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

                                    FORM 10-Q

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

                  For the quarterly period ended April 2, 2002

                                       OR

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

                         Commission File Number 0-27148

                        New World Restaurant Group, Inc.

             (Exact name of registrant as specified in its charter)

           Delaware                                       13-3690261

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

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

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


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

Number of shares of common stock,  $.001 par value per share,  outstanding as of
May 29, 2002: 17,481,394


<PAGE>


                        NEW WORLD RESTAURANT GROUP, INC.

              INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES

                                  April 2, 2002

                                                                            Page

PART I.  FINANCIAL INFORMATION

     Item 1.  Financial Statements

          Consolidated Balance Sheets as of April 2, 2002 and
               January 1, 2002...............................................-3-

          Consolidated Statements of Operations for the three months
               ended April 2, 2002 and April 1, 2001.........................-4-

          Consolidated Statements of Cash Flows for the three months
               ended April 2, 2002 and April 1, 2001.........................-5-

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

     Item 2.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS FOR THE THREE
              MONTHS ENDED APRIL 2, 2002....................................-11-

PART II: OTHER INFORMATION..................................................-17-

         SIGNATURES.........................................................-18-


                                       2

<PAGE>

                        NEW WORLD RESTAURANT GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)

                                                   April 2,
                                                     2002           January 1,
                                                  (Unaudited)         2002
                                                  -----------       ----------

ASSETS
Current Assets:
Cash and cash equivalents.....................      $6,959            $14,238
Franchise and other receivables, net..........       6,611              6,331
Due from bankruptcy estate....................       3,918              3,918
Current maturities of notes receivables.......         248                248
Inventories...................................       8,650              8,806
Prepaid expenses and other current assets.....       3,438              1,779
Deferred income taxes - current portion.......         500                500
Investment in debt securities.................      34,156             34,156
Assets held for resale........................          69              1,224
                                               -----------         ----------
Total current assets..........................      64,549             71,200

Property, plant and equipment, net............     111,761            115,362
Notes and other receivables, net..............         744                786
Trademarks and recipes, net...................     100,077            101,159
Goodwill, net.................................       2,211              2,211
Deferred income taxes.........................       8,934              8,934
Debt issuance costs and other assets..........       5,643              6,206
                                               -----------         ----------
Total assets..................................    $293,919           $305,858
                                               ===========         ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..............................     $18,484            $20,170
Accrued expenses..............................      32,762             33,860
Short-term debt and current portion of
  long-term debt..............................      39,070             37,137
Current portion of obligations under capital
  leases......................................         199                199
Other current liabilities.....................          46                 76
                                               -----------         ----------
Total current liabilities.....................      90,561             91,442

Senior notes and other long-term debt.........     123,887            120,536
Obligations under capital leases..............         278                400
Other liabilities.............................      17,556             19,803
                                               -----------         ----------
Total liabilities.............................     232,282            232,181

Series D Preferred Stock, $.001 par value;
  25,000 shares authorized; 0 and 0 shares
  issued and outstanding......................           -                  -
Series F Preferred Stock, $.001 par value;
  116,000 shares authorized; 78,255 and
  72,192 shares issued and outstanding........      52,236             46,743

Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000
  shares authorized; 0 issued and
  outstanding.................................           -                  -
Series A convertible preferred stock, $.001
  par value; 400 shares authorized; 0 shares
  issued and outstanding......................           -                  -
Series B convertible preferred stock, $.001
  par value; 225 shares authorized, 0 shares
  outstanding.................................           -                  -
Series C convertible preferred stock, $.001
  par value; 500,000 shares authorized,
  0 shares outstanding........................           -                  -
Common stock, $.001 par value; 150,000,000
  shares authorized; 17,481,394 and
  17,481,394 shares issued and outstanding....          17                 17
Additional paid-in capital....................     101,345            100,189
Accumulated deficit...........................     (91,961)           (73,272)
                                               -----------         ----------
Total stockholders' equity....................       9,401             26,934
                                               -----------         ----------
Total liabilities and stockholders' equity....    $293,919           $305,858
                                               ===========         ==========

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


                                       3

<PAGE>

                        NEW WORLD RESTAURANT GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE FIRST QUARTER ENDED APRIL 2, 2002 AND APRIL 1, 2001

                                    UNAUDITED


                                                        April 2,       April 1,
                                                          2002           2001
                                                        --------       --------
Revenues:
Retail sales.........................................   $  90,184      $  3,672
Manufacturing revenues...............................       6,861         5,150
Franchise related revenues...........................       1,540         1,653
Total revenues.......................................      98,585        10,475

Cost of sales........................................      80,215         7,367
General and administrative expenses..................      12,607         2,209
Depreciation and amortization........................       4,511           787


Income from operations...............................       1,252           112

Interest expense, net................................      13,586           444
Gain from sale of investments........................           -           241

(Loss) before income taxes and minority interest.....     (12,334)          (91)

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

Minority interest....................................           -           723

Net (loss)...........................................     (12,334)         (980)

Dividends and accretion on preferred stock...........       6,355         3,317
Net (loss) available to common stockholders..........   $ (18,689)   $   (4,297)

Net (loss) per common share - Basic..................      ($1.07)       ($0.27)

Net (loss) per common share - Diluted................      ($1.07)       ($0.27)

Weighted average number of common shares outstanding:
Basic................................................  17,481,394    15,896,836

Diluted..............................................  17,481,394    15,896,836

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

                                       4

<PAGE>

                        NEW WORLD RESTAURANT GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE FIRST QUARTER ENDED APRIL 2, 2002 AND APRIL 1, 2001

                                    UNAUDITED


                                                      April 2,         April 1,
                                                        2002             2001
                                                      --------         --------

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss)........................................    ($12,334)           ($980)
Adjustments to reconcile net (loss) to net
  cash used in operating activities:
Depreciation and amortization.....................       4,511              787
Minority interest.................................           -              723
Gain on sale of debt securities...................           -             (241)
Payment of integration and reorganization costs...        (242)               -
Stock issued for compensation.....................           -              507
Amortization of debt issuance costs and debt
  discount........................................       3,167                -
Accretion of warrant value and investment return..       2,234                -
Notes issued as paid in kind interest on
  asset-based secured loan........................       1,489                -
Deferred income tax asset.........................           -              166
Changes in operating assets and liabilities:
Franchise and other receivables...................        (281)            (398)
Inventories.......................................         156             (172)
Prepaid expenses..................................      (1,860)             (32)
Deposits and other assets.........................        (482)             246
Receipts of notes receivable......................          43              260
Additions to notes receivable.....................           -              (10)
Accounts payable..................................      (1,686)            (991)
Accrued expenses and other liabilities............      (2,125)            (992)
                                                      --------         --------
Net cash used in operating activities.............      (7,410)          (1,127)
                                                      --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..............................        (888)             (31)
Proceeds from sales of assets held for resale.....       1,155                -
Deferred acquisition costs........................           -             (624)
Investment in debt securities.....................           -          (28,912)
Proceeds from the sale of debt securities.........           -            3,885
                                                      --------         --------
Net cash provided by / (used in) investing
  activities......................................         267          (25,682)
                                                      --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net..............           -           23,755
Minority owners' capital contributions to
  affiliated entity...............................           -            9,166
Payment of liabilities in connection with
  acquired assets.................................           -             (987)
Repayments of capital leases......................        (122)            (119)
Repayment of notes payable........................         (14)          (3,050)
Early retirement of debt..........................           -                -
                                                      --------         --------
Net cash (used in) / provided by financing
  activities......................................        (136)          28,765
                                                      --------         --------

Net (decrease) increase in cash...................      (7,279)           1,956

CASH, beginning of period.........................      14,238            2,271
                                                      --------         --------

CASH, end of period...............................      $6,959           $4,227
                                                      ========         ========


                                       5

<PAGE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..........................................       5,287              683
                                                      ========         ========

Non-cash Investing and Financing Activities:
Non-cash dividends and accretion on preferred
  stock...........................................       6,355            3,317
                                                      ========         ========

Stock issued to extinguish liabilities............           -               63
                                                      ========         ========

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

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


                                       6
<PAGE>

                        NEW WORLD RESTAURANT GROUP, INC.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   Basis of Presentation.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly,  they do not include
all of the  information  and notes  required by  generally  accepted  accounting
principles for complete financial statements. In the opinion of management,  the
unaudited interim consolidated financial statements furnished herein include all
adjustments  necessary  for a  fair  presentation  of  the  Company's  financial
position at April 2, 2002 and the results of its  operations  and its cash flows
for the  three-month  periods  ended  April 2, 2002 and April 1, 2001.  All such
adjustments are of a normal recurring nature.  Interim financial  statements are
prepared on a basis consistent with the Company's  annual financial  statements.
Results of  operations  for the  three-month  period ended April 2, 2002 are not
necessarily  indicative of the operating results that may be expected for future
periods.  The consolidated  balance sheet as of January 1, 2002 has been derived
from the audited  consolidated  financial  statements  at that date but does not
include  all of  the  information  and  notes  required  by  generally  accepted
accounting   principles   for  complete   financial   statements.   For  further
information,  refer to the consolidated  financial  statements and notes thereto
included in the  Company's  Annual Report on Form 10-K for the fiscal year ended
January 1, 2002 on file with the Securities and Exchange Commission.


2.   Acquisitions

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

Pursuant to the Asset Purchase Agreement, the Company is entitled to a reduction
in purchase price to the extent that assumed  current  liabilities  (as defined)
exceed $30,000,000 as of the acquisition date. The accompanying balance sheet as
of April 2, 2002  reflects  approximately  $3,918,000  as due from the  Einstein
Bankruptcy Estate.  This amount is based upon the final determination of assumed
current  liabilities by the independent  arbitrator as of the acquisition  date,
net of certain payments received from the Einstein Bankruptcy Estate through the
date of these financial statements.

In connection with the Einstein Acquisition,  the Company incurred approximately
$13,564,000 of acquisition  costs.  The acquisition has been accounted for under
the purchase method of accounting.  The aggregate purchase price of $167,179,000
is being allocated  based on the preliminary  estimates of the fair value of the
tangible  and  intangible  assets  acquired and  liabilities  assumed as follows
(amounts in thousands):

                    Assets Acquired:
                    Current assets....................   $17,326
                    Plant property and equipment......   116,860
                    Trademarks and intangible assets..    87,494

                    Liabilities assumed:
                    Current liabilities...............    42,370
                    Long-term liabilities.............    12,131
                                                        --------

                    Total purchase price..............  $167,179
                                                        ========

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


                                       7

<PAGE>

The following  consolidated  statements of operations data for the quarter ended
April 2, 2002 and unaudited pro forma consolidated statements of operations data
for the quarter ended April 1, 2001, gives effect to the Einstein Acquisition as
if it had occurred as of the  beginning of the pro forma  period  reported.  The
following unaudited pro forma consolidated results of operations gives effect to
purchase  accounting  adjustments  and the financings  necessary to complete the
acquisition.  The pro forma results have been prepared for comparative  purposes
only and do not purport to be  indicative of what  operating  results would have
been had the  acquisition  actually  taken place as of the  beginning of the pro
forma period reported, and may not be indicative of future operating results.


                                              For the Quarter Ended
                                      -------------------------------------
                                      (In thousands, except per share data)


                                                    Actual          Proforma
                                                 April 2, 2002    April 1, 2001
                                                 -------------    -------------

     Revenues.....................................  $98,585           $122,253
                                                   ========           ========
     Net (loss)................................... ($12,334)           ($9,341)
                                                   ========           ========
     Net (loss) available to common stockholders.. ($18,689)          ($15,552)
                                                   ========           ========
     Earnings per share - Basic...................   ($1.07)            ($0.98)
                                                   ========           ========


3.   Earnings Per Share.

Basic  income  (loss) per share is  calculated  by  dividing  net income  (loss)
attributable to common  shareholders by the weighted average number of shares of
common stock outstanding  during the period.  Diluted income (loss) per share is
calculated by dividing net income (loss)  attributable to common shareholders by
the  weighted  average  number  of  common  shares  outstanding,   adjusted  for
potentially dilutive  securities.  The following table summarizes the equivalent
number of common shares assuming the related securities that were outstanding as
of April 2, 2002 had been  exercised,  but not  included in the  calculation  of
diluted loss per share as such shares are antidilutive:

                    Warrants..............    60,721,694
                    Options...............     6,056,915
                                              ----------

                    Total.................    66,778,609
                                              ==========

4.   Investment in Debt Securities.

Investments  in debt  securities  are reported at fair value which is based upon
management's  estimate of the present value of amounts  expected to be recovered
from the Einstein  Bankruptcy  Estate for the  Company's  investment in Einstein
debt securities.  Unrealized gains and losses from those  securities,  which are
classified as  available-for-sale  are reported as unrealized  holding gains and
losses as a separate  component of stockholders'  equity.  At April 2, 2002, the
carrying  amount  of  debt  securities   approximates   their  fair  value  and,
accordingly, no unrealized gain or loss has been recorded.

5.   Recent Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards No. 141, Business  Combination ("SFAS 141"),
and No.  142,  Goodwill  and Other  Intangible  Assets  ("SFAS  142").  SFAS 141
requires  that all  business  combinations  initiated  after  June  30,  2001 be
accounted  for using the  purchase  method.  The adoption of SFAS No. 141 had no
impact on the Company's consolidated financial statements.

SFAS 142  requires  goodwill  be  subject to at least an annual  assessment  for
impairment with  amortization  over its estimated useful life to be discontinued
effective  January 1, 2002. The Company  continues to evaluate the effect of the
adoption  of  SFAS  142  on  its  consolidated  financial  statements.  In  this
connection, the Company is in the process of assessing its reporting units. Once
the  reporting  units have been  established,  the Company will use the two-step
approach to assess its goodwill and  intangible  assets.  In the first step, the
Company will compare the estimated fair value of each reporting unit that houses
goodwill to the carrying amount of the unit's assets and liabilities,  including
its goodwill and intangible  assets.  If the fair value of the reporting unit is
below its  carrying  amount,  then the  second  step of the  impairment  test is
performed,  in which the current fair value of the unit's assets and liabilities
will  determine  the  current  implied  fair  value of the unit's  goodwill  and
intangible   assets.  In  addition,   the  Company  continues  to  reassess  the
classifications  of  its  intangible  assets,  including  goodwill,   previously
recorded in  connection  with earlier  purchase  acquisitions,  as well as their
useful lives.
                                       8

<PAGE>

The  Company  believes  that its  intangibles  are deemed to have an  indefinite
useful life as it is expected to generate  cash flows  indefinitely.  Thus,  the
Company  ceased  amortizing  intangibles  on  January  1,  2002.  The  following
consolidated  statements of operations data for the quarters ended April 2, 2002
and April 1, 2001  reflects the  adjustment to net loss,  net loss  available to
common   stockholders   and  basic   earnings  per  share   resulting  from  the
implementation of SFAS 142.

                                                    For the Quarter ended
                                           -------------------------------------
                                           (In thousands, except per share data)

                                              April 2, 2002     April 1, 2001
                                              -------------     -------------

Reported Net (Loss).........................   $  (12,334)            (980)
Add back: Goodwill amortization.............            -               30
Add back: Trademark amortization............            -              137
Adjusted Net (Loss).........................      (12,334)            (813)
                                               ==========         ========

Reported Net (Loss) available to common
  stockholders..............................      (18,689)          (4,297)
Adjusted Net (Loss) available to common
  stockholders..............................      (18,689)          (4,130)
                                               ==========         ========

Basic earnings per share:
Reported Net (Loss) available to common
  stockholders..............................   $    (1.07)        $  (0.27)
Goodwill amortization.......................            -         $   0.00
Trademark amortization......................            -         $   0.01
Adjusted Net (Loss) available to common
  stockholders......                           $    (1.07)        $  (0.26)
                                               ==========         ========


6.   Accrued Expenses.

As of April 2, 2002, accrued expenses consist of the following:

          Compensation and employee benefits............$  10,201
          Distribution costs............................    3,418
          Accrued professional services.................    2,419
          Reorganization and integration................    2,384
          Utilities.....................................    2,195
          Accrued taxes.................................    1,933
          Accrued interest..............................    1,487
          Other.........................................    8,725
                                                        ---------
                                                          $32,762
                                                        =========

7.   Contingencies.

Effective  November 27, 2001,  the Company's  Common Stock was delisted from the
Nasdaq  National  Market.  The  failure to  maintain  its  listing on the Nasdaq
National Market or another  national or regional  exchange could have a material
adverse  effect on the  liquidity and trading  market for the  Company's  Common
Stock,  which in turn may have an adverse  effect on the price of the  Company's
Common Stock.

On April 3, 2002,  the  Company  was  notified by the  Securities  and  Exchange
Commission that the Commission is conducting an informal  investigation into the
resignation  of the former  Chairman,  R. Ramin Kamfar,  the  termination of the
former  Chief  Financial  Officer,  Jerold  Novack,  and the delay in filing the
Company's  Fiscal  2001 Form 10-K.  The  Company is  cooperating  fully with the
investigation. The Company is also cooperating fully with a recent Department of
Justice inquiry relating to these issues.

The Company has also been notified by Special  Situations  Fund,  L.P.,  Special
Situations Cayman Fund, L.P. and Special  Situations  Private Equity Fund, L.P.,
holders  of our  Series F  Preferred  Stock,  that they  believe  that  material
misrepresentations  were  made to them in June  2001 in  connection  with  their
purchase of the Company's stock.  Although the Special Situations Funds have not
initiated any legal proceedings against the Company, they may do so.

Given the early stage of these matters, Management cannot predict their outcome.
However,  there can be no  assurance  that the  Company  will not be  subject to
regulatory  sanctions,  civil penalties  and/or claims for monetary  damages and
other relief.

                                       9

<PAGE>

8.   Fixed Fee Distribution Agreement.

The  Company  maintains  a fixed  fee  distribution  agreement  with a  national
distribution   company    (distributor)   whereby   the   distributor   supplies
substantially  all  products  for  resale  in  the  Company's   company-operated
restaurant  locations.  In addition,  the Company maintains a separate fixed fee
distribution  agreement with the distributor for delivery of certain proprietary
products to its franchised  locations.  Effective February 20, 2002, the Company
entered into Mutual  Termination  Agreements  (Agreement)  with the  distributor
which  provided  for  the  termination  of each of the  fixed  fee  distribution
agreements  effective August 2, 2002.  Pursuant to the restated  agreement,  the
distributor  is  required  to provide  distribution  services  to all  locations
through  August 2, 2002,  which  services  must meet or exceed  minimum  service
parameters,  and the  Company is required  to pay the  distributor  $12,000,000,
representing  a portion of the  unamortized  $5,000,000  investment  made by the
distributor  at the inception of the original  agreement and a reduced amount of
outstanding  trade payables and other  previously  accrued  charges,  payable as
follows:

     (a)  The sum of $1,200,000 on February 25, 2002 (net of $900,000 rebate);
     (b)  The sum of $  4,800,000  in equal  installments  of  $228,571  on each
          Wednesday  beginning on February 27, 2002 through and  including  July
          31, 2002;
     (c)  The sum of $6,000,000  which will accrue  interest on the first day of
          each  calendar  month from  August 1, 2002 at the rate of 9% per annum
          and will be  payable  in equal  installments  of  $176,500  each  week
          beginning  August 28, 2002 through  March 28, 2003.  In the event that
          the Company repays the full $6,000,000  prior to October 31, 2002, all
          interest  will  be  forgiven  and  all  previous   interest   payments
          recharacterized as payments of principal.

The Company  has begun the  process of  replacing  the  distributor  in order to
ensure the continuing delivery of goods to its  company-operated  and franchised
locations.  Failure to engage the services of a new distributor  prior to August
2,  2002  could  result  in  a  significant  disruption  to  the  operations  of
company-operated and franchised locations.

As a result of the mutual  termination  agreements,  $2,670,000  of  liabilities
previously   classified  as  long-term   have  been   reclassified   to  current
liabilities.

9.   Revolving Line of Credit.

On January 18, 2002,  the Company  entered  into a Loan and  Security  Agreement
(loan  agreement)  with a lender which provided for a $7,500,000  Revolving Loan
Facility  (facility).  The revolving loan facility was secured by  substantially
all of the assets of the Company.  The underlying  loan  agreement  provided for
periodic  borrowings based upon availability as calculated  pursuant to the loan
agreement.  In addition, the loan agreement required the Company to meet certain
financial  covenants and placed  restrictions on the Company's ability to obtain
additional  borrowings  and to enter  into  certain  capital  transactions.  The
Company did not use or draw funds under the facility. Nevertheless, on March 25,
2002,  the lender  notified  the Company  that the Company was in default  under
certain  terms and  conditions  of the loan  agreement.  As the  result of these
defaults,  the Company was unable to obtain  advances  under the revolving  loan
facility.  On May 30,  2002,  the  Company  paid  the  lender  $175,000  in full
satisfaction of amounts due under the loan agreement.

On May 30, 2002, the Company entered into a Loan and Security Agreement with one
of  the  Company's  principal  stockholders,  which  provides  for a  $7,500,000
revolving loan  facility.  The facility is secured by  substantially  all of the
Company's  assets.  Borrowings under the facility will bear interest at the rate
of 11% per annum.  The facility  will expire on March 31, 2003. At the time that
the  Company  entered  into this  facility,  the  Company  terminated  its prior
revolving loan facility.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-Q under Management's  Discussion and Analysis
of Financial  Condition  and Results of  Operations  constitute  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1996 with respect to our financial  condition and business.  The words estimate,
plan, intend,  believe,  expect and similar expressions are intended to identify
forward-looking  statements.  Such  forward-looking  statements  involve and are
subject to known and unknown risks, uncertainties and other factors, which could
cause  our  actual  results,  performance  and  achievements  to  be  materially
different from any future  results,  performance  (financial or  operating),  or
achievements  expressed  or implied  by such  forward-looking  statements.  Such
factors include, among others, the following:  success of the integration of New
World and acquired businesses;  success of cost-saving strategies;  competition;
success  of  operating,  franchising  and  licensing  initiatives;   development
schedules; advertising and promotional efforts; adverse publicity; acceptance of
new product  offerings;  availability  of new locations,  and terms of sites for
store   development;   changes  in  business  strategy  or  development   plans;
availability  and terms of capital;  food,  labor,  and employee  benefit costs;
changes  in  government  regulations;  regional  weather  conditions;  and other
factors  referenced  in this Form  10-Q or in our Form 10-K for our 2001  fiscal
year.
                                       10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview

We are a leader in the quick casual segment of the  restaurant  industry and the
largest  operator of bagel bakeries in the United States.  With 761 locations in
34 states, we operate and license  locations  primarily under the Einstein Bros.
and Noah's brand names and franchise locations primarily under the Manhattan and
Chesapeake  brand names.  Our  locations  specialize in  high-quality  foods for
breakfast and lunch, including fresh baked goods,  made-to-order sandwiches on a
variety of breads and bagels, soups, salads, desserts, premium coffees and other
cafe beverages,  and offer a cafe experience with a neighborhood emphasis. As of
May 14, 2002, our retail system consisted of 468 company-operated  locations and
293 franchised and licensed  locations.  We also operate three dough  production
facilities and one coffee roasting facility.

On June 19, 2001, we purchased (the "Einstein Acquisition") substantially all of
the assets of  Einstein/Noah  Bagel  Corp.  and its  majority-owned  subsidiary,
Einstein/Noah Bagel Partners, L.P. (collectively,  "Einstein"). Einstein was the
largest bagel bakery chain in the United States, with 463 stores,  nearly all of
which are  company-operated.  The Einstein  Acquisition  was made pursuant to an
asset  purchase  agreement  entered  into by us as the  successful  bidder at an
auction conducted by the United States Bankruptcy Court, District of Arizona, on
June 1, 2001,  in the Einstein  bankruptcy  case.  The  purchase  price was $160
million  in  cash  plus  the  assumption  of  certain  liabilities,  subject  to
adjustment in the event that assumed  current  liabilities (as defined under the
asset purchase agreement) exceed $30 million.  The acquisition was accounted for
using the purchase method of accounting.

In January and March 2001,  we issued  Series F Preferred  Stock and warrants to
purchase our Common Stock and equity in a newly formed affiliate, Greenlight New
World,  L.L.C.  The aggregate net proceeds of those  financings of approximately
$32.9 million were used to purchase  Einstein  bonds and pay related  costs.  In
June  2001,  we issued  additional  Series F  Preferred  Stock and  warrants  to
purchase our Common Stock for  aggregate  net proceeds of $23.8  million,  which
were used to fund a portion of the purchase  price of the Einstein  Acquisition.
In June 2001,  we issued $140 million of Senior  Increasing  Rate Notes due 2003
(the  "Notes") and warrants to purchase  our Common  Stock.  The net proceeds of
approximately  $122.4  million were used to fund a portion of the purchase price
of the Einstein Acquisition, to repay then-outstanding bank debt and for general
working  capital  purposes.  Also  in  June  2001,  we  obtained  a $35  million
asset-backed  loan  to a  non-restricted  subsidiary,  EnbcDeb  Corp.,  for  net
proceeds  of $32.3  million,  which were used to fund a portion of the  purchase
price of the Einstein Acquisition.

As a result of the Einstein Acquisition and the related financing  transactions,
management believes that  period-to-period  comparisons of our operating results
are  not  necessarily  indicative  of,  and  should  not be  relied  upon  as an
indication of, future performance.

In connection with the Einstein Acquisition,  unauthorized bonus payments in the
aggregate amount of $3.5 million were made to certain former executive  officers
and former employees.  A portion of those payments  (approximately $1.0 million)
was made in the third  quarter of our fiscal year ended January 1, 2002 ("fiscal
2001") and the balance  (approximately  $2.5 million) in the first quarter ended
April 2, 2002 ("Q1 2002"). All of these payments were originally recorded in our
financial  statements in the second and third quarters of fiscal 2001 as part of
the  acquisition  costs  associated  with  the  Einstein  Acquisition  and  as a
restructuring  charge.  We have revised the results for those  quarters so as to
reverse that treatment.  The aggregate of such payments  (including $1.0 million
in the  third  quarter  of  fiscal  2001 and $2.5  million  in Q1 2002) has been
recorded as general and administrative  expense. An aggregate of $2.5 million of
such  payments was offset  against  payments to be made in  connection  with the
separation of certain  officers and employees from our company.  With respect to
that  portion of the  unauthorized  payments  that has not been repaid or offset
plus certain other  unauthorized  payments that have not been  recovered of $0.2
million, or an aggregate of $1.2 million, we have recorded a receivable from the
former officer. Based on our evaluation of the collectability of this amount, we
have recorded an allowance for uncollectable receivable.

Currently,  we are  implementing  certain  programs  relating  to  the  Einstein
Acquisition  that are expected to result in cost savings through  integration of
production, distribution, purchasing and general and administrative expenses. We
expect to recognize  the full benefit of these  savings  during  fiscal 2002. In
addition, we intend to increase sales through the expansion of our lunch daypart
and new location growth, primarily through franchising and licensing.

Fiscal  Quarter  Ended April 2, 2002  Compared to Fiscal  Quarter Ended April 1,
2001

Revenues.
Total revenues  increased to $98.6 million for the fiscal quarter ended April 2,
2002 from $10.5 million for the comparable 2001 period. The increase in revenues
was  attributable to additional  revenues from the Einstein Bros. and Noah's New
York Bagel brands acquired in June 2001. Retail sales increased to $90.2 million
or 91.5% of total  revenues for the fiscal quarter ended April 2, 2002

                                       11

<PAGE>

from $3.7 million or 35.1% of total revenues for the comparable 2001 period. The
increase was  attributable to the addition of 458  company-operated  stores that
were  acquired  as  the  result  of  the  Einstein  Acquisition  in  June  2001.
Manufacturing  revenues  increased to $6.9 million or 7.0% of total revenues for
the  fiscal  quarter  ended  April 2, 2002 from $5.2  million  or 49.2% of total
revenues for the comparable 2001 period. The increase in manufacturing  revenues
results  from the  inclusion  of  approximately  $2.6  million of  manufacturing
revenues associated with manufacturing  facilities acquired as the result of the
Einstein  Acquisition in June 2001 offset by a $0.9 million  decrease  resulting
from a lower franchise store base in comparison to prior year. Franchise related
revenues decreased 6.8% to $1.5 million or 1.6% of total revenues for the fiscal
quarter ended April 2, 2002 from $1.6 million or 15.8% of total revenues for the
comparable 2001 period.  The decrease in franchise  related revenues  reflects a
lower average franchise store base in the 2002 period.

Costs and Expenses.
Cost of  Sales  as a  percentage  of  related  manufacturing  and  retail  sales
decreased to 82.7% for the fiscal quarter ended April 2, 2002 from 83.5% for the
comparable  2001 period.  The decline  primarily  resulted from a shift in sales
mix.

General and administrative expenses increased to $12.6 million or 12.8% of total
revenues  for the fiscal  quarter  ended April 2, 2002 from $2.2 million for the
comparable 2001 period.  The increase is attributable to additional  general and
administrative  costs  resulting  from the  Einstein  Acquisition.  In addition,
general and  administrative  expenses for the fiscal quarter ended April 2, 2002
include  approximately  $2.6 million (inclusive of related payroll tax expenses)
in  connection  with the  unauthorized  bonus  payments to former  officers  and
employees of the Company. Such unauthorized bonuses were offset against payments
to be made in connection  with the separation of certain  officers and employees
of the Company.  The 2002 period also includes legal  expenses of  approximately
$1.7  million  incurred in  connection  with the  Company's  voluntary  internal
investigation of the unauthorized bonus payments.

Depreciation  and  amortization  expenses  increased  to $4.5 million or 4.6% of
total  revenues for the fiscal  quarter ended April 2, 2002 from $0.8 or 7.5% of
total  revenues  for the  comparable  2001 period.  The  increase was  primarily
attributable  to  depreciation  on assets  acquired in the Einstein  Acquisition
offset by the  implementation  of SFAS 142 whereby  intangibles  with indefinite
lives are no longer required to be amortized.

Interest  expense,  net for the fiscal  quarter ended April 2, 2002 increased to
$13.6  million,  or 13.8% of total  revenues  from $0.4 million or 4.2% of total
revenues for the comparable  2001 period.  The increase was primarily the result
of interest and related costs  incurred on debt utilized to finance the Einstein
Acquisition.  Interest  expense for the fiscal  quarter  ended April 2, 2002 was
comprised of approximately  $8.0 million of interest paid or payable in cash and
noncash  interest  expense of  approximately  $5.5  million  resulting  from the
amortization of debt discount, debt issuance costs, the amortization of warrants
issued in connection with debt  financings,  the accretion of the value assigned
to warrants issued to Greenlight New World,  L.L.C.  and the related  guaranteed
investment return.

Gain from sale of debt securities was $0.2 million or 2.3% of total revenues for
the fiscal 2001 period. There was no such gain in the fiscal quarter ended April
2, 2002.

Provision  for income  taxes was $0 for the fiscal  quarter  ended April 2, 2002
from $0.2 million for the comparable  2001 period.  The 2002 period reflects the
Company's  current tax position and management's  assessment of potential future
realization of deferred tax assets.

Minority  interest  was  $0.7  million  or 6.9% or total  revenues  for the 2001
period.  This  charge is  attributable  to  accretion  of the value  assigned to
warrants and the  guaranteed  investment  return to investors in Greenlight  New
World, L.L.C.

Net Loss.
Net loss for the fiscal  quarter ended April 2, 2002 was $12.3 million  compared
to a net loss of $1.0 million for the  comparable  2001 period.  The decrease in
net income is primarily  the result of interest  expense  incurred in the fiscal
quarter 2002  relating to debt incurred to finance the Einstein  Acquisition  as
well as the increase in general and administrative expenses.

Supplemental Unaudited Analysis of the fiscal quarter ended April 2, 2002 to the
pro forma fiscal quarter ended April 1, 2001.

The following  unaudited pro forma  financial  data for the fiscal quarter ended
April 1, 2001 gives effect to the Einstein  Acquisition as if it had occurred as
of the  beginning of the period  reported.  All of the  following  unaudited pro
forma financial data gives effect to purchase accounting  adjustments  necessary
to reflect the Einstein Acquisition.  These pro forma results have been prepared
for the  purpose  of  supplementary  analysis  only in  order to  assist  in the
evaluation  of  changes  and  trends in our  business  and do not  purport to be
indicative  of what  operating  results  would  have  been  had the  acquisition
actually taken place as of the beginning of the period reported,  and may not be
indicative of future  operating  results.  Financial data for the fiscal quarter
ended April 2, 2002 are actual results.

                                       12

<PAGE>

                                            Actual            Proforma
                                            April 2,          April 1,
                                            2002              2001
                                              (Dollars in thousands)

Statement of Operations Data
Revenues:
Einstein...............................     $  91,208         $ 111,778
New World..............................         7,377            10,475
Total revenues.........................        98,585           122,253

Cost of sales..........................        80,215           102,077
General and administrative expense.....        12,607            11,986

EBITDA.................................     $   5,763
   $   8,190

Other Information
Number of operating days included in fiscal period:
Einstein...............................            91               112
New World..............................            91                91


Revenues.  Total revenues  declined 19.4% to $98.6 million for the quarter ended
April 2, 2002 from pro forma total revenues of $122.3 million in the fiscal 2001
period.  The decline is primarily  attributable to the differences in the fiscal
calendar between the periods presented as discussed below and a decline in store
base.

Revenues - Einstein.  Pro forma revenues for Einstein  decreased  18.4% to $91.2
million  for the quarter  ended April 2, 2002 from pro forma  revenues of $111.8
million in the fiscal 2001 period.  The decline is the result of  differences in
the fiscal accounting calendar for the periods presented. The fiscal 2001 period
included 16 weeks (112 days) of operations as compared to 13 weeks (91 days) for
the fiscal 2002 period.  Einstein  sales for the 2001 period  normalized for the
fiscal calendar  difference  discussed above would have been approximately $90.5
million for the fiscal 2001 quarter as compared to $91.2  million for the fiscal
2002 quarter, which represents a 0.8% increase.

Revenues - New World. Revenues for New World decreased 29.6% to $7.4 million for
the fiscal 2002 quarter from $10.5 million for the comparable  2001 period.  The
decrease is attributable to the sales  associated with company owned stores that
have been sold or closed.  The company owned store base has declined  57.1% with
18  company  owned  stores for the fiscal  quarter  ended  April 2, 2002 from 42
stores for the fiscal quarter ended April 1, 2001.  Such revenues  accounted for
approximately  $2.0 of the sales decline.  EBITDA on company operated  Manhattan
Bagel stores  including  direct  general and  administrative  charges was ($0.2)
million  and $0.1  million  in 2002 and 2001,  respectively.  We have  closed or
intend to close the balance of the  restaurants  by July 15, 2002.  Furthermore,
there has been a 5% decline  in our  franchise  store  base in the  fiscal  2002
quarter as compared to the comparable period in 2001.

Cost of Sales. Cost of sales expressed as a percentage of the related retail and
manufacturing  sales decreased to 82.7% for the quarter ended April 2, 2002 from
pro forma cost of sales of 84.6% for the 2001 period. The decrease is the result
of management's  decision to close  under-performing  Einstein  company-operated
stores.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  5.2% to $12.6 million for the quarter ended April 2, 2002 compared to
pro forma  general and  administrative  expenses of $12.0 million for the fiscal
2001 period. General and administrative  expenses for the quarter ended April 2,
2002 include charges of approximately $2.6 million (inclusive of related payroll
tax  expenses) in connection  with the  unauthorized  bonus  payments to certain
former  officers and  employees.  Such  unauthorized  bonus payments were offset
against  payments  to be made in  connection  with  the  separation  of  certain
officers and employees  from our company.  The 2002 period also  includes  legal
expenses of approximately $1.7 million incurred in connection with the voluntary
internal  investigation of the unauthorized  bonus payments.  Exclusive of these
one-time charges and payments  relative to the internal  investigation,  general
and administrative expenses in the fiscal 2002 quarter would have decreased $4.3
million or 31.1% from the pro forma fiscal 2001 period.

Also included in 2002 general and administrative are $0.6 million in performance
bonuses  paid to the former  officers  and  employees  referenced  above that we
believe would not have otherwise been paid both based on our recently  completed
restatement  of results and in light of the  unauthorized  bonus  payments.  The
comparable amount in 2001 was $0.2 million.  Further,  the 2002 and 2001 general
and administrative  expenses included $0.2 million of salary and direct expenses
for those of the former  officers and employees  whose

                                       13

<PAGE>
positions  are  duplicative  with others.  It is our intent not to replace these
individuals.  The before-mentioned general and administrative costs specifically
excludes the $2.6 million of unauthorized bonuses and separation costs.

EBITDA.  EBITDA is defined as income (loss) from operations before restructuring
charges plus depreciation and  amortization.  EBITDA should not be considered as
an alternative  to, or more meaningful  than,  earnings from operations or other
traditional  indicators  of  operating  performance,  such  as  cash  flow  from
operating  activities.  EBITDA  decreased  29.6% to $5.8 million for the quarter
ended  April 2, 2002 from pro forma  EBITDA of $8.2  million for the fiscal 2001
quarter.  The decrease  was the result of the sales  decline and the increase in
general and administrative expenses discussed above.

Liquidity and Capital Resources

At April 2, 2002, we had a working capital deficit of $26.0 million  compared to
a working  capital  deficit at January 1, 2002 of $20.2 million.  The decline in
working  capital  was  primarily  the result of the accrual and payment of costs
relative to the termination of our  distribution  agreement and the acceleration
of such  payments,  the accrual and  payment of costs  relative to the  internal
investigation,  and the interest in connection with the $35 million asset-backed
loan utilized to finance the Einstein Acquisition (approximately $1.5 million).

We had net cash used in  operating  activities  of $7.4  million  for the fiscal
quarter ended April 2, 2002 compared with net cash used in operating  activities
of $1.1 million for the fiscal quarter ended April 1, 2001. The increase in cash
used in operating activities was attributable to changes in operating assets and
liabilities,  specifically  due to the  acceleration of payment  relative to the
termination of the distribution agreement,  the expense relative to the internal
investigation  as  well as an  increase  in  prepaid  expenses  relative  to new
insurance policies.

We had net cash provided by investing  activities of $0.3 million for the fiscal
quarter ended April 2, 2002 compared with net cash used in investing  activities
of $25.7 million for the fiscal quarter ended April 1, 2001.  During 2001,  cash
used  in  investing  activities  was  attributable  to our  investment  in  debt
securities and the Einstein Acquisition.

We had net cash used in  financing  activities  of $0.1  million  for the fiscal
quarter  ended  April 2,  2002  compared  with net cash  provided  by  investing
activities of $28.8 million for the fiscal  quarter ended April 1, 2001.  During
2001, cash provided by financing  activities relates to the issuance of Series F
Preferred  Stock and  proceeds  from the sale of an interest in  Greenlight  New
World, L.L.C.

On May 30,  2002,  we  entered  into a Loan  and  Security  Agreement  with  BET
Associates,  L.P., one of our principal stockholders,  which provides for a $7.5
million revolving loan facility. The facility is secured by substantially all of
our assets.  Borrowings  under the facility bear interest at the rate of 11% per
annum.  The facility will expire on March 31, 2003. In connection with obtaining
the facility, we paid MYFM Capital LLC a fee of $75,000. Leonard Tannenbaum, one
of our directors,  is the Managing  Director of MYFM Capital and is a partner at
BET  Associates,  L.P.  At the time  that we  entered  into  this  facility,  we
terminated our prior revolving loan facility with Foothill Capital.

On June 19, 2001, we consummated a private placement of 140,000 units consisting
of $140  million  of Senior  Increasing  Rate  Notes  due 2003  with  detachable
warrants  for  the  purchase  of  13.7  million  shares  of  our  Common  Stock,
exercisable  at $.01 per  share.  The  proceeds,  net of  discount  and  related
offering  expenses,  were $122.4  million.  The proceeds were utilized to fund a
portion  of the  purchase  price  for the  Einstein  Acquisition,  to repay  our
then-existing  bank debt and for general  working  capital  purposes.  The Notes
currently  bear  interest  at 16% per  annum.  In  addition,  since  we have not
completed a registered  exchange offer for the Notes, we began paying additional
interest  on the  Notes on  November  17,  2001 at the  rate of .25%  per  annum
increasing by .25% each 90 days that such default continues up to a maximum rate
of additional interest of 1% per annum.

On June 19,  2001,  we obtained a $35 million  asset-backed  secured loan to our
wholly owned  non-restricted  subsidiary,  EnbcDeb Corp.  The  proceeds,  net of
discount and related offering  expenses,  were $32.3 million.  The proceeds were
utilized to fund a portion of the purchase  price for the Einstein  Acquisition.
The asset-backed loan, for which EnbcDeb Corp. issued increasing rate notes (the
"EnbcDeb  Notes"),  is secured by  Einstein  bonds  owned by EnbcDeb  Corp.  The
EnbcDeb   Notes  matured  on  June  15,  2002.   Because   EnbcDeb  Corp.  is  a
non-restricted  subsidiary,  a default on the EnbcDeb Notes does not result in a
default under the Notes or our revolving loan facility.  Interest on the EnbcDeb
Notes initially accrues at the rate of 14% per annum,  increasing by .35% on the
fifteenth  day of each month  following  issuance,  plus 2% per annum penalty on
overdue amounts.  As before  mentioned,  since the EnbcDeb Notes matured on June
15,  2002,  the  additional  2% penalty is effective as a result of the default.
Interest is payable on the  fifteenth day of every month and may be paid in kind
at our option.  As of April 2, 2002,  an  aggregate of $39.1  million  principal
amount of EnbcDeb Notes was outstanding.  We must apply all proceeds relating to
the Einstein  bonds to the repayment of the EnbcDeb  Notes.  We anticipate  that
approximately  $34.2  million  aggregate  principal  amount of the EnbcDeb Notes
outstanding  will be repaid from the proceeds of the Einstein bonds  distributed
in the  Einstein  bankruptcy  case  ($24.2  million  of which has  already  been
distributed and applied to redeem a portion of the  outstanding  EnbcDeb Notes).
To the extent that the proceeds received are

                                       14
<PAGE>

insufficient  to repay the  EnbcDeb  Notes in full,  the  holders of the EnbcDeb
Notes will have the option to require us to issue them preferred  stock ("Series
G Preferred  Stock") having a redemption  value equal to the deficiency.  If the
amount of such deficiency is less than $5.0 million, then the Series G Preferred
Stock  will be  entitled  to an annual  cash  dividend  equal to 17% per  annum,
increasing  100 basis  points per month  until the Series G  Preferred  Stock is
redeemed,  and we will be required to issue warrants to purchase 5% of our fully
diluted  Common  Stock.  If the  amount of the  deficiency  is $5.0  million  or
greater,  then the Series G  Preferred  Stock will be entitled to an annual cash
dividend equal to 18% per annum, increasing 100 basis points per month until the
Series G Preferred Stock is redeemed,  and we will be required to issue warrants
to purchase 10% of our fully diluted Common Stock.

On January 17, 2001, we entered into a Bond Purchase  Agreement with  Greenlight
Capital.  Pursuant  to  the  agreement,  Greenlight  Capital  formed  a  limited
liability company,  Greenlight New World,  L.L.C.  ("GNW"),  and contributed $10
million to GNW to purchase  Einstein bonds. We are the exclusive manager of GNW.
The agreement  provided  Greenlight  Capital with a secure interest in GNW and a
right to  receive  the return of its  original  contribution  plus a  guaranteed
accretion  of 15% per year,  increasing  to 17% on  January  16,  2002 and by an
additional  2%  each  six  months  thereafter  (the  "Guaranteed   Return").  In
connection with the agreement, we issued Greenlight Capital warrants to purchase
an aggregate of 4,242,056 shares of our Common Stock at $0.01 per share. On June
19,  2001,  we, GNW and  Greenlight  Capital  entered  into a letter  agreement,
pursuant to which,  among other  things,  Greenlight  Capital  consented  to the
pledge of the Einstein  bonds owned by GNW to secure the EnbcDeb  Notes.  We are
required to apply all proceeds  received  with respect to the Einstein  bonds to
repay the EnbcDeb Notes.  To the extent that there are any excess  proceeds,  we
are required to pay them to Greenlight  Capital.  If Greenlight Capital does not
receive a return  equal to its  Guaranteed  Return,  we are  obligated  to issue
Greenlight  Capital  Series F Preferred  Stock with a face  amount  equal to the
deficiency and warrant  coverage equal to 1.5% of our fully diluted Common Stock
for each $1 million of deficiency.

We plan to satisfy  our  capital  requirements  for the  balance of fiscal  2002
through  cash flow from  operations  and  borrowings  under our  revolving  loan
facility. However, the Notes mature in June 2003 and the revolving loan facility
expires in March 2003.  Accordingly,  we intend to pursue  refinancing the Notes
and replacing the revolving loan facility, although we can give you no assurance
that we will be able to do so on satisfactory terms and conditions, or at all.

Seasonality and General Economic Trends

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


Risk Factors Relating to Our Financial Condition

We face the following  significant  risks  relating to our results of operations
and financial condition.

We have $140 Million Aggregate Principal Amount of Notes Outstanding that Mature
on June 15, 2003, and We Must Raise Additional  Capital to Refinance these Notes
and for Other General Corporate Purposes.

We must raise significant  additional  capital before June 15, 2003 to refinance
the Notes and for other general corporate purposes. We cannot assure you that we
will be able to raise such capital on satisfactory  terms and conditions,  if at
all. In addition,  our existing  revolving  loan  facility  expires on March 31,
2003. We intend to pursue refinancing the Notes and replacing the revolving loan
facility  through the  issuance of debt or equity or a  combination  thereof and
obtaining  additional bank financing,  but we currently have no commitments with
respect to any refinancing.  We currently have outstanding  warrants to purchase
60,721,694 shares of our Common Stock, which may adversely affect our ability to
raise additional equity financing in the future.

We have and expect to continue to have a substantial amount of debt.

We have a high  level of debt and are highly  leveraged.  In  addition,  we may,
subject to certain restrictions,  incur substantial  additional  indebtedness in
the future. Our high level of debt could:

     o    make  it  difficult  for  us to  satisfy  our  obligations  under  our
          indebtedness;

     o    limit our ability to obtain additional  financing for working capital,
          capital expenditures, acquisitions and general corporate purposes;

                                       15

<PAGE>

     o    increase our vulnerability to downturns in our business or the economy
          generally;

     o    limit our ability to  withstand  competitive  pressures  from our less
          leveraged competitors; and

     o    harm us if we fail to comply with the covenants in the instruments and
          agreements governing our indebtedness,  because a failure could result
          in an event of default that,  if not cured or waived,  could result in
          all of our indebtedness  becoming  immediately due and payable,  which
          could render us insolvent.

We may not be able to generate  sufficient  cash flow to make payments under our
indebtedness due to events that are beyond our control.

Economic,  financial,  competitive,  legislative  and other  factors  beyond our
control  may affect our ability to generate  cash flow from  operations  to make
payments  on  our  indebtedness  and  to  fund  necessary  working  capital.   A
significant  reduction in operating cash flow would likely increase the need for
alternative  sources of liquidity.  If we are unable to generate sufficient cash
flow  to  make  payments  on our  debt,  we  will  have  to  pursue  one or more
alternatives, such as reducing or delaying capital expenditures, refinancing our
debt,  selling assets or raising equity.  We cannot assure you that any of these
alternatives  could be accomplished  on  satisfactory  terms, if at all, or that
they would yield sufficient funds to retire our debt.

                                       16

<PAGE>


                           PART II - OTHER INFORMATION
                        NEW WORLD RESTAURANT GROUP, INC.
                                  APRIL 2, 2002

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities

Not applicable

Item 3. Defaults upon Senior Securities

On June 19,  2001,  we obtained a $35 million  asset-backed  secured loan to our
wholly owned  non-restricted  subsidiary,  EnbcDeb Corp.  The  proceeds,  net of
discount and related offering  expenses,  were $32.3 million.  The proceeds were
utilized to fund a portion of the purchase  price for the Einstein  Acquisition.
The  asset-backed  loan, for which EnbcDeb Corp.  issued the EnbcDeb  Notes,  is
secured by Einstein  bonds owned by EnbcDeb  Corp.  The EnbcDeb Notes matured on
June 15, 2002. Because EnbcDeb Corp. is a non-restricted  subsidiary,  a default
on the  EnbcDeb  Notes  does not  result  in a  default  under  the Notes or our
revolving loan facility.

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

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1  Amended  and  Restated  Employment  Agreement  dated as of June 17,  2002,
between the Company and Anthony Wedo.

(b) Reports on Form 8-K filed during the quarter ended April 2, 2002

On January 1, 2002,  The  Company  filed a Form 8-K and  related  press  release
announcing  that certain  market makers were quoting its common stock on the OTC
Bulletin Board.

On February  4, 2002,  the Company  filed a Form 8-K and related  press  release
relating to the Company's  intent to offer senior secured notes pursuant to Rule
144A.

On February  4, 2002,  the Company  filed a Form 8-K and related  press  release
announcing  that  comparable  store sales for its company owned units  increased
2.2% over prior year levels for the 4th quarter ended January 1, 2002.

                                       17

<PAGE>


                                   SIGNATURES

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

                        NEW WORLD RESTAURANT GROUP, INC.



Date:  June 24, 2002                         By:  /s/  Anthony Wedo
                                                  ---------------------------
                                                  Anthony Wedo
                                                  Chief Executive Officer


                                             By:  /s/   Max Craig
                                                  ---------------------------
                                                  Max Craig
                                                  Chief Financial Officer

                                       18