997            1998            1997
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>         
Revenues:
    Store Sales .............................   $  3,273,079    $  4,019,243    $  6,382,124    $  7,686,798
    Franchise Related Income ................        742,115            --         1,418,290            --
                                                ------------    ------------    ------------    ------------
Total Revenues ..............................      4,015,194       4,019,243       7,800,414       7,686,798

Costs and Expenses:
    Cost of Sales and Related Occupancy Costs      1,718,739       2,146,058       3,375,848       4,232,954
    Store Operating Expenses ................      1,125,151       1,338,907       2,091,887       2,512,795
                                                ------------    ------------    ------------    ------------
Total Costs and Expenses ....................      2,843,890       3,484,965       5,467,735       6,745,749

Income from Store/Franchise Operations ......      1,171,304         534,278       2,332,679         941,049

    Depreciation and Amortization ...........        315,337         550,070         684,384       1,070,482
    General and Administrative Expenses .....        728,013         739,182       1,423,103       1,515,258
                                                ------------    ------------    ------------    ------------
Operating Income/(Loss) .....................        127,954        (754,974)        225,192      (1,644,691)

    Interest Expense, Net ...................        (56,350)        (95,523)        (91,244)       (191,546)
                                                ------------    ------------    ------------    ------------


Net Income/(Loss) ...........................   $     71,604    $   (850,497)   $    133,948    $ (1,836,237)
                                                ============    ============    ============    ============

Basic and Diluted Net Income/(Loss) Per
Common Share ................................   $        .01    $       (.12)   $        .01    $       (.30)
                                                ============    ============    ============    ============
Basic and Diluted Weighted Average Number of
    Common Shares Outstanding ...............     12,168,587       6,856,074      11,976,494       6,185,609
                                                ============    ============    ============    ============
</TABLE>



                                      -4-
<PAGE>


                         NEW WORLD COFFEE & BAGELS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

        FOR THE YEAR TO DATE PERIOD ENDED JUNE 28, 1998 AND JUNE 29, 1997

                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                                     June 28,       June 29,
                                                                                       1998           1997
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net Income/(Loss) ..........................................................   $   133,948    $(1,836,237)
    Adjustments to Reconcile Net Income/(Loss) to Net Cash Provided by/(Used in)
       Operating Activities-
          Depreciation and Amortization ........................................       684,384      1,070,482
          Gain on Sale of Fixed Assets .........................................    (1,128,458)          --
          Increase/(Decrease) in Cash Resulting from Changes in Operating Assets
              and Liabilities-
                 Receivables ...................................................       205,742        (38,848)
                 Inventories ...................................................        33,839       (219,143)
                 Prepaid Expenses ..............................................       (25,092)      (246,878)
                 Deposits and Other Assets .....................................       (42,739)      (116,806)
                 Accounts Payable ..............................................      (106,938)      (297,871)
                 Accrued Expenses ..............................................      (793,022)      (600,729)
                 Deferred Rent .................................................        26,473        144,601
                                                                                   -----------    -----------
                    Net Cash Provided by/(Used in) Operating Activities ........    (1,011,863)    (2,141,429)
                                                                                   -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital Expenditures .......................................................      (277,158)    (1,432,455)
    Capitalized Leases .........................................................       (15,332)        92,513
    Goodwill ...................................................................          --         (207,673)
                                                                                   -----------    -----------
                    Net Cash Provided by/(Used in) Investing Activities ........      (292,490)    (1,547,615)
                                                                                   -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Issuance of Common Stock, Net of Issuance Costs ............................     1,590,187      3,500,711
    Repayments of Capital Leases ...............................................      (120,815)       464,729
    Repayment of Notes Payable .................................................       (26,250)       (18,164)
                                                                                   -----------    -----------
                    Net Cash Provided by/(Used in) Financing Activities ........     1,443,122      3,947,276
                                                                                   -----------    -----------
                    Net Increase/(Decrease) in Cash ............................       138,769        258,232

CASH, Beginning of Period ......................................................     1,149,013      1,419,786
                                                                                   -----------    -----------

CASH, End of Period ............................................................   $ 1,287,782    $ 1,678,018
                                                                                   ===========    ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash Paid During the Period for:
    Interest ...................................................................        53,334         70,822
    Non-Cash Investing and Financing Activities:
    Notes Received from Sale of Fixed Assets ...................................     2,373,750           --
    Equipment Purchased Under Capital ..........................................        15,332        374,664
    Leases
    Issuance of Common Stock as Repayment of Promissory Note ...................     1,100,000           --
</TABLE>



                                      -5-
<PAGE>


                         NEW WORLD COFFEE & BAGELS, INC.

                   Noted to Consolidated Financial Statements
                                   (Unaudited)

1.   The June 28, 1998  consolidated  balance sheet presented herein was derived
     from the audited December 28, 1997 consolidated financial statements of the
     Company.

2.   These  consolidated  financial  statements have been prepared in accordance
     with  generally  accepted  accounting   principles  for  interim  financial
     information  and with the  instructions  to Form 10-QSB.  The  consolidated
     financial  statements  should  be  read in  conjunction  with  the  audited
     consolidated  financial  statements  of the  Company  for  the  year  ended
     December 28, 1997 for a description of the significant accounting policies,
     which have continued without change, and other note information.

3.   All  adjustments  (recurring  in  nature)  which  are,  in the  opinion  of
     management, necessary for a fair presentation of the results of the interim
     periods  have been  included.  The results of the  interim  periods are not
     necessarily indicative of the results for the full year.

4.   During  1997,  320  shares of Series A  Convertible  Preferred  Stock  were
     exchanged for 137.5 shares of Series B  Convertible  Preferred  Stock,  par
     value $.001 and 1,606,094 shares of Common Stock. In addition, 27.75 shares
     of Series B Convertible  Preferred  Stock were exchanged for 213,425 shares
     of Common Stock.  During the first quarter of 1998, 20.5 shares of Series B
     Convertible  Preferred  Stock were  exchanged for 196,193  shares of Common
     Stock.  During  the  second  quarter  of 1998,  15.75  shares  of  Series B
     Convertible  Preferred  Stock were  exchanged for 146,165  shares of Common
     Stock.

5.   On  February  27,  1997,  the  Company  completed  a private  placement  of
     1,000,000 shares of Common Stock and realized net proceeds of $1,153,000.

6.   In April 1997, the Company filed its Uniform  Franchise  Offering  Circular
     ("UFOC") with the Federal Trade  Commission  and the Office of the Attorney
     General  of the State of New York.  On May 6,  1997,  the State of New York
     approved the UFOC.

7.   On May 23, 1997, the Company  completed a secondary  public  offering and a
     subsequent  filing to register and issue additional shares of Common Stock.
     1,898,806 and 521,864 shares of Common Stock were issued, respectively,  at
     a purchase price of $1.25 per share, realizing approximately  $2,347,000 in
     net proceeds after expenses of approximately $679,000.  308,000 and 307,000
     shares of Common Stock, respectively, were issued to vendors as payment for
     the fair value of property,  equipment and other  services  received by the
     Company.  In  addition,  58,526  and  205,000  of shares  of Common  Stock,
     respectively,  were  issued as  payment  for  notes  payable  and  employee
     compensation.

8.   On August 29,  1997 the  Company  completed  a private  placement,  with an
     institutional  investor,  of 1,142,857  shares of Common  Stock,  realizing
     approximately  $845,000  in net  proceeds.  These  unregistered  shares are
     subject to a lockup of six  months  with  respect  to fifty  percent of the
     shares, and a lockup of twelve months with respect to the remainder.


                                      -6-
<PAGE>


9.   On  November 4, 1997 the  Company  changed  its name to New World  Coffee &
     Bagels, Inc. This action was approved at the annual shareholder meeting.

10.  Pursuant to the  Modification  Agreement  dated March 30, 1998, the payment
     terms of the remaining  principal amounts payable of $2,100,000  related to
     the  Willoughby's   acquisition  were  amended.   In  accordance  with  the
     Modification  Agreement,  all payments of principal  and interest  shall be
     effected  only  through the  conversion  of these  notes into common  stock
     commencing  on certain dates through  March 1999.  The  conversions  of the
     notes into Common Stock, and sales of such shares, will be effected at such
     time as shall be determined by the holder of the notes,  subject to certain
     limitations.  During  the  second  quarter  of 1998,  $1.0  million  of the
     principal amount related to the Willoughby's acquisition was converted into
     862,068 shares of Common Stock.

11.  On June 22, 1998 the Company  completed a private  placement  of  1,208,518
     shares  of  Common  Stock,  realizing  approximately  $1.6  million  in net
     proceeds.

12.  In June 1997, the FASB issued Statement of Financial Accounting  Standards,
     No.  130  "Reporting   Comprehensive   Income"  ("SFAS  No.  130"),   which
     establishes standards for reporting and display of comprehensive income and
     components (revenue,  expenses,  gains and losses) in a full set of general
     purpose financial statements.  The Company does not anticipate SFAS No. 130
     will have a material impact on its financial statements.



                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain  statements  in this Form  10-QSB  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  "forecast,"  "estimate,"  "plan," "intend,"
"believes," "expect," "should," "project," "would," similar expressions, and all
references  to  the  Manhattan  Bagel   acquisition  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-QSB or in the Company's other SEC filings. In addition, the terms of the
acquisition  are subject to change in advance of approval of the definitive plan
of  reorganization,  and the  effectiveness  of the  plan of  reorganization  is
subject to, among other  things,  the  Bankruptcy  court's  prior  approval of a
disclosure statement and of such plan.



                                      -7-
<PAGE>


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

General

     New World Coffee & Bagels,  Inc.  currently  operates 34 Company  owned and
eight  franchised  stores,  consisting of 26 in New York,  seven in Connecticut,
three in  Pennsylvania,  four in New  Jersey and one in  Germany.  In the fiscal
quarter ended June 28, 1998, the Company signed 9 franchise agreements.

     The  Company  has  incurred  losses  in each  fiscal  year  from  inception
primarily  due  to  the  cost  of  retail  store  expansion  and  developing  an
infrastructure to support future growth.

     On July 28, 1998, the Company  entered into an  acquisition  agreement (the
"Agreement")  for the  purchase of  Manhattan  Bagel  Company,  Inc.,  Debtor in
Possession,  a  New  Jersey  Corporation  ("MBC").  MBC  filed  a  petition  for
reorganization  under Chapter 11 of the  Bankruptcy  Code in 1997. MBC presently
franchises,  licenses or operates over 305 bagel stores and  manufactures  bagel
dough and cream  cheese  products  at plants in  Eatontown,  New  Jersey and Los
Angeles, California.

     The acquisition  would  represent a substantial  expansion of the Company's
operations and would  increase the Company's  store base by  approximately  700%
with the addition of  approximately  290 franchised and 15 company owned stores,
which generate  approximately  $120 million in annual sales.  As a result of the
addition of this  franchise  base the Company  should  experience a  significant
increase in ongoing royalty income. In addition, the Company should experience a
significant increase in revenues from the addition of the company owned stores.

     The Company plans to integrate  its growing  franchise  operation  with the
existing franchise operation of MBC. The Company may experience  difficulties in
dealing with the MBC franchisee  base as to its current issues with MBC,  and/or
the upgrading of its reporting and control  equipment and the  introduction  and
promotion of the Company's premium coffees. The Company believes that it has the
resources,  including  personnel,  to manage these relationships in a successful
manner.

     The acquisition would also expand the Company's manufacturing facilities by
the addition of two operating bagel  dough/cream  cheese  production  facilities
located in New Jersey and California, which primarily supply the Manhattan Bagel
franchise  base.  As a result,  the  Company  should  experience  a  significant
increase in factory revenues of  approximately  $25 million  annually,  based on
historical operations. The Company has not had experience concerning bagel/cream
cheese  plant  operations,  but  believes  that  management  of MBC who  will be
directly in charge of these operations will provide significant expertise.

     Furthermore,  New World's coffee factory sales are projected to increase by
supplying coffee to the Manhattan Bagel franchise base, which currently purchase
significant  amounts of coffee from third party  vendors.  The Company  believes
that the sale of its premium coffees by the MBC franchisees and the expansion of
their coffee  product line will enhance 


                                      -8-
<PAGE>


their sales and operations.  Similarly,  the Company also anticipates  supplying
its coffee & bagel  stores  with  bagels and cream  cheese  from the MBC plants,
resulting in a corresponding increase in Manhattan Bagel's factory sales.

     The agreement  includes the  acquisition  of Manhattan  Bagel's  management
infrastructure.  The Company  expects to realize  significant  savings  from the
consolidation of general and administrative expenses of New World and MBC.

     The Company  projects the  acquisition  to be  accretive  to its  earnings.
Assuming the acquisition, the approval of a reorganization plan, the benefits of
cross selling and the consolidation of general and  administrative  overhead had
occurred  at the  beginning  of each  period,  the  transaction  would have been
significantly  accretive on a pro forma basis for the first and second  quarters
of 1998. The pro forma analysis does not purport to be indicative of the results
that  actually  would have been  obtained if the  combined  operations  had been
conducted during the periods presented,  nor does it purport to be indicative of
future periods of the combined operations.

     Separately,  New World has  received  proxies,  exercisable  under  certain
circumstances,  for  approximately 2 million shares or approximately  27% of the
outstanding  voting stock of MBC (prior to exercise of warrant discussed below).
New World has also received a warrant,  exercisable under certain circumstances,
to purchase 4 million shares of newly issued shares,  representing approximately
35% of the outstanding  voting stock following such exercise,  of MBC.  Assuming
exercise  of the  warrant,  the above  would  give New World a right to vote the
majority of the outstanding common stock of MBC under certain circumstances.

     The total cost of the acquisition is presently  estimated at  approximately
$20  million  including  a  combination  of cash  and  common  stock  to be made
available to the creditors of MBC, and the assumption of certain  liabilities to
MBC creditors.  The Agreement,  which is subject to bankruptcy  court approvals,
requires New World to provide and assume  certain  debt.  In addition  under the
Agreement,  New  World  represents  that it has  received  an  equity  financing
commitment of two million dollars.  This equity  commitment is from an affiliate
of an existing institutional investor in the Company.

     There is no assurance as to when such acquisition will be consummated or as
to the  final  terms of the  acquisition,  in that the  same may be  subject  to
changes by interaction  between the Company,  MBC, the Bankruptcy  Court and the
various creditors of MBC. Accordingly, it is possible that the Company may agree
to a final plan of reorganization  which involves acquisition costs in excess of
those set forth in the  Agreement,  although the Company has no obligation to do
so.

Fiscal  Quarter  Ended June 28, 1998  Compared to Fiscal  Quarter Ended June 29,
1997

     Revenues.  Total revenues were $4,015,194 for the fiscal quarter ended June
28, 1998  compared to  $4,019,243  for the 1997  period.  Revenues  from company
stores  decreased 18.6% to $3,273,079 for the fiscal quarter ended June 28, 1998
from $4,019,243 for the comparable  1997 period  primarily due to the conversion
of Company owned stores to franchised  stores.  Royalties and franchise  related
revenues increased to $742,115 or 18.5% of total revenues for the fiscal quarter
ended June 28, 1998. There were no such revenues for 


                                      -9-
<PAGE>


the  comparable  1997 period.  Comparable  store sales for franchise and Company
owned stores open for both periods increased by 12.7% and (8.5%),  respectively,
over the same 1997 period.

     Costs  and  Expenses.  Cost of  sales  and  related  occupancy  costs  as a
percentage of store sales for the fiscal  quarter ended June 28, 1998  decreased
to 52.5% from 53.4% for the comparable 1997 period.  The primary components were
a decrease of 1.3% in cost of goods due to improved  store  purchasing and waste
resulting  from the Company's  point of sale system  partially  offset by a 0.4%
increase in occupancy costs.

     Store  operating  expenses  as a  percentage  of store sales for the fiscal
quarter  ended June 28, 1998  increased  to 34.4% from 33.3% for the  comparable
1997 period.  The primary  components  were an increase of 0.4% in store payroll
and a 0.7% increase in miscellaneous store expenses.

     Depreciation and amortization  expenses as a percentage of revenues for the
fiscal  quarter  ended  June 28,  1998  decreased  to 9.6%  from  11.9%  for the
comparable 1997 period primarily due to compliance with FASB 121 and the sale of
Company owned stores to franchisees.

     General and  administrative  expenses as a  percentage  of revenues for the
fiscal  quarter  ended  June 28,  1998  decreased  to 18.1%  from  18.4% for the
comparable 1997 period,  as the Company's  franchising  effort is enabling it to
leverage its management infrastructure.

     Interest expense,  net for the fiscal quarter ended June 28, 1998 decreased
to $56,350,  or 1.4% of revenues,  from $95,523, or 2.4% for the comparable 1997
period.

     Net  Income/(Loss).  Net income for the fiscal  quarter ended June 28, 1998
increased to $71,604 from a net loss of $850,497 for the comparable 1997 period.
Operating  margins  improved  to a  1.8%  profit  from a loss  of  21.2%  in the
comparable 1997 period.

Year to Date  Period  Ended June 28,  1998  Compared  to the Year to Date Period
Ended June 29, 1997

     Revenues.  Total revenues increased 1.5% to $7,800,413 for the year to date
period  ended June 28, 1998 from  $7,686,798  for the  comparable  1997  period.
Revenues from company stores  decreased 16.8% to $6,382,124 for the year to date
period  ended June 28,  1998 from  $7,686,798  for the  comparable  1997  period
primarily due to the  conversion  of Company owned stores to franchised  stores.
Royalties and  franchise  related  revenues  increased to $1,418,289 or 18.2% of
total  revenues for the year to date period  ended June 28, 1998.  There were no
such  revenues  for the  comparable  1997  period.  Comparable  store  sales for
franchise and Company owned stores open for both periods  increased by 12.2% and
(6.4%), respectively, over the same 1997 period.

     Costs  and  Expenses.  Cost of  sales  and  related  occupancy  costs  as a
percentage  of store  sales  for the year to date  period  ended  June 28,  1998
decreased  to 52.8% from  55.0% for the  comparable  1997  period.  The  primary
components were a decrease of 1.6% in cost of goods


                                      -10-
<PAGE>


due to improved store purchasing and waste resulting from the Company's point of
sale system and a 0.6% decrease in occupancy costs.

     Store  operating  expenses as a  percentage  of store sales for the year to
date period ended June 28, 1998 increased to 32.8% from 32.7% for the comparable
1997 period.  Store payroll as a percentage of store sales decreased by 0.6% due
to  improved  staffing  efficiencies  which  was  offset by a 0.7%  increase  in
miscellaneous store expenses.

     Depreciation and amortization expenses as a percentage of revenues for the
year to date period  ended June 28, 1998  decreased  to 10.7% from 12.1% for the
comparable 1997 period primarily due to compliance with FASB 121 and the sale of
Company owned stores to franchisees.

     General and  administrative  expenses as a  percentage  of revenues for the
year to date period  ended June 28, 1998  decreased  to 18.3% from 19.7% for the
comparable 1997 period,  as the Company's  franchising  effort is enabling it to
leverage its management infrastructure.

     Interest  expense,  net for the year to date  period  ended  June 28,  1998
decreased  to  $91,244,  or 1.2% of  revenues,  from  $191,546,  or 2.5% for the
comparable 1997 period.

     Net  Income/(Loss).  Net income for the year to date period  ended June 28,
1998  increased to $133,944 from a loss of $1,836,237  for the  comparable  1997
period.  Operating margins improved to a 1.7% profit from a loss of 23.9% in the
comparable 1997 period.

Liquidity and Capital Resources

     The Company's  primary  capital  requirement is to support its  franchising
efforts.  The Company  currently  estimates  that capital  expenditures  through
fiscal 1998 will be  approximately  $400,000.  The  Company  expects to meet its
funding  requirements with cash on hand and internally  generated funds, as well
as prospective cash flow from franchising.

     At June 28, 1998 the Company had  positive  working  capital of  $2,466,296
compared to a working capital deficit of $97,705 at December 28, 1997.

     The Company had net cash used in operating activities of $1,011,863 for the
first six months of 1998 compared with net cash used in operating  activities of
$2,141,429 for the comparable 1997 period.

     The Company had net cash  provided by investing  activities of $292,490 for
the  first  six  months  of 1998  compared  with  net cash  used  for  investing
activities of $1,547,615 for the comparable 1997 period.

     The Company had net cash provided by financing activities of $1,443,122 for
the first six months of 1998. These funds were primarily the result of a private
placement  of common  stock.  The  Company had net cash  provided  by  financing
activities of $3,947,762 for the comparable 1997 period.


                                      -11-
<PAGE>


     The  consummation  of the proposed  acquisition  of MBC currently  requires
obtaining debt financing of $8 million and equity  financing of $2 million.  The
Company has received a commitment  letter for $8 million in debt  financing from
an institutional source. The Company has received a letter of intent for $2 - $4
million in equity  financing  from an  affiliate  of an  existing  institutional
investor in the Company. The terms and conditions on which the financings are to
be made available may change. Such arrangements must be consummated prior to the
effective date of a plan of reorganization.  The Company has expended,  and will
expend,  a significant  amount of time and funds in connection with the proposed
acquisition of MBC.

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,
acquisitions by the Company of existing  espresso bars,  existing and additional
competition,  marketing  programs,  weather,  special  or  unusual  events,  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.


                                      -12-
<PAGE>


                           PART II - OTHER INFORMATION

                         NEW WORLD COFFEE & BAGELS, INC.

                                  JUNE 28, 1998

Item 1. Legal Proceedings

     Not applicable

Item 2. Changes in Securities

     On February 26, 1997, the Company sold 1,000,000  shares of Common Stock at
$1.375 per share.  During  1997,  320 shares of Series A  Convertible  Preferred
Stock were exchanged for 137.5 shares of Series B Convertible  Preferred  Stock,
par value $.001 and 1,606,094  shares of Common Stock.  The Series B Convertible
Preferred  Stock  bears no  dividend  and has limited  voting  rights  except as
provided under the General Corporation Law of the State of Delaware.  The Series
B Convertible  Preferred  Stock is convertible  into shares of Common Stock.  In
addition,  27.75 shares of Series B Convertible  Preferred  Stock were exchanged
for  213,425  shares of Common  Stock.  During the first  quarter of 1998,  20.5
shares of Series B Convertible Preferred Stock were exchanged for 196,193 shares
of Common  Stock.  During the second  quarter of 1998,  15.75 shares of Series B
Convertible  Preferred  Stock were exchanged for 146,165 shares of Common Stock.
On June 22, 1998 the Company  completed a private  placement of 1,208,518 shares
of Common Stock,  realizing  approximately  $1.6 million in net  proceeds.  Also
during the second quarter of 1998, $1.0 million of the principal  amount related
to the  Willoughby's  acquisition  was converted  into 862,068  shares of Common
Stock.

Item 3. Defaults upon Senior Securities

     Not applicable

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

     Not applicable

Item 5. Other Information

     Not applicable

Item 6. Exhibits and Reports on Form 8-K

     Not applicable



                                      -13-
<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 COFFEE & BAGELS, INC.


Date:                              By: 
                                        ---------------------------------------
                                        R. Ramin Kamfar
                                        President and Chief Executive Officer



Date:                              By: 
                                        ---------------------------------------
                                        Jerold E. Novack
                                        Chief Financial Officer


                                      -14-