##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended September 28, 2010

OR



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

Commission File Number 001-33515





Einstein Noah
Restaurant Group, Inc.

(Exact name of registrant as specified in its charter)







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

555 Zang Street, Suite 300,
Lakewood, Colorado 80228

(Address of principal executive offices)

(303) 568-8000

(Registrants telephone number, including area code)

(Former name,
former address and former fiscal year, if changed since last report)





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   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

As of November 1, 2010, there were 16,578,312 shares of the registrants Common Stock,
par value of $0.001 per share outstanding.









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##### Table of Contents



EINSTEIN NOAH RESTAURANT GROUP, INC.

TABLE OF CONTENTS



|                              |  |                                                                                                                                            |  |  |    | 
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|Part I. Financial Information |  |                                                                                                                                            |  | 
|Item 1.                       |  | Financial Statements:                                                                                                                      |  |  |    | 
|                              |  |                                                                                                                                           
|                              |  | Consolidated Balance Sheets, December 29, 2009 and September 28, 2010 (Unaudited)                                                          |  |  | 3  | 
|                              |  |                                                                                                                                           
|                              |  | Consolidated Statements of Operations, for the thirteen and thirty-nine weeks ended September 29, 2009 and
 September 28, 2010 (Unaudited) |  |  | 4  | 
|                              |  |                                                                                                                                           
|                              |  | Consolidated Statements of Cash Flows, for the thirty-nine weeks ended September 29, 2009 and September 28,
 2010 (Unaudited)              |  |  | 5  | 
|                              |  |                                                                                                                                           
|                              |  | Notes to the Consolidated Financial Statements (Unaudited)                                                                                 |  |  | 6  | 
|                              |  |                                                                                                                                           
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                      |  |  | 14 | 
|                              |  |                                                                                                                                           
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                 |  |  | 25 | 
|                              |  |                                                                                                                                           
|Item 4.                       |  | Controls and Procedures                                                                                                                    |  |  | 25 | 
|Part II. Other Information    |  |                                                                                                                                            |  | 
|                              |  |                                                                                                                                           
|Item 1.                       |  | Legal Proceedings                                                                                                                          |  |  | 26 | 
|                              |  |                                                                                                                                           
|Item 1A.                      |  | Risk Factors                                                                                                                               |  |  | 26 | 
|                              |  |                                                                                                                                           
|Item 4.                       |  | Reserved                                                                                                                                   |  |  | 26 | 
|                              |  |                                                                                                                                           
|Item 6.                       |  | Exhibits                                                                                                                                   |  |  | 26 | 



2



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

EINSTEIN NOAH RESTAURANT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)



|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                                                                 |  | December 29,2009 |          |   | September 28,2010 |  
|                                                                                                                                                                 |  |                  |          |   | (Unaudited)       |  
|ASSETS                                                                                                                                                           |  |                  |          |   |                   |   |          |  
|Current assets:                                                                                                                                                  |  |                  |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                                                                        |  | $                | 9,885    |   |                   | $ | 12,447   |  
|Restricted cash                                                                                                                                                  |  |                  | 508      |   |                   |   | 586      |  
|Accounts receivable                                                                                                                                              |  |                  | 5,629    |   |                   |   | 6,114    |  
|Inventories                                                                                                                                                      |  |                  | 5,513    |   |                   |   | 5,231    |  
|Current deferred income tax assets                                                                                                                               |  |                  | 7,184    |   |                   |   | 4,814    |  
|Prepaid expenses                                                                                                                                                 |  |                  | 5,682    |   |                   |   | 6,632    |  
|Other current assets                                                                                                                                             |  |                  | 73       |   |                   |   | 66       |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|Total current assets                                                                                                                                             |  |                  | 34,474   |   |                   |   | 35,890   |  
|                                                                                                                                                                 |  |                 
|Property, plant and equipment, net                                                                                                                               |  |                  | 58,682   |   |                   |   | 55,757   |  
|Trademarks and other intangibles, net                                                                                                                            |  |                  | 63,831   |   |                   |   | 63,831   |  
|Goodwill                                                                                                                                                         |  |                  | 4,981    |   |                   |   | 4,981    |  
|Long-term deferred income tax assets                                                                                                                             |  |                  | 46,206   |   |                   |   | 43,608   |  
|Debt issuance costs and other assets, net                                                                                                                        |  |                  | 3,047    |   |                   |   | 2,701    |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|Total assets                                                                                                                                                     |  | $                | 211,221  |   |                   | $ | 206,768  |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                             |  |                  |          |   |                   |   |          |  
|Current liabilities:                                                                                                                                             |  |                  |          |   |                   |   |          |  
|Accounts payable                                                                                                                                                 |  | $                | 4,147    |   |                   | $ | 6,581    |  
|Accrued expenses and other current liabilities                                                                                                                   |  |                  | 20,633   |   |                   |   | 21,675   |  
|Current portion of long-term debt                                                                                                                                |  |                  | 5,234    |   |                   |   | 11,900   |  
|Current portion of obligations under capital leases                                                                                                              |  |                  | 22       |   |                   |   | 20       |  
|Mandatorily redeemable, Series Z Preferred Stock, $.001 par value, $1,000 per share liquidation value; 57,000 shares authorized;
32,194 and 0 shares outstanding |  |                  | 32,194   |   |                   |   |         |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|Total current liabilities                                                                                                                                        |  |                  | 62,230   |   |                   |   | 40,176   |  
|                                                                                                                                                                 |  |                 
|Long-term debt                                                                                                                                                   |  |                  | 74,553   |   |                   |   | 73,878   |  
|Long-term obligations under capital leases                                                                                                                       |  |                  | 19       |   |                   |   | 16       |  
|Other liabilities                                                                                                                                                |  |                  | 12,133   |   |                   |   | 12,252   |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|Total liabilities                                                                                                                                                |  |                  | 148,935  |   |                   |   | 126,322  |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|Commitments and contingencies (Note 12)                                                                                                                          |  |                  |          |   |                   |   |          |  
|                                                                                                                                                                 |  |                 
|Series Z Preferred Stock, $.001 par value, $1,000 per share liquidation value; 6,480 shares outstanding; and accrued additional
redemption                       |  |                  |         |   |                   |   | 7,388    |  
|                                                                                                                                                                 |  |                 
|Stockholders equity:                                                                                                                                            |  |                  |          |   |                   |   |          |  
|Common stock, $.001 par value; 25,000,000 shares authorized; 16,461,123 and 16,578,109 shares issued and
outstanding                                             |  |                  | 16       |   |                   |   | 17       |  
|Additional paid-in capital                                                                                                                                       |  |                  | 266,928  |   |                   |   | 269,154  |  
|Accumulated other comprehensive loss, net of income tax                                                                                                          |  |                  | (1,277   | ) |                   |   |         |  
|Accumulated deficit                                                                                                                                              |  |                  | (203,381 | ) |                   |   | (196,113 | )
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|Total stockholders equity                                                                                                                                       |  |                  | 62,286   |   |                   |   | 73,058   |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                                                                       |  | $                | 211,221  |   |                   | $ | 206,768  |  
|                                                                                                                                                                 |  |                  |          |   |                   |   |          |  

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



3



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EINSTEIN NOAH RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except earnings per share and related share information)

(Unaudited)



|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|------------------------------------------------------ |  | ----------------- | ---------- | - | ----------------- | - | ---------- | ----------------- |  | - | ----------------- | - |  | - | ---------- | -
|                                                       |  | 13 weeks ended    |            |   | 39 weeks ended    |  
|                                                       |  | September 29,2009 |            |   | September 28,2010 |   |            | September 29,2009 |  |   | September 28,2010 |  
|Revenues:                                              |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Company-owned restaurant sales                         |  | $                 | 91,237     |   |                   | $ | 91,822     |                   |  | $ | 276,743           |   |  | $ | 276,750    |  
|Manufacturing and commissary revenues                  |  |                   | 7,050      |   |                   |   | 7,478      |                   |  |   | 22,790            |   |  |   | 22,705     |  
|Franchise and license related revenues                 |  |                   | 1,759      |   |                   |   | 2,061      |                   |  |   | 5,294             |   |  |   | 6,191      |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Total revenues                                         |  |                   | 100,046    |   |                   |   | 101,361    |                   |  |   | 304,827           |   |  |   | 305,646    |  
|                                                       |  |                   |            |  
|Cost of sales:                                         |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Company-owned restaurant costs                         |  |                   | 75,232     |   |                   |   | 74,810     |                   |  |   | 229,073           |   |  |   | 226,937    |  
|Manufacturing and commissary costs                     |  |                   | 6,187      |   |                   |   | 6,488      |                   |  |   | 19,819            |   |  |   | 19,149     |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Total cost of sales                                    |  |                   | 81,419     |   |                   |   | 81,298     |                   |  |   | 248,892           |   |  |   | 246,086    |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Gross profit                                           |  |                   | 18,627     |   |                   |   | 20,063     |                   |  |   | 55,935            |   |  |   | 59,560     |  
|                                                       |  |                   |            |  
|Operating expenses (income):                           |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|General and administrative expenses                    |  |                   | 8,100      |   |                   |   | 9,211      |                   |  |   | 26,373            |   |  |   | 28,268     |  
|Depreciation and amortization                          |  |                   | 4,222      |   |                   |   | 4,498      |                   |  |   | 12,361            |   |  |   | 13,244     |  
|Other operating expenses (income)                      |  |                   | 92         |   |                   |   | (690       | )                 |  |   | (144              | ) |  |   | (620       | )
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Income from operations                                 |  |                   | 6,213      |   |                   |   | 7,044      |                   |  |   | 17,345            |   |  |   | 18,668     |  
|                                                       |  |                   |            |  
|Interest expense, net                                  |  |                   | 1,894      |   |                   |   | 1,209      |                   |  |   | 4,240             |   |  |   | 4,395      |  
|Adjustment for Series Z modification                   |  |                   |           |   |                   |   |           |                   |  |   |                  |   |  |   | 929        |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Income before income taxes                             |  |                   | 4,319      |   |                   |   | 5,835      |                   |  |   | 13,105            |   |  |   | 13,344     |  
|Provision for income taxes                             |  |                   | (56,542    | ) |                   |   | 2,435      |                   |  |   | (56,072           | ) |  |   | 6,076      |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Net income                                             |  | $                 | 60,861     |   |                   | $ | 3,400      |                   |  | $ | 69,177            |   |  | $ | 7,268      |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Net income                                             |  | $                 | 60,861     |   |                   | $ | 3,400      |                   |  | $ | 69,177            |   |  | $ | 7,268      |  
|Less: Additional redemption on temporary equity        |  |                   |           |   |                   |   | (124       | )                 |  |   |                  |   |  |   | (365       | )
|Add: Beneficial conversion feature on temporary equity |  |                   |           |   |                   |   | 169        |                   |  |   |                  |   |  |   | 169        |  
|Add: Accretion of premium on Series Z preferred stock  |  |                   |           |   |                   |   | 138        |                   |  |   |                  |   |  |   | 637        |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Net income available to common stockholders            |  | $                 | 60,861     |   |                   | $ | 3,583      |                   |  | $ | 69,177            |   |  | $ | 7,709      |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Net income available to common stockholders per share: |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Basic                                                  |  | $                 | 3.75       |   |                   | $ | 0.22       |                   |  | $ | 4.30              |   |  | $ | 0.47       |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Diluted                                                |  | $                 | 3.65       |   |                   | $ | 0.21       |                   |  | $ | 4.21              |   |  | $ | 0.46       |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Weighted average number of common shares outstanding:  |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Basic                                                  |  |                   | 16,236,271 |   |                   |   | 16,565,771 |                   |  |   | 16,103,170        |   |  |   | 16,509,654 |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Diluted                                                |  |                   | 16,693,843 |   |                   |   | 16,791,275 |                   |  |   | 16,446,532        |   |  |   | 16,786,191 |  
|                                                       |  |                   |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  

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



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EINSTEIN NOAH RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



|                                                                                  |  |                   |         |   |                   |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                  |  | 39 weeks ended    |        
|                                                                                  |  | September 29,2009 |         |   | September 28,2010 |  
|OPERATING ACTIVITIES:                                                             |  |                   |         |   |                   |   |         |  
|Net income                                                                        |  | $                 | 69,177  |   |                   | $ | 7,268   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                   |         |   |                   |   |         |  
|Depreciation and amortization                                                     |  |                   | 12,361  |   |                   |   | 13,244  |  
|Deferred income tax (benefit)/expense                                             |  |                   | (56,772 | ) |                   |   | 4,968   |  
|Stock-based compensation expense                                                  |  |                   | 768     |   |                   |   | 1,231   |  
|Loss/(Gain) on disposal of assets                                                 |  |                   | 160     |   |                   |   | (701    | )
|Provision for losses on accounts receivable                                       |  |                   | 150     |   |                   |   | 161     |  
|Amortization of debt issuance and debt discount costs                             |  |                   | 429     |   |                   |   | 438     |  
|Adjustment for Series Z modification                                              |  |                   |        |   |                   |   | 929     |  
|Changes in operating assets, liabilities:                                         |  |                   |         |   |                   |   |         |  
|Restricted cash                                                                   |  |                   | 79      |   |                   |   | (78     | )
|Accounts receivable                                                               |  |                   | 132     |   |                   |   | (430    | )
|Accounts payable and accrued expenses                                             |  |                   | 87      |   |                   |   | 6,156   |  
|Other assets and liabilities                                                      |  |                   | (2,402  | ) |                   |   | (634    | )
|                                                                                  |  |                   |         |   |                   |   |         |  
|Net cash provided by operating activities                                         |  |                   | 24,169  |   |                   |   | 32,552  |  
|INVESTING ACTIVITIES:                                                             |  |                   |         |   |                   |   |         |  
|Purchase of property and equipment                                                |  |                   | (10,700 | ) |                   |   | (11,420 | )
|Proceeds from the sale of equipment                                               |  |                   | 2       |   |                   |   | 860     |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Net cash used in investing activities                                             |  |                   | (10,698 | ) |                   |   | (10,560 | )
|                                                                                  |  |                  
|FINANCING ACTIVITIES:                                                             |  |                   |         |   |                   |   |         |  
|Payments under capital lease obligations                                          |  |                   | (42     | ) |                   |   | (19     | )
|Repayments under the term loan                                                    |  |                   | (7,863  | ) |                   |   | (5,009  | )
|Proceeds from line of credit                                                      |  |                   |        |   |                   |   | 11,000  |  
|Redemptions under Series Z Preferred Stock                                        |  |                   | (20,000 | ) |                   |   | (25,714 | )
|Additional redemption payment on Series Z temporary equity                        |  |                   |        |   |                   |   | (242    | )
|Proceeds upon stock option exercises                                              |  |                   | 1,321   |   |                   |   | 554     |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Net cash used in financing activities                                             |  |                   | (26,584 | ) |                   |   | (19,430 | )
|                                                                                  |  |                  
|Net (decrease)/increase in cash and cash equivalents                              |  |                   | (13,113 | ) |                   |   | 2,562   |  
|Cash and cash equivalents, beginning of period                                    |  |                   | 24,216  |   |                   |   | 9,885   |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                 | 11,103  |   |                   | $ | 12,447  |  
|                                                                                  |  |                   |         |   |                   |   |         |  

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



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EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The accompanying consolidated balance sheet as of
December 29, 2009, which has been derived from audited financial statements, and the unaudited consolidated financial statements of Einstein Noah Restaurant Group, Inc. and its wholly-owned subsidiaries (collectively, the Company)
have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The information furnished within this Form 10-Q reflects all adjustments (consisting only of normal recurring accruals and
adjustments), which are, in our opinion, necessary to fairly state the interim operating results for the respective periods.

As of
September 28, 2010, the Company owned, franchised or licensed various restaurant concepts under the brand names of Einstein Bros. Bagels (Einstein Bros.), Noahs New York Bagels (Noahs) and Manhattan Bagel
Company (Manhattan Bagel).

Certain information and footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles in the United States have been omitted pursuant to SEC rules and regulations. The notes to the consolidated financial statements (unaudited) should be read in conjunction with the notes to
the consolidated financial statements contained in our annual report on Form 10-K for the fiscal year ended December 29, 2009. The Company believes that the disclosures are sufficient for interim financial reporting purposes. However, these
operating results are not necessarily indicative of the results expected for the full fiscal year. Additionally, our business is subject to seasonal trends. Generally, our revenues and results of operations in the fourth fiscal quarter tend to
be the most significant.

2. Recent Accounting Pronouncements

The Company has considered recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on the Companys consolidated financial
statements.

3. Supplemental Cash Flow Information



|                                                                   |  |                   |       |   |                   |   |       |  
|------------------------------------------------------------------ |  | ----------------- | ----- | - | ----------------- | - | ----- | -
|                                                                   |  | 39 weeks ended    |      
|                                                                   |  | September 29,2009 |       |   | September 28,2010 |  
|                                                                   |  | (in thousands)    |      
|Cash paid during the year to date period for:                      |  |                   |       |   |                   |   |       |  
|Interest related to:                                               |  |                   |       |   |                   |   |       |  
|Term loan                                                          |  | $                 | 2,950 |   |                   | $ | 2,506 |  
|Series Z additional redemption                                     |  |                   |      |   |                   |   | 1,677 |  
|Other                                                              |  |                   | 187   |   |                   |   | 169   |  
|Income taxes                                                       |  | $                 | 1,247 |   |                   | $ | 183   |  
|                                                                   |  |                  
|Non-cash investing activities:                                     |  |                   |       |   |                   |   |       |  
|                                                                   |  |                  
|Non-cash purchase of equipment through capital leasing             |  | $                 | (14   | ) |                   | $ | (14   | )
|Change in accrued expenses for purchases of property and equipment |  | $                 | (845  | ) |                   | $ | (740  | )



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EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)(Continued)





4. Inventories

Inventories, which consist of food, beverage, paper supplies and bagel ingredients, are stated at the lower of cost or market, with cost being determined
by the first-in, first-out method. Inventories consist of the following:



|                  |  |                  |       |  |                   |   |       | 
|----------------- |  | ---------------- | ----- |  | ----------------- | - | ----- | 
|                  |  | December 29,2009 |       |  | September 28,2010 |  
|                  |  | (in thousands)   |      
|Finished goods    |  | $                | 4,100 |  |                   | $ | 3,965 | 
|Raw materials     |  |                  | 1,413 |  |                   |   | 1,266 | 
|                  |  |                  |       |  |                   |   |       | 
|Total inventories |  | $                | 5,513 |  |                   | $ | 5,231 | 
|                  |  |                  |       |  |                   |   |       | 

5. Goodwill, Trademarks and Other Intangibles

Intangible assets include both goodwill and identifiable intangibles arising from the allocation of the purchase prices of assets acquired. Goodwill represents the excess of cost over fair value of net
assets acquired in the acquisition of Manhattan Bagel. As of September 28, 2010, intangible assets of $63.8 million were not subject to amortization and consisted primarily of the Einstein Bros., Noahs and Manhattan Bagel trademarks.

The Company performed an impairment analysis of the goodwill and indefinite lived intangible assets related to our Einstein Bros.,
Noahs and Manhattan Bagel brands as of December 29, 2009 and there was no indication of impairment. During the thirteen weeks ended September 28, 2010, there were no events or changes in circumstances that indicated that our goodwill
or intangible assets might be impaired or may not be recoverable.

6. Long-Term Debt

The Companys debt is composed of a credit facility with a modified term loan that has an original principal amount of $90 million and a $20 million
revolver. The term loan had outstanding balances of $79.8 million and $74.8 million as of December 29, 2009 and September 28, 2010, respectively, and the revolver had a balance of $0 and $11.0 million as of December 29, 2009 and
September 28, 2010, respectively. The revolver and the term loan mature in 2012, however, the Company has classified the revolver as a current liability as we intend to pay it off within one year. As of December 29, 2009 and
September 28, 2010, the Companys total long-term debt had a fair value of $64.6 million and $84.4 million, respectively. The fair value of the Companys debt was estimated based on the current rates found in the marketplace for debt
with the same remaining maturities. The Company may prepay amounts outstanding under the credit facility and may terminate commitments in whole at any time without penalty or premium upon prior written notice. Borrowings under this credit facility
bear interest at a rate equal to an applicable margin plus, at our option, either a variable base rate or a Eurodollar rate. As of September 28, 2010, the weighted average interest rate under the credit facility was 2.27%. The revolver and the
term loan contain usual and customary covenants including consolidated leverage ratios, fixed charge coverage ratios and limitations on capital expenditures. As of December 29, 2009 and September 28, 2010, the Company was in compliance
with all financial and operating covenants.

In addition to the Companys calendar quarterly payments of $225,000 due on the term loan,
the Company is also required to make excess cash flow payments on the term loan as defined in the Companys credit facility. The Company made an excess cash flow payment of $4.3 million in the first quarter of 2010.

7. Interest Rate Swap and Other Comprehensive Income

On May 7, 2008, the Company entered into a two year interest rate swap agreement relating to the term loan, effective August 2008 which expired in August 2010 and was not renewed. The Company
made payments based on a fixed interest rate of 3.52% calculated on an initial notional amount of $60 million. In exchange the Company received interest on $60 million of notional amount at a variable rate. The variable rate interest the Company
received was based on the 1-month London InterBank Offered Rate (LIBOR). The net effect of the swap was to fix the interest rate on $60 million of our term loan at 3.52% plus an applicable margin.



7



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##### Table of Contents

EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)(Continued)





The fair value measurement of the
interest rate swap was performed using significant other observable inputs (level 2) to calculate a liability of $1.3 million as of December 29, 2009 which was recorded in accrued expenses and other current liabilities on the Companys
consolidated balance sheet and as of September 28, 2010, the liability was $0. As of September 28, 2010, the change in fair value associated with this cash flow hedging instrument is recorded in accumulated other comprehensive loss
within stockholders deficit.

Comprehensive income consisted of the following:



|                                                         |  |                   |        |   |                   |   |       | 
|-------------------------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ----- | 
|                                                         |  | 39 weeks ended    |       
|                                                         |  | September 29,2009 |        |   | September 28,2010 |  
|                                                         |  | (in thousands)    |       
|Net income                                               |  | $                 | 69,177 |   |                   | $ | 7,268 | 
|Change in unrealized gain on cash flow hedge             |  |                   | 772    |   |                   |   | 1,277 | 
|Income tax expense related to other comprehensive income |  |                   | (89    | ) |                   |   |      | 
|                                                         |  |                   |        |   |                   |   |       | 
|Total comprehensive income                               |  | $                 | 69,860 |   |                   | $ | 8,545 | 
|                                                         |  |                   |        |   |                   |   |       | 

8. Series Z Preferred Stock

On March 17, 2010, the Company and Halpern Denny III, L.P. (Halpern Denny), the holder of the mandatorily redeemable Series Z preferred stock (Series Z), amended their
previous agreement dated May 28, 2009 to extend the redemption date to June 30, 2011, and allow the Company to redeem any amount of Series Z at any time through that date. In addition, beginning July 1, 2010, Halpern Denny received a
one year option to exchange up to $7.0 million of the outstanding Series Z and accrued additional redemption amounts for shares of freely tradable common stock at a price of $11.50 per share. All additional redemption amounts that accrue after
June 30, 2010 would be waived with respect to the shares of Series Z exchanged, if any. To the extent that Halpern Dennys exchange option remained unexercised, the Company had the right to redeem the shares subject to the exchange option
after the Company redeemed the shares of the Series Z that were not subject to the exchange option.

The Company recorded this agreement on
its balance sheet at fair value during the first quarter of 2010. The fair value was recorded at a premium with a non-cash charge to our net income of $0.9 million. The fair value of the Series Z was estimated to be $31.0 million and $7.2 million,
as of December 29, 2009 and September 28, 2010, respectively.

The Series Z and accrued additional redemption amount subject to the
exchange option is recorded within temporary equity with a balance of $7.4 million as of September 28, 2010. During the third quarter 2010, the Company recorded a $0.2 million beneficial conversion feature discount into temporary equity. Over
the life of the exchange option, the beneficial conversion feature will be amortized into additional paid in capital. For the quarter ended September 28, 2010, the Company amortized approximately $56,000 of this balance.

The Company redeemed $7.1 million of Series Z shares, including accrued additional redemption amounts of approximately $0.6 million in the third quarter
of 2010. As of September 28, 2010, 6,480 shares of Series Z remained outstanding, all of which were subject to the exchange option.

Subsequent to the end of the third quarter, on October 25, 2010, the Company redeemed an additional 3,240 shares of Series Z for $3.6 million,
including accrued additional redemption amounts. Halpern Denny did not exercise its exchange option and pursuant to the terms of the agreement, the exchange option has expired. After this redemption, 3,240 shares of Series Z remain outstanding. See
Note 14 for additional information.



8



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##### Table of Contents

EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)(Continued)





9. Stock-Based Compensation

The Companys stock-based compensation cost for the thirteen weeks ended September 29, 2009 and September 28, 2010 was $0.2
million and $0.4 million, respectively, and for the thirty-nine weeks ended September 29, 2009 and September 28, 2010 was $0.8 million and $1.2 million, respectively. This expense has been included in general and administrative
expenses. The fair value of stock options and stock appreciation rights (SARs) granted during the quarter are estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:



|                                                     |  |                   |  |                   |  |                   |  |                  
|---------------------------------------------------- |  | ----------------- |  | ----------------- |  | ----------------- |  | -----------------
|                                                     |  | 13 weeks ended    |  | 39 weeks ended   
|                                                     |  | September 29,2009 |  | September 28,2010 |  | September 29,2009 |  | September 28,2010
|Expected life of options and SARs from date of grant |  | 3.25 - 6.0 years  |  | 3.25 - 6.0 years  |  | 2.75 - 6.0 years  |  | 2.75 - 6.0 years 
|Risk-free interest rate                              |  | 1.65 - 2.80%      |  | 1.73 - 2.10%      |  | 1.13 - 2.80%      |  | 0.78 - 2.74%     
|Volatility                                           |  | 42%               |  | 42%               |  | 40 - 42%          |  | 42 - 43%         
|Assumed dividend yield                               |  | 0%                |  | 0%                |  | 0%                |  | 0%               

The Company evaluates and
revises the assumptions used to calculate the fair value of stock options and SARs granted as necessary, to reflect market conditions and the Companys experience.

As of September 28, 2010, the Company had approximately $1.7 million of total unrecognized compensation cost related to non-vested awards granted under our stock option and stock appreciation rights
plans, which will be recognized over a weighted average period of 1.6 years. As of September 28, 2010, the Company has approximately $71,000 of total unrecognized compensation cost related to the restricted stock plan, which will be recognized
over a weighted average period of 1.03 years.

Stock Option Plan Activity

Transactions during the thirty-nine weeks ended September 28, 2010 were as follows:



|                                           |  |                 |           |   |                               |   |       |                                       |  |  |      | 
|------------------------------------------ |  | --------------- | --------- | - | ----------------------------- | - | ----- | ------------------------------------- |  |  | ---- | 
|                                           |  | NumberofOptions |           |   | WeightedAverageExercise Price |   |       | Weighted AverageRemainingLife
(Years) | 
|Outstanding, December 29, 2009             |  |                 | 910,377   |   |                               | $ | 8.63  |                                       |  |  |      | 
|Granted                                    |  |                 | 462,750   |   |                               |   | 11.60 |                                       |  |  |      | 
|Exercised                                  |  |                 | (116,394  | ) |                               |   | 4.76  |                                       |  |  |      | 
|Cancelled/Forfeited                        |  |                 | (81,407   | ) |                               |   | 11.47 |                                       |  |  |      | 
|Expired                                    |  |                 | (23,061   | ) |                               |   | 18.22 |                                       |  |  |      | 
|                                           |  |                 |           |   |                               |   |       |                                       |  |  |      | 
|Outstanding, September 28, 2010            |  |                 | 1,152,265 |   |                               | $ | 9.82  |                                       |  |  | 7.55 | 
|                                           |  |                 |           |   |                               |   |       |                                       |  |  |      | 
|Exercisable and vested, September 28, 2010 |  |                 | 455,686   |   |                               | $ | 9.59  |                                       |  |  | 5.47 | 
|                                           |  |                 |           |   |                               |   |       |                                       |  |  |      | 



|                                       |  |                 |          |   |                                      |   |      | 
|-------------------------------------- |  | --------------- | -------- | - | ------------------------------------ | - | ---- | 
|                                       |  | NumberofOptions |          |   | Weighted AverageGrant DateFair
Value |  
|Non-vested options, December 29, 2009  |  |                 | 463,360  |   |                                      | $ | 2.83 | 
|Granted                                |  |                 | 462,750  |   |                                      |   | 5.01 | 
|Vested                                 |  |                 | (172,338 | ) |                                      |   | 3.33 | 
|Forfeited                              |  |                 | (57,193  | ) |                                      |   | 4.05 | 
|                                       |  |                 |          |   |                                      |   |      | 
|Non-vested options, September 28, 2010 |  |                 | 696,579  |   |                                      | $ | 4.05 | 
|                                       |  |                 |          |   |                                      |   |      | 



9



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##### Table of Contents

EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)(Continued)





The aggregate intrinsic value of
stock options exercised during the thirty-nine weeks ended September 28, 2010 was $0.9 million.

Stock Appreciation
Rights Plan Activity

Transactions during the thirty-nine weeks ended September 28, 2010 were as follows:



|                                           |  |              |        |   |                               |   |       |                                        |  |  |      | 
|------------------------------------------ |  | ------------ | ------ | - | ----------------------------- | - | ----- | -------------------------------------- |  |  | ---- | 
|                                           |  | NumberofSARs |        |   | WeightedAverageExercise Price |   |       | Weighted 
AverageRemainingLife (Years) | 
|Outstanding, December 29, 2009             |  |              | 67,553 |   |                               | $ | 11.05 |                                        |  |  |      | 
|Granted                                    |  |              | 24,000 |   |                               |   | 12.21 |                                        |  |  |      | 
|Exercised                                  |  |              | (1,875 | ) |                               |   | 8.00  |                                        |  |  |      | 
|Forfeited                                  |  |              | (1,900 | ) |                               |   | 15.48 |                                        |  |  |      | 
|                                           |  |              |        |   |                               |   |       |                                        |  |  |      | 
|Outstanding, September 28, 2010            |  |              | 87,778 |   |                               | $ | 11.33 |                                        |  |  | 3.22 | 
|                                           |  |              |        |   |                               |   |       |                                        |  |  |      | 
|Exercisable and vested, September 28, 2010 |  |              | 43,278 |   |                               | $ | 11.08 |                                        |  |  | 2.11 | 
|                                           |  |              |        |   |                               |   |       |                                        |  |  |      | 



|                                     |  |              |         |   |                                      |   |      | 
|------------------------------------ |  | ------------ | ------- | - | ------------------------------------ | - | ---- | 
|                                     |  | NumberofSARs |         |   | Weighted AverageGrant
DateFair Value |  
|Non-vested rights, December 29, 2009 |  |              | 32,812  |   |                                      | $ | 3.25 | 
|Granted                              |  |              | 24,000  |   |                                      |   | 3.80 | 
|Vested                               |  |              | (12,262 | ) |                                      |   | 3.05 | 
|Forfeited                            |  |              | (50     | ) |                                      |   | 6.75 | 
|                                     |  |              |         |   |                                      |   |      | 
|Non-vested rights September 28, 2010 |  |              | 44,500  |   |                                      | $ | 3.60 | 
|                                     |  |              |         |   |                                      |   |      | 

The aggregate intrinsic value of SARs exercised during the thirty-nine weeks ended September 28, 2010 was $0.

Restricted Stock

On January 9, 2009, the Companys Compensation Committee granted 63,776 shares of restricted stock with a value of $375,000 in connection with Mr. ONeills appointment as
President and Chief Executive Officer. The forfeiture restrictions on 21,259 shares lapsed on January 9, 2010, the first anniversary of the grant. The forfeiture restriction on 21,259 shares and 21,258 shares will lapse on the second and third
anniversaries of the grant, respectively, provided that Mr. ONeill remains employed by the Company.



10



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##### Table of Contents

EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)(Continued)





10. Net Income Per Common Share

The following table sets forth the computation of basic and diluted net income available to common stockholders per share:



|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|------------------------------------------------------ |  | ----------------------------------------------------------------------- | ---------- |  | ----------------- | - | ---------- | ----------------- |  | - | ----------------- |  |  | - | ---------- | -
|                                                       |  | 13 weeks ended                                                          |            |  | 39 weeks ended    |  
|                                                       |  | September 29,2009                                                       |            |  | September 28,2010 |   |            | September 29,2009 |  |   | September 28,2010 | 
|                                                       |  | (in thousands, except earnings per share and related share information) |           
|Net income                                             |  | $                                                                       | 60,861     |  |                   | $ | 3,400      |                   |  | $ | 69,177            |  |  | $ | 7,268      |  
|Less: Additional redemption on temporary equity        |  |                                                                         |           |  |                   |   | (124       | )                 |  |   |                  |  |  |   | (365       | )
|Add: Beneficial conversion feature on temporary equity |  |                                                                         |           |  |                   |   | 169        |                   |  |   |                  |  |  |   | 169        |  
|Add: Accretion of premium on Series Z preferred stock  |  |                                                                         |           |  |                   |   | 138        |                   |  |   |                  |  |  |   | 637        |  
|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|Net income available to common stockholders (a)        |  | $                                                                       | 60,861     |  |                   | $ | 3,583      |                   |  | $ | 69,177            |  |  | $ | 7,709      |  
|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|Basic weighted average shares outstanding (b)          |  |                                                                         | 16,236,271 |  |                   |   | 16,565,771 |                   |  |   | 16,103,170        |  |  |   | 16,509,654 |  
|Dilutive effect of stock options and SARs              |  |                                                                         | 457,572    |  |                   |   | 225,504    |                   |  |   | 343,362           |  |  |   | 276,537    |  
|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|Diluted weighted average shares outstanding (c)        |  |                                                                         | 16,693,843 |  |                   |   | 16,791,275 |                   |  |   | 16,446,532        |  |  |   | 16,786,191 |  
|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|Net income available to common stockholders per share: |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|Basic (a)/(b)                                          |  | $                                                                       | 3.75       |  |                   | $ | 0.22       |                   |  | $ | 4.30              |  |  | $ | 0.47       |  
|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|Diluted (a)/(c)                                        |  | $                                                                       | 3.65       |  |                   | $ | 0.21       |                   |  | $ | 4.21              |  |  | $ | 0.46       |  
|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  
|                                                       |  |                                                                         |            | 
|Anti-dilutive stock options and SARs                   |  |                                                                         | 253,265    |  |                   |   | 652,882    |                   |  |   | 407,025           |  |  |   | 458,235    |  
|                                                       |  |                                                                         |            |  |                   |   |            |                   |  |   |                   |  |  |   |            |  

Diluted earnings per share is computed by dividing the net income for the period by the weighted average number of shares of
common stock and potential common stock equivalents outstanding during the period using the treasury stock method. Potential common stock equivalents include incremental shares of common stock issuable upon the exercise of stock options. Potential
common stock equivalents are excluded from the computation of diluted net income per share when their effect is anti-dilutive.

11. Income
Taxes

Utilization of our net operating loss (NOL) carryforwards reduced our federal and state income tax liability incurred in
2009 and 2010. The Company has recorded income tax benefits on taxable earnings for the thirteen and thirty-nine weeks ended September 29, 2009 of $56.5 million and $56.1 million, respectively. The recorded provisions for income tax expense on
taxable earnings for the thirteen and thirty-nine weeks ended September 28, 2010 total $2.4 million and $6.1 million, respectively. The 2009 provision for income taxes included a benefit resulting from the $61 million reversal of substantially
all of our valuation allowance related to the realization of deferred tax assets.

As of December 29, 2009, NOL carryforwards of $131
million were available to be utilized against future taxable income for years through fiscal 2029, subject in part to annual limitations and excluding approximately $12.2 million of NOL carryforwards that will expire prior to utilization.
Accordingly, the Company has provided a full valuation allowance of $4.9 million related to this portion of deferred tax assets. Our ability to utilize our NOLs could be further limited if we experience an ownership change as defined by
Section 382 of the Internal Revenue Code. The occurrence of an additional ownership change would limit our ability to utilize approximately $112.5 million of our NOL carryforwards that are not currently subject to limitation, and could further
limit our ability to utilize our remaining NOL carryforwards and possibly other tax attributes. On December 30, 2008, the Company filed a request with the Internal Revenue Service to review our methodology for determining ownership changes in
accordance with Internal Revenue Code Section 382. On September 24, 2009, the Company received a favorable ruling from the IRS agreeing with our methodology.



11



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##### Table of Contents

EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)(Continued)





The Company continuously assesses
the likelihood of realization of the benefits of our deferred tax assets. Based upon our assessment in the third quarter of 2009, we reduced our $65.9 million valuation allowance by $61.0 million to $4.9 million.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and local jurisdictions. Tax regulations within each
jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company remains subject to examination by U.S. federal, state and local tax authorities for tax years 2007 through
2009 and with certain state and local authorities for tax years 2006 through 2009. In the third quarter of 2010, the Internal Revenue Service notified the Company that our 2008 federal return has been selected for examination. With a few
exceptions, the Company is no longer subject to U.S. federal, state or local examinations by tax authorities for the tax year 2005 and prior.

12. Commitments and Contingencies

Letters of Credit and Line of Credit

As of September 28, 2010, the Company had
$7.0 million in letters of credit outstanding which reduce our availability under the revolver. The letters of credit expire on various dates during 2010 and through 2012, typically renew annually and are payable upon demand in the event that we
fail to pay the underlying obligations.

As of the thirty-nine weeks ended September 28, 2010, the Company had a balance of $11.0 million
on our revolver. Our availability under the revolver was $2.0 million as of September 28, 2010.

Litigation

The Company is subject to claims and legal actions in the ordinary course of business, including claims by or against our franchisees,
licensees and employees or former employees and others. The Company does not believe any currently pending or threatened matter would have a material adverse effect on our business, results of operations or financial condition.

13. Other Operating Expenses/(Income)

On August 1, 2010, the Severna Park, Maryland restaurant was destroyed by fire. This restaurant is covered by both property damage and business
interruption insurance. The property damage coverage will pay to repair and/or replace the physical property damage as well as to replace the inventory and equipment loss. The Company wrote off the net book value of damaged property and equipment
and recorded an insurance receivable for those assets in the amount of approximately $0.3 million. During the thirteen weeks ended September 28, 2010, the Company had not yet received any insurance proceeds as a result of the insurance claim.
The Company plans to reopen the restaurant by the end of the current fiscal year after necessary renovations are made to the property. The Companys loss as a result of its non-operating status not covered by business interruption insurance was
approximately $47,000. The Companys loss as a result of the fire damage to its property and equipment was covered by property damage insurance. As such, the Company expects to record a gain in the future which will represent the excess of the
replacement cost over the net book value of the property once the insurance proceeds are received.

On August 10, 2010, the Company
established a new franchise relationship which included the sale of the assets of one company restaurant to the new franchisee and the execution of a development agreement for an additional four new restaurants. A gain on the sale of
approximately $0.8 million was recognized in the third quarter of 2010.



12



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##### Table of Contents

EINSTEIN NOAH RESTAURANT GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)(Continued)





14. Subsequent Events

On October 25, 2010, the Company redeemed an additional 3,240 shares of Series Z for $3.6 million, including accrued additional
redemption amounts. Halpern Denny did not exercise its option, and pursuant to the terms of the agreement, the exchange option has expired.

There were no other material subsequent events that have occurred since September 28, 2010 that required recognition or disclosure in these
financial statements.



13



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##### Table of Contents



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Cautionary Note Regarding Forward-Looking Statements

We wish to caution our readers that the following important factors, among others, could cause the actual results to differ materially from those indicated by forward-looking statements made in this
report and periodically in news releases, reports, proxy statements, registration statements and other written communications, as well as verbal forward-looking statements made by Company representatives. In addition, our definitions of non-GAAP
disclosures may differ from how others in our industry may define them. Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future performance
or achievements expressed or implied by these forward-looking statements. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements may include matters such as future economic
performance, general economic conditions, consumer preferences and spending, costs, competition, new product execution, restaurant openings or closings, operating margins, the availability of acceptable real estate locations, the sufficiency of our
cash balances and cash generated from operating and financing activities for our future liquidity and capital resource needs, growth of franchise and licensing, the impact on our business as a result of the Dodd-Frank Wall Street Reform and Consumer
Protection Act and the rules promulgated there under, and other matters, and are generally accompanied by words such as: believes, anticipates, plans, intends, estimates,
predicts, targets, expects, contemplates and similar expressions that convey the uncertainty of future events or outcomes. These risks and uncertainties include, but are not limited to, the risk
factors described in our annual report on Form 10-K for the year ended December 29, 2009 as updated in subsequent quarterly reports on Form 10-Q, including Item 1A of Part II of this report.

General

This
information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Managements
Discussion and Analysis of Financial Condition and Results of Operations, contained in the Companys Form 10-K for the fiscal year ended December 29, 2009. The following discussion and analysis includes historical and certain
forward-looking information that should be read together with the accompanying consolidated financial statements, related footnotes and the discussion below of certain risks and uncertainties that could cause future operating results to differ
materially from historical results or from the expected results indicated by forward-looking statements.

We have a 52/53-week fiscal year
ending on the Tuesday closest to December 31. The third quarters in fiscal years 2009 and 2010 ended on September 29, 2009 and September 28, 2010, respectively, and each contained thirteen weeks, and the year to date periods each
contained thirty-nine weeks. Our current fiscal year ends on December 28, 2010 and contains 52 weeks. Our next 53-week fiscal year ends on January 3, 2012.

Use of Non-GAAP Financial Information

In addition to the results reported in accordance
with accounting principles generally accepted in the United States of America (GAAP) included in this filing, the Company has provided certain non-GAAP financial information, including earnings before interest, taxes, depreciation,
amortization, adjustment for Series Z modification, and other operating expenses (adjusted EBITDA); net income adjusted for changes in our tax valuation allowance and all adjustments related to the Series Z modification (adjusted
net income); earnings per share adjusted for changes in our tax valuation allowance and all adjustments related to the Series Z modification (adjusted EPS) and free cash flow, or net cash provided by operating activities less net
cash used in investing activities. Management believes that the presentation of this non-GAAP financial information provides useful information to investors because this information may allow investors to better evaluate ongoing business
performance and certain components of the Companys results. In addition, the Companys Board of Directors uses this non-GAAP financial information to evaluate the performance of the Company and the management team. This information should
be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. The Company has reconciled the non-GAAP financial information on page 22 in this Form 10-Q to the nearest
GAAP measure.



14



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##### Table of Contents



We include in this report information
on Company-owned, franchise and license and system-wide comparable store sales percentages. Comparable store sales percentages refer to changes in sales of our restaurants, whether operated by the company or by franchisees and licensees, in
operation at least thirteen months including those restaurants temporarily closed for an immaterial amount of time. Some of the reasons restaurants may be temporarily closed include remodeling, road construction, rebuilding related to site-specific
catastrophes and natural disasters. Franchise and license comparable store sales percentages are based on sales of franchised and licensed restaurants, as reported by franchisees and licensees. System-wide sales include sales at all
restaurants, whether operated by the Company, franchisees or licensees. Management reviews the increase or decrease in comparable sales to assess business trends. Comparable store sales exclude closed locations.

We use company-owned store sales, franchise and license sales and the resulting system-wide sales information internally in connection with restaurant
development decisions, planning, and budgeting analyses. We believe comparable store sales information is useful in assessing consumer acceptance of our brands; facilitates an understanding of our financial performance and the overall direction and
trends of sales and operating income; helps us appreciate the effectiveness of our advertising and marketing initiatives; and provides information that is relevant for comparison within the industry.

Comparable store sales percentages are non-GAAP financial measures, which should not be considered in isolation or as a substitute for other measures of
performance prepared in accordance with GAAP, and may not be equivalent to comparable store sales as defined or used by other companies. We do not record franchise or license restaurant sales as revenues. However, royalty revenues are
calculated based on a percentage of franchise and license restaurant sales, as reported by the franchisees or licensees.



15



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##### Table of Contents



Overview

In evaluating and assessing our financial performance for the third quarter of 2010, we considered the following key factors:



| |  |  | Comparable store sales  During the third quarter of 2010, system-wide same store sales improved 0.7% driven by strong growth in our
franchise and license business while company-owned restaurant sales improved from -2.2% in the second quarter to -0.2% in the third quarter. This growth in system-wide same store sales represents our continued focus in successfully building our
franchise and license business while driving brand trial and awareness through healthy innovation on our core breakfast and lunch dayparts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the third quarter of 2010, our Bagel Thin lunch sandwiches, which were launched at the end of the second quarter 2010, gained traction and helped bolster this daypart. Additionally, we expanded our
Bagel Thin sandwich offering to the breakfast daypart. We also realized improvements in the sales of our Bagel Poppers and Bulk Bagels.



| |  |  | Unit development  We added 31 net locations in the thirty-nine week period ended September 28, 2010 compared to 22 net additions in
the same period for 2009. As of September 28, 2010, we owned and operated, franchised, and licensed 714 restaurants. Our current base of company-owned restaurants includes 352 Einstein Bros., 76 Noahs, and one Manhattan Bagel. Also, we
franchise 72 Manhattan Bagel and 13 Einstein Bros. restaurants, and have increased our licensed restaurant base to 200 Einstein Bros. restaurants. We include in our restaurant count our temporarily closed locations due to upgrades and remodeling.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net cash provided by operating activities and net cash used in investing activities  We generated $32.6 million of net cash provided by
operating activities in 2010, an improvement of $8.4 million, or 35%, from the same period of 2009. We also increased our investments in new restaurants and various upgrades for existing restaurants by $0.7 million from the same period of 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Redemption schedule of our Series Z On September 27, 2010, we redeemed 6,480 shares of our Series Z for approximately $7.1 million
including accrued additional redemption amounts. Including accrued additional redemption amounts, we have redeemed $25.7 million in 2010 and $50.5 million in total since June 30, 2009 of the Series Z shares.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subsequent to the end of the third quarter, on October 25, 2010, we redeemed an additional 3,240 shares of Series Z for $3.6 million,
including accrued additional redemption amounts. Halpern Denny did not exercise its exchange option and pursuant to the terms of the agreement, this exchange option has expired.



16



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##### Table of Contents



Outlook for
Remainder of 2010

We remain committed to healthy innovation, fresh-baked goodness and a strong line of new products that will build
customer loyalty for the long term. We are pleased with the success of our Bagel Thin sandwich line-up, which we plan to continue to promote through the balance of the year.

For the balance of 2010, we plan to concentrate primarily on the breakfast daypart, with increased efforts aimed at the lunch daypart. We have a strong line-up of new product offerings and limited time
offers that will be introduced throughout the year to drive new traffic and repeat visits, and we will continue with our successful mail drop coupons as a means of providing trial and repeat purchases for both new and loyal customers.

We intend to continue to expand our company-owned restaurants in 2010 with the addition of seven to eight new units. These new units will be focused
primarily in our more developed markets. During the thirty-nine weeks ended September 28, 2010, we opened four company-owned restaurants. We intend to upgrade 17 of our company-owned restaurants during 2010, of which 16 were completed as of
September 28, 2010. We also expect to update approximately 90 to 95 of our restaurants with a kitchen display ordering system that improves production accuracy and helps to reduce waste, of which 74 were completed as of September 28, 2010.
Finally, we will be renovating certain features at specific restaurants such as new internal signage, menu boards, updated external signage, and in certain restaurants, adding a revitalized coffee program which includes adding baristas and specialty
coffee.

We have a robust pipeline of existing franchise development agreements and new license locations. We plan to open 15 to 17 franchise
locations and 35 to 40 license restaurants in 2010. Our license restaurants will open primarily in colleges and universities, hospitals, and airports. During the thirty-nine weeks ended September 28, 2010 we opened eight franchise and 25
license restaurants. We closed two company-owned restaurants, three license restaurants, and refranchised one company-owned restaurant during the thirty-nine weeks ended September 28, 2010. We do not expect to close additional restaurants in
2010.

We have started to rollout a media test that we are executing in the Denver area over the next couple of months. Our plan is to
use the results of the test to build a strong media plan for 2011. Included in this media test are outdoor billboards and radio spots that highlight our new Egg White Bagel Thin sandwiches.

Results of Operations for the Quarter and Year to Date Periods Ended September 29, 2009 and September 28, 2010

Financial Highlights



| |  |  | Adjusted EBITDA increased 3.1% to $10.9 million in the third quarter of 2010 and increased 5.9% to $31.3 million year to date in 2010 compared to 2009.
This was primarily the result of strong restaurant level margins driven by strong operating controls and effective cost and inventory management, partially offset by increased investment in key marketing initiatives for a year to date increase in
gross profit while expanding the gross margins in our manufacturing and commissaries operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adjusted diluted EPS was $0.20 in the third quarter of 2010 compared to $0.15 in the third quarter of 2009 and was $0.48 year to date 2010 compared to
$0.47 year to date 2009.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



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##### Table of Contents



Consolidated
Results



|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|--------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------------- | - | ------- | --------------------- |  |  | ----------------- | -- |  | ----------------- | ------- | - | --------------------- | - | ------- | - |  |  | ------ | --
|                                                                                        |  | 13 weeks ended         |         |   | 39 weeks ended         |  
|                                                                                        |  | (dollars in thousands) |         |   | (dollars in thousands) |  
|                                                                                        |  | September 29,2009      |         |   | September 28,2010      |   |         | % Increase/(Decrease) |  |  | September 29,2009 |    |  | September 28,2010 |         |   | % Increase/(Decrease) |  
|Revenues                                                                                |  | $                      | 100,046 |   |                        | $ | 101,361 |                       |  |  | 1.3               | %  |  | $                 | 304,827 |   |                       | $ | 305,646 |   |  |  | 0.3    | % 
|                                                                                        |  |                        |         |   |                        |  
|Cost of sales                                                                           |  |                        | 81,419  |   |                        |   | 81,298  |                       |  |  | (0.1              | %) |  |                   | 248,892 |   |                       |   | 246,086 |   |  |  | (1.1   | %)
|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|Total gross profit                                                                      |  |                        | 18,627  |   |                        |   | 20,063  |                       |  |  | 7.7               | %  |  |                   | 55,935  |   |                       |   | 59,560  |   |  |  | 6.5    | % 
|                                                                                        |  |                        |         |   |                        |  
|Operating expenses                                                                      |  |                        | 12,414  |   |                        |   | 13,019  |                       |  |  | 4.9               | %  |  |                   | 38,590  |   |                       |   | 40,892  |   |  |  | 6.0    | % 
|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|Income from operations                                                                  |  |                        | 6,213   |   |                        |   | 7,044   |                       |  |  | 13.4              | %  |  |                   | 17,345  |   |                       |   | 18,668  |   |  |  | 7.6    | % 
|                                                                                        |  |                        |         |   |                        |  
|Interest expense                                                                        |  |                        | 1,894   |   |                        |   | 1,209   |                       |  |  | (36.2             | %) |  |                   | 4,240   |   |                       |   | 4,395   |   |  |  | 3.7    | % 
|                                                                                        |  |                        |         |   |                        |  
|Adjustment for Series Z modification                                                    |  |                        |        |   |                        |   |        |                       |  |  | *                 | ** |  |                   |        |   |                       |   | 929     |   |  |  | *      | **
|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|Income before income taxes                                                              |  |                        | 4,319   |   |                        |   | 5,835   |                       |  |  | 35.1              | %  |  |                   | 13,105  |   |                       |   | 13,344  |   |  |  | 1.8    | % 
|Provision for income tax                                                                |  |                        | (56,542 | ) |                        |   | 2,435   |                       |  |  | (104.3            | %) |  |                   | (56,072 | ) |                       |   | 6,076   |   |  |  | (110.8 | %)
|Less: Net adjustment for change in tax valuation allowance *                            |  |                        | 58,326  |   |                        |   |        |                       |  |  | (100.0            | %) |  |                   | 61,484  |   |                       |   |        |   |  |  | (100.0 | %)
|Less/(Add): Adjustment for Series Z modification **                                     |  |                        |        |   |                        |   | 48      |                       |  |  | *                 | ** |  |                   |        |   |                       |   | (707    | ) |  |  | *      | **
|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|Adjusted net income                                                                     |  | $                      | 2,535   |   |                        | $ | 3,352   |                       |  |  | 32.2              | %  |  | $                 | 7,693   |   |                       | $ | 7,975   |   |  |  | 3.7    | % 
|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|Adjustments to adjusted net income:                                                     |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|Interest expense, net                                                                   |  |                        | 1,894   |   |                        |   | 1,209   |                       |  |  | (36.2             | %) |  |                   | 4,240   |   |                       |   | 4,395   |   |  |  | 3.7    | % 
|Additional redemption on temporary equity**                                             |  |                        |        |   |                        |   | 124     |                       |  |  | *                 | ** |  |                   |        |   |                       |   | 365     |   |  |  | *      | **
|Amortization of discount on Series Z preferred stock**                                  |  |                        |        |   |                        |   | (76     | )                     |  |  | *                 | ** |  |                   |        |   |                       |   | (143    | ) |  |  | *      | **
|Provision for income taxes                                                              |  |                        | (56,542 | ) |                        |   | 2,435   |                       |  |  | (104.3            | %) |  |                   | (56,072 | ) |                       |   | 6,076   |   |  |  | (110.8 | %)
|Net change in tax valuation allowance                                                   |  |                        | 58,326  |   |                        |   |        |                       |  |  | (100.0            | %) |  |                   | 61,484  |   |                       |   |        |   |  |  | (100.0 | %)
|Depreciation and amortization                                                           |  |                        | 4,222   |   |                        |   | 4,498   |                       |  |  | 6.5               | %  |  |                   | 12,361  |   |                       |   | 13,244  |   |  |  | 7.1    | % 
|Other operating expenses                                                                |  |                        | 92      |   |                        |   | (690    | )                     |  |  | *                 | ** |  |                   | (144    | ) |                       |   | (620    | ) |  |  | *      | **
|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   
|Earnings before interest, taxes, depreciation, amortization and other (Adjusted EBITDA) |  | $                      | 10,527  |   |                        | $ | 10,852  |                       |  |  | 3.1               | %  |  | $                 | 29,562  |   |                       | $ | 31,292  |   |  |  | 5.9    | % 
|                                                                                        |  |                        |         |   |                        |   |         |                       |  |  |                   |    |  |                   |         |   |                       |   |         |   |  |  |        |   



|* | Our third quarter and year to date 2009 provision for income taxes included a benefit resulting from the reduction of the valuation allowance related to the realization
of our deferred tax assets. This benefit offset the estimated deferred tax expense in 2009.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | As a result of the March 17, 2010 agreement modifying our Series Z, we recognized a non-cash loss of $0.9 million on the extinguishment of debt, recorded
additional redemption within stockholders equity and recorded a discount within interest expense.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Not meaningful
|--- | --------------

During 2010, we focused on our
new product introductions including Bagel Thin Egg White breakfast sandwiches, our Lighter Side menu offerings and Bulk Bagels and continued with the trial-oriented couponing to increase guest frequency. System-wide comparable store sales
responded favorably and were 0.7% in the third quarter and -0.1% year to date 2010. Our Bagel Thin sandwiches and our Lighter Side menu offerings comprised approximately 4% and 2% of our total mix, respectively, as of the end of the third quarter.
Catering is another area of focus with high single digit increases in the third quarter.

Interest expense, net was down $0.7 million, or
36.2%, in the third quarter due primarily to lower additional redemption on our Series Z as a result of the combined impact of the significant Series Z redemptions we have made since September 29, 2009 and the reporting of the additional
redemption related to the Series Z shares subject to the exchange option as temporary equity, as well as the expiration of the interest rate swap at the end of August 2010. Conversely, interest expense, net was up approximately $0.2 million, or
3.7%, on a year to date basis due primarily to higher additional redemption as we did not start to accrue additional redemption amounts on the Series Z as interest until July 1, 2009.



18



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##### Table of Contents



Company-Owned
Restaurant Operations



|                                               |  |                        |        |   |                   |   |        |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|---------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ------ | ------------------------------------------- |  |  | ----------------- | -- |  | ----------------- | ---- | - |  |  | ---- | -
|                                               |  | 13 weeks ended         |       
|                                               |  | (dollars in thousands) |        |   |                   |   |        | Percentage of company-ownedrestaurant sales | 
|                                               |  | September 29,2009      |        |   | September 28,2010 |   |        | % Increase/(Decrease)                       |  |  | September 29,2009 |    |  | September 28,2010 |     
|Company-owned restaurant sales                 |  | $                      | 91,237 |   |                   | $ | 91,822 |                                             |  |  | 0.6               | %  |  |                   |      |   |  |  |      |  
|Percent of total revenues                      |  |                        | 91.2   | % |                   |   | 90.6   | %                                           |  |  |                   |    |  |                   |      |   |  |  |      |  
|                                               |  |                        |        |   |                  
|Cost of sales:                                 |  |                        |        |   |                   |   |        |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|Cost of goods sold                             |  | $                      | 26,293 |   |                   | $ | 26,040 |                                             |  |  | (1.0              | %) |  |                   | 28.8 | % |  |  | 28.4 | %
|Labor costs                                    |  |                        | 27,826 |   |                   |   | 27,216 |                                             |  |  | (2.2              | %) |  |                   | 30.5 | % |  |  | 29.6 | %
|Other operating costs                          |  |                        | 9,638  |   |                   |   | 10,108 |                                             |  |  | 4.9               | %  |  |                   | 10.6 | % |  |  | 11.0 | %
|Rent and related expenses, and marketing costs |  |                        | 11,475 |   |                   |   | 11,446 |                                             |  |  | (0.3              | %) |  |                   | 12.6 | % |  |  | 12.5 | %
|                                               |  |                        |        |   |                   |   |        |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|Total company-owned restaurant cost of sales   |  | $                      | 75,232 |   |                   | $ | 74,810 |                                             |  |  | (0.6              | %) |  |                   | 82.5 | % |  |  | 81.5 | %
|                                               |  |                        |        |   |                   |   |        |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|Total company-owned restaurant gross profit    |  | $                      | 16,005 |   |                   | $ | 17,012 |                                             |  |  | 6.3               | %  |  |                   | 17.5 | % |  |  | 18.5 | %
|                                               |  |                        |        |   |                   |   |        |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  



|                                               |  |                        |         |   |                   |   |         |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|---------------------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | ------------------------------------------- |  |  | ----------------- | -- |  | ----------------- | ---- | - |  |  | ---- | -
|                                               |  | 39 weeks ended         |        
|                                               |  | (dollars in thousands) |         |   |                   |   |         | Percentage of company-ownedrestaurant sales | 
|                                               |  | September 29,2009      |         |   | September 28,2010 |   |         | % Increase/(Decrease)                       |  |  | September 29,2009 |    |  | September 28,2010 |     
|Company-owned restaurant sales                 |  | $                      | 276,743 |   |                   | $ | 276,750 |                                             |  |  | 0.0               | %  |  |                   |      |   |  |  |      |  
|Percent of total revenues                      |  |                        | 90.8    | % |                   |   | 90.5    | %                                           |  |  |                   |    |  |                   |      |   |  |  |      |  
|Cost of sales:                                 |  |                        |         |   |                   |   |         |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|Cost of goods sold                             |  | $                      | 81,316  |   |                   | $ | 78,589  |                                             |  |  | (3.4              | %) |  |                   | 29.4 | % |  |  | 28.4 | %
|Labor costs                                    |  |                        | 85,401  |   |                   |   | 82,419  |                                             |  |  | (3.5              | %) |  |                   | 30.9 | % |  |  | 29.8 | %
|Other operating costs                          |  |                        | 28,625  |   |                   |   | 28,561  |                                             |  |  | (0.2              | %) |  |                   | 10.3 | % |  |  | 10.3 | %
|Rent and related expenses, and marketing costs |  |                        | 33,731  |   |                   |   | 37,368  |                                             |  |  | 10.8              | %  |  |                   | 12.2 | % |  |  | 13.5 | %
|                                               |  |                        |         |   |                   |   |         |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|Total company-owned restaurant cost of sales   |  | $                      | 229,073 |   |                   | $ | 226,937 |                                             |  |  | (0.9              | %) |  |                   | 82.8 | % |  |  | 82.0 | %
|                                               |  |                        |         |   |                   |   |         |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  
|Total company-owned restaurant gross profit    |  | $                      | 47,670  |   |                   | $ | 49,813  |                                             |  |  | 4.5               | %  |  |                   | 17.2 | % |  |  | 18.0 | %
|                                               |  |                        |         |   |                   |   |         |                                             |  |  |                   |    |  |                   |      |   |  |  |      |  

Company-owned restaurant sales for the third quarter 2010 showed an increase of 0.6% as compared to the prior
quarter and remained flat, year to date, when compared to 2009. For the third quarter and year to date 2010, our company-owned comparable store sales were -0.2% and -0.9%, respectively, with a decline in transactions and a relatively flat
average check as expected from the rollover of our trial-generating initiatives and nominal price increases in 2009.

Our gross profit
increased from 17.5% in the third quarter of 2009 to 18.5% in the third quarter of 2010, primarily due to favorable product costs, improvements in our labor related initiatives and from a decrease in health care benefit costs, partially offset by
our investment in marketing initiatives and the increase in other operating costs due to unfavorable utilities and credit card costs. For the year to date, gross profit was 18.0%, up from 17.2% reported in 2009 primarily due to the aforementioned
cost saving initiatives partially offset by our marketing investments.

Compared to 2009, most of our commodity-based food costs have declined
in 2010. We believe our combined commodity costs will continue to decrease for the balance of 2010. We have locked in 100% of our wheat requirements for the remainder of fiscal 2010, and 50% for the first quarter of 2011.

As of September 28, 2010, the Company has secured contract pricing on approximately 90% of all major agricultural commodities, including wheat, for
the remaining part of fiscal 2010 that should result in favorable prices compared to 2009, with an opportunity to benefit from further reductions in the market.



19



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##### Table of Contents



Our investment in marketing
initiatives rose to $1.8 million, up from $1.4 million in the third quarter of 2009. Total year to date investments in marketing initiatives is up $3.9 million over 2009. While the trend of increased marketing spend will continue, we expect it to be
at a lower rate for the balance of the year.

Manufacturing and Commissary Operations



|                                                         |  |                        |       |   |                        |   |       |                       |  |  |                   |   |  |                   |        |   |                       |   |        |   |  |  |      |   
|-------------------------------------------------------- |  | ---------------------- | ----- | - | ---------------------- | - | ----- | --------------------- |  |  | ----------------- | - |  | ----------------- | ------ | - | --------------------- | - | ------ | - |  |  | ---- | --
|                                                         |  | 13 weeks ended         |       |   | 39 weeks ended         |  
|                                                         |  | (dollars in thousands) |       |   | (dollars in thousands) |  
|                                                         |  | September 29,2009      |       |   | September 28,2010      |   |       | % Increase/(Decrease) |  |  | September 29,2009 |   |  | September 28,2010 |        |   | % Increase/(Decrease) |  
|Manufacturing and commissary revenues                    |  | $                      | 7,050 |   |                        | $ | 7,478 |                       |  |  | 6.1               | % |  | $                 | 22,790 |   |                       | $ | 22,705 |   |  |  | (0.4 | %)
|Percent of total revenues                                |  |                        | 7.0   | % |                        |   | 7.4   | %                     |  |  |                   |   |  |                   | 7.5    | % |                       |   | 7.4    | % |  |  |      |   
|Manufacturing and commissary costs                       |  | $                      | 6,187 |   |                        | $ | 6,488 |                       |  |  | 4.9               | % |  | $                 | 19,819 |   |                       | $ | 19,149 |   |  |  | (3.4 | %)
|As a percentage of manufacturing and commissary revenues |  |                        | 87.8  | % |                        |   | 86.8  | %                     |  |  |                   |   |  |                   | 87.0   | % |                       |   | 84.3   | % |  |  |      |   
|                                                         |  |                        |       |   |                        |  
|Total manufacturing and commissary gross profit          |  | $                      | 863   |   |                        | $ | 990   |                       |  |  | 14.7              | % |  | $                 | 2,971  |   |                       | $ | 3,556  |   |  |  | 19.7 | % 
|                                                         |  |                        |       |   |                        |   |       |                       |  |  |                   |   |  |                   |        |   |                       |   |        |   |  |  |      |   
|As a percentage of manufacturing and commissary revenues |  |                        | 12.2  | % |                        |   | 13.2  | %                     |  |  |                   |   |  |                   | 13.0   | % |                       |   | 15.7   | % |  |  |      |   

Manufacturing and commissary revenues for the third quarter were up 6.1% driven mainly by higher sales to licensed
restaurants during the quarter along with higher sales to third party customers from our manufacturing facility. Manufacturing volumes were up slightly during the quarter and remained flat year to date. Manufacturing gross profit increased in
the third quarter and year to date 2010 as a result of favorable raw ingredient costs, coupled with higher third quarter sales volumes.

Franchise and License Operations



|                                            |  |                        |       |   |                        |   |       |                       |  |  |                   |   |  |                   |       |   |                       |   |       |   |  |  |      |  
|------------------------------------------- |  | ---------------------- | ----- | - | ---------------------- | - | ----- | --------------------- |  |  | ----------------- | - |  | ----------------- | ----- | - | --------------------- | - | ----- | - |  |  | ---- | -
|                                            |  | 13 weeks ended         |       |   | 39 weeks ended         |  
|                                            |  | (dollars in thousands) |       |   | (dollars in thousands) |  
|                                            |  | September 29,2009      |       |   | September 28,2010      |   |       | % Increase/(Decrease) |  |  | September 29,2009 |   |  | September 28,2010 |       |   | % Increase/(Decrease) |  
|Franchise and license related revenues      |  | $                      | 1,759 |   |                        | $ | 2,061 |                       |  |  | 17.2              | % |  | $                 | 5,294 |   |                       | $ | 6,191 |   |  |  | 16.9 | %
|Percent of total revenues                   |  |                        | 1.8   | % |                        |   | 2.0   | %                     |  |  |                   |   |  |                   | 1.7   | % |                       |   | 2.0   | % |  |  |      |  
|Number of franchise and license restaurants |  |                        | 247   |   |                        |   | 285   |                       |  |  |                   |   |  |                   | 247   |   |                       |   | 285   |   |  |  |      |  

Overall, franchise and license revenue improved by $0.3 million, or 17.2%, and $0.9 million, or 16.9%, in the
third quarter and year to date 2010, respectively. This increase was driven by net restaurant expansion of 38 restaurants including a net increase of 28 licensed restaurants, a net increase of 9 franchised restaurants and one refranchised restaurant
since September 29, 2009. Additionally, this increase was due to strong royalty streams in existing restaurants that were a result of positive comparable sales by franchisees and licensees of 3.5% and 2.5% for the thirteen weeks and thirty-nine
weeks ended September 28, 2010, respectively.



20



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Corporate



|                                     |  |                        |         |    |                        |   |        |                       |  |  |                   |    |  |                   |         |    |                       |   |        |    |  |  |        |   
|------------------------------------ |  | ---------------------- | ------- | -- | ---------------------- | - | ------ | --------------------- |  |  | ----------------- | -- |  | ----------------- | ------- | -- | --------------------- | - | ------ | -- |  |  | ------ | --
|                                     |  | 13 weeks ended         |         |    | 39 weeks ended         |  
|                                     |  | (dollars in thousands) |         |    | (dollars in thousands) |  
|                                     |  | September 29,2009      |         |    | September 28,2010      |   |        | % Increase/(Decrease) |  |  | September 29,2009 |    |  | September 28,2010 |         |    | % Increase/(Decrease) |  
|General and administrative expenses  |  | $                      | 8,100   |    |                        | $ | 9,211  |                       |  |  | 13.7              | %  |  | $                 | 26,373  |    |                       | $ | 28,268 |    |  |  | 7.2    | % 
|Percent of total revenues            |  |                        | 8.1     | %  |                        |   | 9.1    | %                     |  |  |                   |    |  |                   | 8.7     | %  |                       |   | 9.2    | %  |  |  |        |   
|Depreciation and amortization        |  | $                      | 4,222   |    |                        | $ | 4,498  |                       |  |  | 6.5               | %  |  |                   | 12,361  |    |                       |   | 13,244 |    |  |  | 7.1    | % 
|Percent of total revenues            |  |                        | 4.2     | %  |                        |   | 4.4    | %                     |  |  |                   |    |  |                   | 4.1     | %  |                       |   | 4.3    | %  |  |  |        |   
|Other operating expenses (income)    |  |                        | 92      |    |                        |   | (690   | )                     |  |  | *                 | ** |  |                   | (144    | )  |                       |   | (620   | )  |  |  | *      | **
|Percent of total revenues            |  |                        | 0.1     | %  |                        |   | (0.7   | %)                    |  |  |                   |    |  |                   | 0.0     | %  |                       |   | (0.2   | %) |  |  |        |   
|Total operating expenses             |  | $                      | 12,414  |    |                        | $ | 13,019 |                       |  |  | 4.9               | %  |  | $                 | 38,590  |    |                       | $ | 40,892 |    |  |  | 6.0    | % 
|                                     |  |                        |         |    |                        |   |        |                       |  |  |                   |    |  |                   |         |    |                       |   |        |    |  |  |        |   
|Percent of total revenues            |  |                        | 12.4    | %  |                        |   | 12.8   | %                     |  |  |                   |    |  |                   | 12.7    | %  |                       |   | 13.4   | %  |  |  |        |   
|Interest expense, net                |  | $                      | 1,894   |    |                        | $ | 1,209  |                       |  |  | (36.2             | %) |  |                   | 4,240   |    |                       |   | 4,395  |    |  |  | 3.7    | % 
|Percent of total revenues            |  |                        | 1.9     | %  |                        |   | 1.2    | %                     |  |  |                   |    |  |                   | 1.4     | %  |                       |   | 1.4    | %  |  |  |        |   
|Adjustment for Series Z modification |  |                        |        |    |                        |   |       |                       |  |  | *                 | ** |  |                   |        |    |                       |   | 929    |    |  |  | *      | **
|Percent of total revenues            |  |                        | 0       | %  |                        |   | 0      | %                     |  |  |                   |    |  |                   | 0       | %  |                       |   | 0.3    | %  |  |  |        |   
|Provision for income tax             |  |                        | (56,542 | )  |                        |   | 2,435  |                       |  |  | (104.3            | %) |  |                   | (56,072 | )  |                       |   | 6,076  |    |  |  | (110.8 | %)
|Percent of total revenues            |  |                        | (56.5   | %) |                        |   | 2.4    | %                     |  |  |                   |    |  |                   | (18.4   | %) |                       |   | 2.0    | %  |  |  |        |   



|*** | Not meaningful
|--- | --------------

Our total general and
administrative expenses increased $1.1 million in the third quarter 2010 compared to 2009, and increased $1.9 million year to date 2010 compared to 2009 primarily due to increases for incentive compensation. In general, the increases in incentive
compensation resulted from more favorable views toward the achievement of performance targets in 2010. In 2009, we decreased our estimate of incentive compensation expense in the third quarter. Excluding incentive compensation, general and
administrative expenses increased 0.5% and 1.6% in the third quarter and year to date 2010, respectively, mainly due to an increase in relocation expenses and legal settlements.

Depreciation and amortization expenses increased $0.3 million and $0.9 million for the third quarter and year to date 2010, respectively, when compared to 2009. The increase is due to additional
investments in company-owned restaurants that were either added or upgraded since the third quarter of 2009. Based on our current planned purchases of capital assets, our existing base of assets, and our projections for new purchases of fixed
assets, we believe depreciation expense for 2010 will be approximately $18 million.

Other operating expenses (income) changed $0.6 million
and $0.5 million for the third quarter and year to date 2010, respectively, primarily due to the gain on the sale of the assets of one company-owned restaurant offset by the loss on the restaurant fire. We expect to record a gain on the restaurant
fire once insurance proceeds are received.

Our provision for income taxes in 2009 includes a $61 million reversal of our valuation allowance
related to our deferred tax assets. We currently estimate our 2010 annual effective tax rate to be 42.7%, which compares to a 2009 annual effective tax rate of 41.3% excluding the impact related to the reversal of our valuation allowance.



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Reconciliation of
Non-GAAP Measures to GAAP Measures



|                                                                                        |  |                   |         |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                                                        |  | 13 weeks ended    |         |   | 39 weeks ended    |  
|                                                                                        |  | September 29,2009 |         |   | September 28,2010 |   |        | September 29,2009 |  |   | September 28,2010 |  
|                                                                                        |  | (in thousands)    |        
|Net income                                                                              |  | $                 | 60,861  |   |                   | $ | 3,400  |                   |  | $ | 69,177            |   |  | $ | 7,268  |  
|Adjustments to net income:                                                              |  |                   |         |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Interest expense, net                                                                   |  |                   | 1,894   |   |                   |   | 1,209  |                   |  |   | 4,240             |   |  |   | 4,395  |  
|Provision for income taxes                                                              |  |                   | (56,542 | ) |                   |   | 2,435  |                   |  |   | (56,072           | ) |  |   | 6,076  |  
|Depreciation and amortization                                                           |  |                   | 4,222   |   |                   |   | 4,498  |                   |  |   | 12,361            |   |  |   | 13,244 |  
|Adjustment for Series Z modification                                                    |  |                   |        |   |                   |   |       |                   |  |   |                  |   |  |   | 929    |  
|Other operating expenses/(income)                                                       |  |                   | 92      |   |                   |   | (690   | )                 |  |   | (144              | ) |  |   | (620   | )
|                                                                                        |  |                   |         |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Adjusted EBITDA (Earnings before interest, taxes, depreciation, amortization and other) |  | $                 | 10,527  |   |                   | $ | 10,852 |                   |  | $ | 29,562            |   |  | $ | 31,292 |  
|                                                                                        |  |                   |         |   |                   |   |        |                   |  |   |                   |   |  |   |        |  

EINSTEIN NOAH RESTAURANT GROUP, INC.

NON-GAAP FINANCIAL INFORMATION

(unaudited)



|                                                               |  |                                                                        |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|-------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ---------- | - | ----------------- | - | ---------- | ----------------- |  | - | ----------------- | - |  | - | ---------- | -
|                                                               |  | 13 weeks ended                                                         |            |   | 39 weeks ended    |  
|                                                               |  | September 29,2009                                                      |            |   | September 28,2010 |   |            | September 29,2009 |  |   | September 28,2010 |  
|                                                               |  | (in thousands, except earnings per share and related shareinformation) |           
|Net income available to common stockholders                    |  | $                                                                      | 60,861     |   |                   | $ | 3,583      |                   |  | $ | 69,177            |   |  | $ | 7,709      |  
|Adjustments for:                                               |  |                                                                        |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Less: Change in tax valuation allowance                        |  |                                                                        | (56,772    | ) |                   |   |           |                   |  |   | (56,772           | ) |  |   |           |  
|Less: Deferred tax expense                                     |  |                                                                        | (1,554     | ) |                   |   |           |                   |  |   | (4,712            | ) |  |   |           |  
|Add: Adjustment for Series Z modification                      |  |                                                                        |           |   |                   |   |           |                   |  |   |                  |   |  |   | 929        |  
|Add: Amortization of discount on Series Z preferred stock (1)  |  |                                                                        |           |   |                   |   | 76         |                   |  |   |                  |   |  |   | 143        |  
|Less: Accretion of premium on Series Z preferred stock         |  |                                                                        |           |   |                   |   | (138       | )                 |  |   |                  |   |  |   | (637       | )
|Less: Beneficial conversion feature on temporary equity        |  |                                                                        |           |   |                   |   | (169       | )                 |  |   |                  |   |  |   | (169       | )
|                                                               |  |                                                                        |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Adjusted net income                                            |  | $                                                                      | 2,535      |   |                   | $ | 3,352      |                   |  | $ | 7,693             |   |  | $ | 7,975      |  
|                                                               |  |                                                                        |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Weighted average number of common shares outstanding:          |  |                                                                        |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Basic                                                          |  |                                                                        | 16,236,271 |   |                   |   | 16,565,771 |                   |  |   | 16,103,170        |   |  |   | 16,509,654 |  
|Diluted                                                        |  |                                                                        | 16,693,843 |   |                   |   | 16,791,275 |                   |  |   | 16,446,532        |   |  |   | 16,786,191 |  
|                                                               |  |                                                                        |            |  
|Net income per share available to commonstockholders  Basic   |  | $                                                                      | 3.75       |   |                   | $ | 0.22       |                   |  | $ | 4.30              |   |  | $ | 0.47       |  
|Adjustments for:                                               |  |                                                                        |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Less: Change in tax valuation allowance                        |  | $                                                                      | (3.49      | ) |                   | $ |           |                   |  | $ | (3.53             | ) |  | $ |           |  
|Less: Deferred tax expense                                     |  | $                                                                      | (0.10      | ) |                   | $ |           |                   |  | $ | (0.29             | ) |  | $ |           |  
|Add: Adjustment for Series Z modification                      |  | $                                                                      |           |   |                   | $ |           |                   |  | $ |                  |   |  | $ | 0.05       |  
|Add: Amortization of discount on Series Z preferred stock (1)  |  | $                                                                      |           |   |                   | $ |           |                   |  | $ |                  |   |  | $ | 0.01       |  
|Less: Accretion of premium on Series Z preferred stock         |  | $                                                                      |           |   |                   | $ | (0.01      | )                 |  | $ |                  |   |  | $ | (0.04      | )
|Less: Beneficial conversion feature on temporary equity        |  | $                                                                      |           |   |                   | $ | (0.01      | )                 |  | $ |                  |   |  | $ | (0.01      | )
|Adjusted net income per common share  Basic                   |  | $                                                                      | 0.16       |   |                   | $ | 0.20       |                   |  | $ | 0.48              |   |  | $ | 0.48       |  
|                                                               |  |                                                                        |            |  
|Net income per share available to commonstockholders  Diluted |  | $                                                                      | 3.65       |   |                   | $ | 0.21       |                   |  | $ | 4.21              |   |  | $ | 0.46       |  
|Adjustments for:                                               |  |                                                                        |            |   |                   |   |            |                   |  |   |                   |   |  |   |            |  
|Less: Change in tax valuation allowance                        |  | $                                                                      | (3.41      | ) |                   | $ |           |                   |  | $ | (3.45             | ) |  | $ |           |  
|Less: Deferred tax expense                                     |  | $                                                                      | (0.09      | ) |                   | $ |           |                   |  | $ | (0.29             | ) |  | $ |           |  
|Add: Adjustment for Series Z modification                      |  | $                                                                      |           |   |                   | $ |           |                   |  | $ |                  |   |  | $ | 0.06       |  
|Add: Amortization of discount on Series Z preferred stock (1)  |  | $                                                                      |           |   |                   | $ |           |                   |  | $ |                  |   |  | $ | 0.01       |  
|Less: Accretion of premium on Series Z preferred stock         |  | $                                                                      |           |   |                   | $ |           |                   |  | $ |                  |   |  | $ | (0.04      | )
|Less: Beneficial conversion feature on temporary equity        |  | $                                                                      |           |   |                   | $ | (0.01      | )                 |  | $ |                  |   |  | $ | (0.01      | )
|Adjusted net income per common share  Diluted                 |  | $                                                                      | 0.15       |   |                   | $ | 0.20       |                   |  | $ | 0.47              |   |  | $ | 0.48       |  



|(1) | Amount represents incremental interest expense due to modification of the Series Z and reported in the interest expense line item.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



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Financial
Condition, Liquidity and Capital Resources

The restaurant industry is predominantly a cash business where cash is received at the time of
the transaction. We believe we will generate sufficient cash flow to fund operations, capital expenditures, required debt and interest payments and payments to redeem the Series Z. Our investment in inventory is minimal because our products are
perishable. Our accounts payable are on terms that we believe are consistent with those of other companies within the industry.

The primary
driver of our operating cash flow is our restaurant revenue, specifically the gross margin from our company-owned restaurants. Therefore, we focus on the elements of those operations including comparable store sales and cash flows to ensure a steady
stream of operating profits that enable us to meet our cash obligations.

Our results depend on consumer spending, which is influenced by
consumer confidence and disposable income. Accordingly, we believe we experience declines in comparable store sales during economic downturns or during periods of economic uncertainty. Any material decline in the amount of consumer discretionary
spending could have a material adverse effect on our sales and income.

Series Z Preferred Stock

On March 17, 2010, the Company and Halpern Denny amended their previous agreement on the Series Z dated May 28, 2009, to allow the Company to
redeem any amounts of the Series Z shares at any time through June 30, 2011. In addition, beginning July 1, 2010, Halpern Denny received a one year option to exchange up to 6,480 shares of the outstanding Series Z and accrued additional
redemption amounts for shares of freely tradable common stock at a price of $11.50 per share. All additional redemption amounts that accrue after June 30, 2010 would be waived with respect to the shares of Series Z exchanged, if any. To the
extent that Halpern Denny had not exercised its exchange option, the Company had the right to redeem the shares that are subject to the exchange option after the Company redeemed the shares of the Series Z that are not subject to the exchange
option.

The Company redeemed $7.1 million of Series Z shares, including accrued additional redemption of $0.6 million in the third quarter of
2010, leaving outstanding Series Z shares of $6.5 million plus accrued additional redemption amount of $0.6 million. On October 25, 2010, we redeemed an additional 3,240 shares of Series Z for $3.6 million, including accrued additional
redemption amounts. Halpern Denny did not exercise its exchange option and pursuant to the terms of the agreement, the exchange option expired.

Interest Rate Swap Agreement

In August of 2010, our interest rate swap agreement related
to the term loan expired.

Working Capital Deficit

Our working capital deficits were $27.8 million and $4.3 million as of December 29, 2009 and September 28, 2010, respectively. This $23.5 million improvement was due primarily to the
generation of $22 million in free cash flow, or net cash provided by operating activities less net cash used in investing activities. We combined this free cash flow with $12.4 million of proceeds from our line of credit, the sale of equipment and
stock option exercises to redeem $25.7 million of our Series Z and to pay $5 million under our term loan. Our current liabilities were further reduced by the reclassification of the Series Z shares subject to the exchange option to temporary equity.
Other elements of working capital fluctuated in the normal course of business. As of September 28, 2010, we had unrestricted cash of $12.5 million, an increase of $2.6 million from December 29, 2009.



23



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##### Table of Contents



Covenants

We are subject to a number of customary covenants under our term loan, including limitations on additional borrowings, acquisitions, and
requirements to maintain certain financial ratios. As of September 28, 2010, we were in compliance with all debt covenants.

Credit Facility

We expect that at any time we deem conditions favorable, we will attempt
to improve our liquidity position by accessing debt in a manner designed to create positive economic value.

Capital
Expenditures

During the year to date period ended September 28, 2010, we used approximately $11.7 million of cash to pay for
additional property and equipment that included the following:



| |  |  | $5.4 million for new restaurants and upgrades of existing restaurants, including the installation of surveillance cameras and kitchen display ordering
systems;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $4.4 million for replacement of equipment at our existing company-owned restaurants and at our manufacturing operations; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | $1.9 million for information technology and corporate infrastructure.
| | - |  | ---------------------------------------------------------------------

The majority of our capital expenditures for fiscal 2010 have been and will continue to be for upgrades in our current restaurants, including the implementation of kitchen display ordering systems in many
of our restaurants, and for the new company-owned restaurants that we intend to open.

Off-Balance Sheet Arrangements

Other than our revolver and letters of credit, we do not have any off-balance sheet arrangements.

Contractual Obligations

For the third quarter and year to date 2010, there were no material changes outside the ordinary course of business to our contractual obligations.

Critical Accounting Policies and Estimates

There were no material changes in our critical accounting policies since the filing of our 2009 Form 10-K. As discussed in that filing, the preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates.



24



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##### Table of Contents



|Item 3. | Qualitative and Quantitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

There were no material changes in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Item 7A of our Annual
Report on Form 10-K for the year ended December 29, 2009.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of company management, including our chief executive officer and chief financial officer, of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 28, 2010. Based upon that evaluation, our chief executive officer and our chief
financial officer have concluded that the design and operation of our disclosure controls and procedures were effective in timely making known to them material information relating to the Company required to be disclosed in reports that we file or
submit under the Exchange Act rules.

It should be noted that any system of controls, however well designed and operated, can provide only
reasonable assurance regarding managements control objectives. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of
control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control over Financial Reporting

During the quarter ended
September 28, 2010, there were no changes to our internal control over financial reporting that were identified in connection with the evaluation of our disclosure controls and procedures required by the Exchange Act rules and that have
materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



25



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##### Table of Contents



PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Information regarding
legal proceedings is incorporated by reference from Note 12 to our Consolidated Financial Statements set forth in Part I of this report.



|Item 1A. | Risk Factors
|-------- | ------------

Our business is subject to
a number of risks, including those identified in Item 1A.  Risk Factors of our 2009 Annual Report on Form 10-K, that could have a material effect on our business, results of operations, financial condition and/or liquidity and
that could cause our operating results to vary significantly from period to period.

On July 21, 2010, President Obama
signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (The Dodd-Frank Act). The Dodd-Frank Act contains provisions which may impact the Company, but those effects cannot be predicted at this time. The Company will
continue to monitor the potential impact of this new law as the resulting regulations emerge over the next several months and years.

As of September 28, 2010, there have been no material changes to the risks disclosed in our most recent Annual Report on Form 10-K. We may also disclose changes to such factors or disclose additional
factors from time to time in our future filings with the SEC.



|Item 4. | Reserved
|------- | --------

Not applicable



|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                                                                                                      
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|31.1 |  | Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                               
|     | 
|31.2 |  | Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                               
|     | 
|32.1 |  | Certifications by Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002



26



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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.



|                       |  |  |  |                                      |  |                            
|---------------------- |  |  |  | ------------------------------------ |  | ---------------------------
|                       |  |  |  | EINSTEIN NOAH RESTAURANT GROUP, INC.
|                       |  |  | 
|Date: November 4, 2010 |  |  |  | By:                                  |  | /S/    JEFFREY J.
ONEILL  
|                       |  |  |  |                                      |  | Jeffrey J. ONeill         
|                       |  |  |  |                                      |  | Chief Executive Officer    
|                       |  |  | 
|Date: November 4, 2010 |  |  |  | By:                                  |  | /S/    EMANUEL P.N.
HILARIO
|                       |  |  |  |                                      |  | Emanuel P.N. Hilario       
|                       |  |  |  |                                      |  | Chief Financial Officer    



27