UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                                   (Mark one)

[X] ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
        EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                            OF 1934 [NO FEE REQUIRED]

                         COMMISSION FILE NUMBER 0-27148


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
                 (Name of Small Business Issuer 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)

                                 (732) 544-0155
                           (Issuer's Telephone Number)

         Securities registered under Section 12(B) of the Exchange Act:

                NAME OF EACH EXCHANGE ON WHICH REGISTERED:NASDAQ

                               Title of Each Class
                          Common Stock, $.001 par value

       Securities registered under Section 12(G) of the Exchange Act: NONE

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(D) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.__ YES X NO

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the best of the  Registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments of this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year. $45,722,881

     The aggregate market value of the voting stock held by  non-affiliates  per
the closing stock price as of April 6, 2001 is $18,498,878

     As of April 6, 2001,  16,443,447  shares of common stock of the issuer were
outstanding.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Certain  statements  in  this  Annual  Report  on  Form  10-KSB  constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of  1995  (the  "Reform  Act").  The  words  "forecast",
"estimate", "project", "intent", "expect", "should", and similar expressions are
intended to identify forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, or achievements of New World Coffee - Manhattan
Bagel,  Inc. ("New World" or "the Company") to be materially  different from any
future  results,  performance  or  achievements,  expressed  or  implied by such
forward-looking statements.

     The Company is dependent  upon the success of existing  and new  franchised
and Company-owned  stores and alternative  distribution  outlets; the success of
the Company  and its master  franchisees  in getting new stores or other  retail
locations  opened;  the  ability of the Company  and its master  franchisees  to
attract new qualified franchisees;  of which there can be no assurance, and such
other factors as competition, commodity pricing and economic conditions.

     The opening and success of stores will depend on various factors, including
the availability of suitable store sites and the negotiation of acceptable lease
terms for new locations, the ability of the Company or its franchisees to obtain
construction and other necessary permits in a timely manner, the ability to meet
construction  schedules,  the financial and other  capabilities of the Company's
franchisees  and  master  franchisees,  competition  and  general  economic  and
business conditions.

     The Company's  business is subject to changes in consumer taste,  national,
regional and local economic conditions,  demographic trends and the type, number
and location of competing  businesses.  Competition is increasing  significantly
with an increasing  number of national,  regional and local stores competing for
franchisees and store locations as well as customers.

     The  Company's  future  results may also be  negatively  impacted by future
pricing of the key  ingredients  for its frozen bagel dough,  cream  cheeses and
coffee beverages.

     The success of sales units in alternative distribution locations, including
convenience  stores,  supermarkets,  military  bases and  other  non-traditional
locations,  will  depend,  in  addition  to the  factors  affecting  traditional
franchisee and Company-owned stores, on the consumer traffic at the locations in
which they are located.

     The opening  and  remodeling  of stores,  as well as opening of sales units
within  alternative  locations,  may be subject to potential  delays  caused by,
among other things,  permits,  weather, the delivery of equipment and materials,
and the availability of labor.


ITEM 1. BUSINESS

General

     New World Coffee - Manhattan  Bagel,  Inc.  (the  "Company")  is one of the
largest  franchisors of bagel bakeries and coffee bars in the United States.  It
operates and franchises  bagel bakeries and coffee bars in 26 states  throughout
the United  States and the District of  Columbia.  The first  Company-owned  New
World  Coffee  store  opened in 1993 and the first  franchised  New World Coffee
store opened in 1997.  On November 24, 1998,  the Company  acquired the stock of
Manhattan Bagel, Company, Inc. ("MBC"). On August 31, 1999, the Company acquired
the assets of  Chesapeake  Bagel  Bakery  ("CBB").  At December  31,  2000,  the
Company's  retail system  consisted of  approximately  347 stores,  including 44
Company-owned and 303 franchised and licensed stores.

     The Company is vertically  integrated  and has bagel dough and cream cheese
manufacturing plants in Eatontown, NJ and Los Angeles, CA, and a coffee roasting
plant in Branford,  CT. The Company's products are sold to franchised,  licensed
and   Company-owned   stores   as  well  as  to   wholesale,   supermarket   and
non-traditional outlets.

     The Company is a Delaware corporation and was organized in November 1992.

Investment in Einstein/Noah Bagel Corp. Securities

     In fiscal 2000,  and  continuing  into fiscal 2001,  the Company  purchased
substantial  amounts of the 7.25% Convertible  Subordinated  Debentures due 2004
(the "Bonds") of Einstein/Noah  Bagel Corp.  ("Einstein").  As of April 13, 2001
the Company owns and, through an affiliate controls, approximately $61.5 million
in Einstein Bonds.

     In April 2001 the Company entered into an agreement with the Trustee of the
Boston  Chicken Plan Trust,  the majority  stockholder  of Einstein,  to support
confirmation of the Plan of Reorganization  (the "Plan") filed by the Trustee in
the Chapter 11 cases of ENBC and Einstein/Noah  Bagel Partners,  L.P.  ("ENBP"),
now pending in the United  States  Bankruptcy  Court for the District of Arizona
(the "Court").  Under the Plan, holders of ENBC's 7.25% Debentures due June 2004
shall be given the option of  converting  to equity in the  reorganized  ENBC or
having their bonds reinstated through payment of all accrued interest and future
compliance with the terms of the Indenture.

     In April 2001,  the Company also entered into an agreement  with one of the
Trustee's proposed exit lenders for the Plan, to confirm New World's support for
the Plan,  pursuant to which New World would agreed to convert its Debentures to
equity in reorganized ENBC. Under the conversion price and formulae in the Plan,
New World would receive  approximately 3.9 million shares of reorganized  ENBC's
new common  stock,  which the Company  anticipates  would  result in the Company
becoming the largest stockholder in reorganized ENBC.

     There is no assurance that the Plan will be confirmed.

Industry Overview

     The U.S. market for bagels is large,  fragmented and growing.  According to
Leading Edge Reports,  a market  research firm, the Retail U.S. bagel market has
grown  rapidly,  from  $2.1  billion  in 1995  to $4.7  billion  in  2000.  This
represents  an average  annual  growth rate of 16.8%.  According to Leading Edge
Reports, the share of the U.S. bagel market captured by bagel shops and bakeries
has grown from 42% in 1996 to 48% in 2000 and is  expected to reach 50% by 2002.
Management  believes  this  growth  has  been  driven  by (i)  greater  consumer
awareness and appreciation of fresh baked bagels as a result of their increasing
availability,  (ii) increasing  demand for all fresh premium food products where
the  differential  in price from the commercial  brands is small compared to the
improvement in product quality and taste, (iii) a switch by consumers to low fat
baked  items  such as  bagels  from high fat  fried  alternatives,  and (iv) the
popularity of coffee bars and bagel stores as gathering places.

     The U.S. market for specialty coffee is also large, fragmented and growing.
According to the National  Coffee  Association's  2000 National  Coffee Drinking
Trends  report,  approximately  66% of all consumers (age 18+) drink coffee on a
weekly basis,  they drink an average of 3.1 cups per day, and the overall number
of  coffee  drinkers  has  grown  from  approximately  140  million  in  1990 to
approximately  161 million in 2000.  The gourmet  coffee segment of the industry
has  experienced  strong growth over the past decade and is expected to continue
to grow. In the year 2000, approximately 53% of all consumers (age 18+) consumed
a gourmet coffee beverage, a 3.9% increase over 1999.

Business Strategy

     The  Company's  objective  is to be a leading  bagel bakery and coffee cafe
franchisor  in each market in which it  operates,  and to support and extend its
consumer brands and leverage its manufacturing  infrastructure through alternate
distribution channels. The key elements of this strategy include:

     Industry Consolidation. The Company's strategy is to be the consolidator of
the bagel bakery industry. The industry is currently fragmented with many chains
operating  unprofitably or at marginally profitable levels. The Company believes
that the current industry environment will allow it to acquire additional stores
through  acquisition  of  its  weaker  competitors.  These  acquisitions,   with
subsequent  conversion to one of the Company's core brands will create financial
synergies  as current  plant  capacity  is  utilized  to supply new  products to
acquired units. In addition, the Company will be able to leverage its investment
in  administrative   infrastructure  realizing  additional  profits  from  these
acquisitions.

     Differentiated  Retail Brands.  The Company's  strategy is to differentiate
and reinforce its retail brands in a way that will engender customer loyalty and
position the Company as a leading specialty retailer in each of its markets. The
Company's  Manhattan Bagel and Chesapeake  Bagel Bakery brands are positioned as
purveyors  of  authentic  "New  York  style"  boiled  and baked  bagels,  and of
breakfast and lunch  sandwiches.  The Company is expanding  this  positioning to
include a selection of specialty coffees, and a menu of cool blended drinks. The
New World Coffee  brand is  differentiated  from  competitors  by the  Company's
roasting style,  which management  believes delivers a more full flavored,  less
bitter  coffee.  In addition,  as a coffee cafe (versus a coffee bar) the stores
offer a broader and deeper  selection of high quality food items  throughout the
day.

     Quality  Products.  The Company's  strategy is to provide the consumer with
superior quality products,  primarily bagels, cream cheeses and coffee, which it
believes is a primary  factor in a consumer's  decision to patronize its stores,
and enables it to build a high quality brand identity.  The Company's vertically
integrated  strategy enables it to supply its stores with high quality specialty
coffees,  frozen  bagel dough and cream  cheeses,  and to control the quality of
product sold in the stores.  The Company's  coffee and bagel products have won a
number of quality and "Best of" awards,  which assists the Company in developing
its high quality brand identity.

     Growth  Through  Franchising.  The  Company's  strategy is to grow  through
franchising to secure a leading  position in its markets.  The Company  believes
that it can grow more rapidly  through  franchising  than through  Company-owned
operations due to lower financial and human resource constraints. The Company is
committed to  maintaining  a strong  franchise  system by  attracting  qualified
operators, expanding in a controlled manner and ensuring that franchisees adhere
to the Company's high standards.  The Company's  franchising efforts are focused
on  attracting  new  franchisees,  adding  additional  locations  with  existing
franchisees,  and developing co-branding  opportunities with other complementary
retailers. The Company devotes significant resources to provide franchisees with
assistance in site selection, store design, training and store marketing.

     Efficient  Production  System.  The  Company's  strategy is to leverage its
manufacturing  and  distribution  systems to lower  operating  costs and improve
product  quality.  The Company  believes that  centralized  production of bagel,
cream cheese, and coffee products allows for a more consistent superior product,
better quality  control and a more efficient  introduction  of new products.  In
addition,  the system  significantly  simplifies  store  level  operations,  and
eliminates the need for franchisees to commit  substantial  capital and labor to
raw material procurement and in-store production.  The Company has recently made
improvements  in its coffee  packaging  system and  continues  to  evaluate  its
production process to take advantage of additional production efficiencies.

     Inviting Stores.  The Company's  strategy is to deliver a store environment
for each  concept,  which is  conducive to capturing  important  day parts.  The
Company's objective is a comfortable and inviting store with layouts designed to
process a large  volume of  transactions  during the  critical  high  volume day
parts.  During 2000,  the Company  completed a redesign of its  Manhattan  Bagel
Store design. The new design, to be utilized in stores opening in the year 2001,
will more effectively promote the Company's product offerings and will allow for
a more prominent display of seasonal product selections.

     Training and Development.  The Company's  strategy places a strong emphasis
on identifying and retaining  qualified  franchisees and employees,  and invests
substantial  resources  training  them in customer  service,  beverage  and food
preparation  and display and store  operations.  The Company  believes  that the
friendliness,  speed and consistency of service and the product knowledge of the
Company's  franchisees  and  employees are critical  factors in  developing  the
Company's quality brand identity and in building a loyal customer base.

     Wholesale  Sales.  The  Company's  strategy  is to  leverage  its  existing
manufacturing  facilities  and  systems,  quality  products  and brand  names to
develop  a  significant  wholesale  business.  The  Company  believes  that food
distributors,  chain grocery stores and other non-traditional  outlets offer the
Company opportunities to more fully utilize its production capacity.

Expansion

     The  Company  plans to open  approximately  40  franchised  stores in 2001,
primarily  in  existing  markets.  The  Company  has  adopted  a  policy  of not
developing  stores for its own  operation  and is in the process of  franchising
most of the stores currently operated by the Company.

     The ability of the Company's  franchisees to open new stores is affected by
a number of factors.  These factors include,  among other things, the ability to
locate and procure suitable locations,  the ability to obtain financing, and the
ability to hire, train and retain  management and other personnel.  Accordingly,
there can be no assurance  that the Company's  franchisees  will be able to meet
planned growth targets.

     The Company's  expansion strategy is to cluster stores in targeted markets,
thereby increasing consumer awareness and enabling the Company to take advantage
of operational,  distribution and advertising efficiencies. The Company believes
that  market  penetration  through  the  opening  of  multiple  stores  within a
particular market should result in increased average store sales in that market.
In determining which new markets to develop, the Company considers many factors,
including  its  existing  store base,  the size of the market,  demographic  and
population  trends,  competition,  availability and cost of real estate, and the
ability to supply product efficiently.

Retail Stores

     Manhattan  Bagel.  Manhattan  Bagel  stores are  designed  to  combine  the
authentic  tastes  of  a  bagel  bakery  with  the  comfortable   setting  of  a
neighborhood   meeting  place.   Manhattan  Bagel's  prototypical  store  blends
functionality,  style and customer comfort in a relaxed social atmosphere. Walls
are covered with murals designed to portray the Manhattan Bagel brand. Manhattan
Bagel stores are  typically in leased  locations of  approximately  1,500 square
feet with ample parking and indoor  seating for 30 - 40 customers.  During 2000,
the Company  redesigned  its prototype  store to emphasize its lunch  offerings,
specialty coffee drinks and cool blended drinks menu.

     Manhattan Bagel stores offer,  over the course of any given year, more than
23  varieties  of fresh  baked  bagels,  as well as  bagel  sticks  and  bialys.
Manhattan's  bagels are baked fresh  throughout the day using a traditional boil
and bake  process  to  create a light,  "crunchy  on the  outside,  chewy on the
inside" bagel. Manhattan Bagel stores also offer 15 flavors of cream cheese, and
an extensive  variety of breakfast and lunch  sandwiches,  coffee,  soft drinks,
salads,  muffins and soups. In 1998, the Company  introduced a program,  "Bagel,
Wrapp or Roll,"  under  which it now  offers  all  sandwiches,  previously  only
available on bagels, on alternative carriers, such as french rolls or wrapps, in
order to  increase  its lunch  business.  The  Company  expects to  continue  to
emphasize its lunch business going  forward.  In 1999, the Company  continued to
expand its product offerings to include cool blended drinks.

     Chesapeake Bagel Bakery.  Chesapeake Bagel Bakery stores offer a variety of
freshly-baked  bagels as well as other baked goods and dessert items. The bagels
are "authentic" New York style bagels prepared fresh each day in the stores. The
Chesapeake  stores  also  offer an  extensive  variety  of  breakfast  and lunch
sandwiches, coffee, salads and soups.

     New World  Coffee.  New World Coffee stores are designed to be conducive to
capturing all dayparts.  In addition,  the store  atmosphere is designed to be a
comfortable and inviting cafe setting through the use of natural materials, warm
lighting, appropriate music and a comfortable seating area to promote the stores
use as neighborhood  gathering  places.  The Company's  prototype store averages
1,400 - 1,800 square feet.

     New World Coffee stores offer,  over the course of any given year, up to 30
varieties and blends of fresh roasted  coffee,  in brewed and whole bean format,
from coffee  producing  countries  around the world.  Regular and  decaffeinated
"Coffees of the Day" are fresh  brewed daily with strict  brewing and  freshness
standards.  The stores also offer a broad range of Italian-style  beverages such
as espresso,  cappuccino,  caffe latte, caffe mocha and espresso  machiato.  New
World Coffee stores offer a selection of black,  herbal and fruit teas, with one
selection  offered  as the fresh  brewed  "Iced Tea of the Day," and also  offer
freshly squeezed orange and grapefruit juice. New World Coffee stores also offer
a broad and deep variety of fresh, high quality food items.  Breakfast offerings
include  bagels,  croissants,  muffins,  danishes  and scones;  lunch  offerings
include Italian panini sandwiches and soups; dessert items include various cakes
and cookies, dessert muffins, brownies and biscotti.  Management is consistently
working with its  suppliers to develop a selection of quality food items,  which
will complement beverage sales.

Sourcing, Manufacturing & Distribution

     The Company  believes that  controlling the manufacture and distribution of
bagels, cream cheeses and coffee are important elements in ensuring both product
quality  and  profitability.  To support  this  strategy,  the  Company has made
significant investments in processing technology, formulations and manufacturing
capacity.

     Bagel  Production.  The  Company has  significant  know-how  and  technical
expertise  for  manufacturing  and  freezing  mass  quantities  of raw bagels to
produce a high-quality  product more commonly  associated with smaller bakeries.
The  Company  believes  this system  enables  stores to provide  customers  with
consistent,   superior   products.   The  Company   currently   operates   bagel
manufacturing facilities in Eatontown, NJ, and Los Angeles, CA.

     Cream Cheese Production. During 2000, the Company entered into a production
supply  agreement with BC-USA,  Inc. a premier  manufacturer of cream cheese and
related products. Pursuant to the agreement,  BC-USA, Inc. produces cream cheese
for sale to the  Company's  retail  units  utilizing  proprietary  formulas  and
specifications  developed by the Company.  The Company  retains  quality control
personnel to insure the product is  manufactured  according  to  specifications.
Management  believes  that this allows the  Company to provide a cheese  product
with longer  shelf life at a lower  price.  The Company has  retained  its cream
cheese manufacturing  facilities in Eatontown,  NJ and Los Angeles, CA which can
be utilized in the future based upon production requirements.

     Coffee Sourcing.  The Company  purchases only the highest quality grades of
Arabica coffee  available  from the best crops by evaluating  crop samples on an
ongoing basis and making purchase commitments on the basis of quality, taste and
availability.  The Company makes forward  commitments for the purchase of all of
its  coffee to help  ensure  adequate  supply.  The  Company  has  long-standing
relationships with coffee brokers,  allowing it access to the world's best green
coffees.

     Coffee Roasting. The Company's roasting process varies based upon the
variety, origin and physical characteristics of the coffee and is designed to
develop the optimal flavor and aromatics of each coffee. The Company currently
roasts its coffee in its Branford, CT manufacturing facility.

     Coffee Packaging. During 2000, the Company opened a state-of-the-art coffee
packaging facility at its Eatontown,  NJ plant. This was done in connection with
the introduction of the Company's  premium private label coffee,  Mountain Ridge
Coffee,  into Manhattan Bagel Stores during the year 2000.  Packaging  coffee at
the Eatontown  facility has allowed the Company to maximize  utilization  of its
facility and reduce costs of distribution.

     Distribution.  The Company's products are typically delivered to the stores
by truck either directly from the manufacturing  facility or through third party
distributors.  The Company's  coffee is delivered to each New World Coffee store
at least twice a week,  generally within 24 hours of roasting.  This enables the
Company to control the freshness of the coffee sold in its stores.

Marketing

     The Company's marketing programs target market and regional efforts, making
extensive use of local promotional  media. In areas of higher brand development,
local marketing efforts may include radio and television advertising.

     Company-owned and franchised stores are generally required to contribute up
to 2.5% of sales to the respective  brand's  marketing fund,  which provides the
stores  with  marketing  support  including   in-store  point  of  purchase  and
promotional  materials.  Print and other mass media  advertising  is utilized to
increase consumer interest and build sales.

Franchise Program

     General.  The  Company  considers  franchising  to be a key  element in its
continued  growth.  As of  December  31, 2000 there were 303  franchised  stores
operating in 26 states and the District of Columbia.  Additionally,  the Company
had  franchise  agreements  signed for  approximately  5  additional  franchised
stores. There can be no assurance that all of these stores will be opened.

     Approval.  Franchisees  are  approved on the basis of business  background,
operating experience and financial resources.

     Franchise Agreements.  The Company's franchise agreements typically provide
for a ten year term, a franchise fee ranging from $7,500 for a kiosk-type  store
to  $25,000  for a  fully-functional  store,  a 5%  royalty,  a  marketing  fund
contribution  of 2.5% which includes a required local  advertising and promotion
expenditure of 1.5%, and a $5,000 minimum grand opening expenditure.

     The  Company  has the right to  terminate  any  franchise  agreement  for a
variety of reasons,  including a franchisee's  failure to make payments when due
or  failure  to adhere to the  Company's  policies  and  standards.  Many  state
franchise laws limit the ability of a franchisor to terminate or refuse to renew
a franchise. See "Business-Government Regulation".

     The unit franchise agreements generally preclude the Company from operating
or  franchising  stores within an exclusive  territory,  except that the Company
reserves the right to engage in certain special distribution arrangements within
the specified territory.

     Master  Franchises.  Since the  acquisition of MBC, the Company  terminated
four  Manhattan  Bagel master  franchise  agreements and recovered the following
territories:  Florida; Maryland,  Virginia and the District of Columbia; Western
New York,  Erie,  Pennsylvania  and  Northeastern  Ohio;  North Carolina,  South
Carolina and Georgia.  The Company currently has a single Manhattan Bagel master
franchise agreement in operation in Northern California.  This master franchisee
is in default of its exclusive rights to its territory. The Company is currently
involved in discussions with this master franchisee to reacquire its territory.

     Franchise  Store  Development.  The Company  furnishes each franchisee with
assistance  in  selecting  sites  and  constructing  their  store  and  provides
prototypical   store  design  plans  to  the  franchisee.   Each  franchisee  is
responsible  for  selecting  the  location  for its stores,  with the  Company's
assistance,  based  on  accessibility  and  visibility  of  the  site,  targeted
demographic  factors,  existing  traffic  patterns,  availability of parking and
proximity of synergistic retailers and competition. The Company has the right to
approve the site selected by the Franchisee prior to any lease commitment.

     Franchise  Training and  Support.  Every  franchisee  is required to have a
principal  operator  or  manager  approved  by the  Company  who  satisfactorily
completes the  Company's  two-week  training  program and who devotes his or her
full business time and efforts to the operation of the franchisee's  stores.  In
addition to this program,  the Company provides on-site training for up to seven
days during the opening of franchisee's  stores and ongoing support  thereafter.
The Company's franchise consultants, reporting to the Vice President - Franchise
Operations,  maintain open communication with the franchise community,  relaying
operating  and marketing  information  and new ideas between the Company and its
franchisees.

     Franchise Operations.  All franchisees are required to operate their stores
in  compliance  with  the  Company's  policies,  standards  and  specifications,
including  matters  such  as  menu  items,  ingredients,   materials,  supplies,
services,  fixtures,  furnishings,  decor and signs.  Each  franchisee  has full
discretion to determine the prices to be charged to its customers.

     Franchise  Advisory Council.  The Company has a Franchise  Advisory Council
for each of its bagel brands that  consists of franchisee  representatives.  The
Advisory  Councils hold regular meetings with the Company to discuss new product
development, new marketing ideas, operations, growth and other relevant issues.

     Franchise  Reporting.  The Company  collects  weekly and monthly  sales and
other  operating  information  from its  franchisees.  The Company's  agreements
generally  permit the  Company to  electronically  debit the  franchisees'  bank
accounts  for  the  payment  of  royalties,  marketing  fund  contributions  and
purchases of products from the Company.

Trademarks and Service Marks

     The Company's  rights in its trademarks  and service marks  ("Marks") are a
significant  part of its  business.  The  Company and its  subsidiaries  are the
owners of the federal  registration of the Marks:  "Manhattan Bagel", "New World
Coffee", "New World Coffee & Bagels", and "Chesapeake Bagel Bakery". Some of the
Company's and its  subsidiaries'  Marks are also  registered in several  foreign
countries.  The  Company  is aware of a number of  companies  which use  various
combinations of the words  "Manhattan"  and/or  "Bagel",  some of which may have
senior  rights  to  the  Company  for  such  use,  but  none  of  which,  either
individually or in the aggregate, are considered to materially impair the use by
the  Company of its Marks.  The  Company is also aware of a number of  companies
which use various combinations of the words "New World" and/or "Coffee", some of
which may have senior  rights to the  Company  for such use,  but none of which,
either individually or in the aggregate, are considered to materially impair the
use by the  Company of its Marks,  including  but not limited to, the use of the
name "New World  Coffee" by another  entity in  California.  It is the Company's
policy  to  defend  its  Marks  and  the  goodwill  associated   therewith  from
encroachment by others.  The Marks set forth herein  represent the brands of the
retail  outlets owned by the Company but the Company owns  numerous  other Marks
related to its businesses.

Competition

     The coffee and bagel  industries  are intensely  competitive  and there are
many well-established competitors with substantially greater financial and other
resources than the Company.  Although competition in the specialty coffee market
is  currently  fragmented,   the  Company  competes  and,  in  the  future  will
increasingly  compete with Starbucks,  the market's leading  retailer.  Although
competition in the bagel market is fragmented,  the Company competes and, in the
future will increasingly compete with Dunkin' Donuts, Einstein/Noah Bagel Corp.,
and Bruegger's Bagels. In addition to current competitors, one or more new major
competitors  with  substantially  greater  financial,  marketing,  and operating
resources  than the  Company  could  enter the  market  at any time and  compete
directly against the Company. In addition, in virtually every major metropolitan
area in which the  Company  operates  or  expects  to enter,  local or  regional
competitors already exist.

     The Company's  coffee  beverages  compete  directly with all restaurant and
beverage  outlets  that serve  coffee and a growing  number of espresso  stands,
carts and stores.  The Company's  whole bean coffees  compete  directly  against
specialty coffees sold at retail through supermarkets,  specialty retailers, and
a growing  number of specialty  coffee  stores.  The  Company's  bagel  products
compete  directly  against all  restaurant and bakery outlets that serve bagels,
including  the bakery  section of  supermarkets,  and a growing  number of bagel
bakeries.  The  Company  believes  that its  customers  choose  among  retailers
primarily on the basis of product  quality,  service and  convenience  and, to a
lesser extent,  on price. The Company also expects that competition for suitable
sites for new  stores  will be  intense.  The  Company  competes  against  other
specialty  retailers  and  restaurants  for  these  sites,  and  there can be no
assurance that the Company will be able to continue to secure  adequate sites at
acceptable  rent levels.  The Company also  competes  with many  franchisors  of
restaurants and other business concepts with respect to the sale of franchises.

Government Regulation

     The Company and its franchisees are subject to various  federal,  state and
local laws  affecting the  operation of their  respective  businesses.  Each New
World Coffee,  Manhattan  Bagel and Chesapeake  Bagel Bakery store is subject to
licensing and regulation by a number of governmental authorities,  which include
health,  safety,  sanitation,  building  and  fire  agencies  in  the  state  or
municipality  in which  the  store is  located.  Difficulties  in  obtaining  or
failures to obtain  required  licenses or  approvals  could delay or prevent the
opening  of a new  store in a  particular  area.  The  Company's  manufacturing,
commissary and distribution facilities are licensed and subject to regulation by
state and local  health  and fire  codes,  and the  operation  of its  trucks is
subject to Department of Transportation regulations. The Company is also subject
to federal and state environmental regulations.

     The Company is subject to Federal Trade Commission  ("FTC")  regulation and
various state laws,  which  regulate the offer and sale of  franchises.  Several
state  laws  also  regulate  substantive  aspects  of the  franchisor-franchisee
relationship. The FTC requires the Company to furnish to prospective franchisees
a franchise offering circular  containing  prescribed  information.  A number of
states in which the Company might consider franchising also regulate the sale of
franchises  and require  registration  of the franchise  offering  circular with
State    authorities.    Substantive    state    laws    that    regulate    the
franchisor-franchisee  relationship  presently exist in a substantial  number of
states,  and bills have been  introduced  in Congress from time to time (some of
which are now  pending)  which  would  provide  for  federal  regulation  of the
franchisor-franchisee  relationship  in certain  respects.  The state laws often
limit, among other things, the duration and scope of non-competition  provisions
and the ability of a franchisor to terminate or refuse to renew a franchise.

Employees

     At December 31, 2000, the Company had 675 employees, of whom 516 were store
personnel,  98 were plant and support services personnel,  and 61 were corporate
personnel.  Most store personnel work part time and are paid on an hourly basis.
The Company has never  experienced  a work  stoppage and its  employees  are not
represented  by a labor  organization.  The Company  believes  that its employee
relations are good.


ITEM 2.  PROPERTIES

     As of  December  31, 2000 the Company  and its  franchisees  and  licensees
operated 347 stores,  consisting  of 28 New World Coffee  stores,  253 Manhattan
Bagel stores and 66 Chesapeake Bagel Bakery stores as follows.

STORE LOCATIONS

        State              Company      Franchised        Total
-----------------------  ------------  --------------  -------------

Alabama                            0               3              3
California                         0              22             22
Colorado                           6               4             10
Connecticut                        5               5             10
Delaware                           0               5              5
District of Columbia               0               3              3
Florida                            0              24             24
Georgia                            0              10             10
Illinois                           0               1              1
Kansas                             2               0              2
Louisiana                          0               1              1
Maryland                           0              15             15
Massachusetts                      0               2              2
Michigan                           0               2              2
Minnesota                          0               1              1
Missouri                           0               1              1
Nevada                             0               1              1
New Jersey                         0              54             54
New York                          17              24             41
North Carolina                     0              15             15
Ohio                               0               4              4
Oklahoma                          14               0             14
Pennsylvania                       0              63             63
South Carolina                     0               4              4
Texas                              0               5              5
Virginia                           0              33             33
West Virginia                      0               1              1
                         ------------  --------------  -------------

TOTAL                             44             303            347
                         ============  ==============  =============


     Information   with  respect  to  the  Company's   headquarters,   training,
manufacturing and distribution facilities is presented below.
<TABLE>
<CAPTION>

Location                                    Facility                                             Size
--------                                    --------                                             ----

<S>                                         <C>                                                  <C>
Eatontown, NJ (a)                           Corporate Headquarters                               101,000 sq.ft.
                                            Bagel University/Coffee University
                                            Bagel Manufacturing
                                            Coffee Packaging
                                            Distribution

Los Angeles, CA (b)                         Regional Offices                                      24,000 sq.ft.
                                            Bagel Manufacturing
                                            Distribution

Greenville, SC (c)                          Bagel Manufacturing                                   12,500 sq.ft.

Branford, CT (d)                            Office/Training Facilities                             3,800 sq.ft.
                                            Coffee Roasting Plant                                  1,600 sq.ft.
<FN>
----------------------
     (a) This facility is leased. Lease term ends January 31, 2005 and is
subject to two 5 year extension options.

     (b)   This facility is leased, with an initial lease term through June 1, 2007 and two 5 year options.

     (c)  This facility is located on a 1.45-acre parcel of land owned by the Company.  This facility is not currently in operation.

     (d)  This facility is leased through October 31, 2001.

     The Company believes that its current facilities are adequate for its
present and contemplated operations.
</FN>
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

     The Company is subject to claims and legal  actions in the ordinary  course
of its business. The Company believes that all such claims and actions currently
pending against it are either adequately  covered by insurance or would not have
a material  adverse effect on the Company if decided in a manner  unfavorable to
the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On December 21, 2000, the Company's  stockholders  at an Annual Meeting (i)
duly elected and qualified Leonard Tannenbaum (9,589,982 shares in favor, 90,510
shares against) as the Class III director of the Company to serve until the next
annual  meeting of  stockholders  and until his  successor  is duly  elected and
qualified;  and (ii) approved the  appointment  of Arthur  Andersen,  LLP as the
Company's  independent  auditors  for the fiscal year ending  December  31, 2000
(9,644,615 shares in favor, 22,735 shares against, 13,142 abstained.)


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The  Company's  Common  Stock  is  quoted  on the  NASDAQ  National  Market
("Nasdaq") under the symbol "NWCI".  The following table sets forth the range of
high and low  closing  sale  prices  (based on  transaction  data as reported by
NASDAQ)  for the  Common  Stock  for each  fiscal  quarter  during  the  periods
indicated.  All values  have been  adjusted  to reflect  the 1 for 2 stock split
which took place on August 17, 1999.
<TABLE>
<CAPTION>

Fiscal 1999                                                           High            Low
                                                                      ----            ---

<S>                                                                   <C>             <C>
First Quarter (From December 28, 1998 to March 28, 1999)              $2.76           $1.50
Second Quarter (From March 29, 1999 to June 27, 1999)                 $2.06           $1.50
Third Quarter (From June 28, 1999 to September 26, 1999)              $1.94           $1.38
Fourth Quarter (From September 27, 1999 to December 26, 1999)         $2.64           $1.63


Fiscal 2000                                                           High            Low
                                                                      ----            ---


First Quarter (From December 27, 1999 to March 26, 2000)              $3.81           $1.97
Second Quarter (From March 27, 2000 to June 25, 2000)                 $3.38           $1.81
Third Quarter (From June 26, 1999 to September 24, 2000)              $2.13           $1.66
Fourth Quarter (From September 25, 2000 to December 31, 2000)         $1.69           $0.88
</TABLE>


     On April 6,  2001 the  closing  price  for the  Company's  Common  Stock as
reported by NASDAQ was $ 1.13 per share.

     As of April 6, 2001, there were  approximately 255 holders of record of the
Common  Stock.  This  number does not include  individual  stockholders  who own
Common  Stock  registered  in the  name  of a  nominee  under  nominee  security
listings.

     The  Company  has not  declared  or  paid  any  cash  dividends  since  its
inception,  and does not  intend to pay any cash  dividends  in the  foreseeable
future and is precluded from paying dividends under its bank agreements.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

     New World Coffee - Manhattan Bagel, Inc. is one of the largest  franchisors
of bagel  bakeries  and  coffee  bars in the  United  States.  It  operates  and
franchises  bagel  bakeries and coffee bars in 26 states  throughout  the United
States and the District of Columbia.  The first  Company-owned  New World Coffee
store opened in 1993 and the first  franchised  New World Coffee store opened in
1997. On November 24, 1998, the Company  acquired the stock of Manhattan  Bagel,
Company,  Inc.  ("MBC").  On August 31, 1999, the Company acquired the assets of
Chesapeake  Bagel Bakery  ("CBB").  At December 31, 2000,  the Company's  retail
system consisted of approximately 347 stores, including 44 Company-owned and 303
franchised and licensed stores.

     The Company is vertically  integrated  and has bagel dough and cream cheese
manufacturing plants in Eatontown, NJ and Los Angeles, CA, and a coffee roasting
plant in Branford,  CT. The Company's products are sold to franchised,  licensed
and   Company-owned   stores   as  well  as  to   wholesale,   supermarket   and
non-traditional outlets.

     The Company is a Delaware corporation and was organized in November 1992.

Results of Operations

     Year Ended December 31, 2000 Compared To Year Ended December 26, 1999

     Revenues.  Total revenues  increased  14.5% to $45,722,881  for fiscal 2000
from  $39,925,398  for  fiscal  1999.   Manufacturing   revenues   increased  to
$26,011,188  or 56.9% of revenues for fiscal 2000 from  $25,105,635  or 62.9% of
revenues for fiscal 1999.  Royalties and franchise related revenues increased to
$7,714,511 or 16.9% of total  revenues for fiscal 2000 from  $6,171,413 or 15.5%
of total  revenues for fiscal 1999.  Retail sales  increased to  $11,997,182  or
26.2% of revenues  for fiscal  2000 from  $8,649,350  or 21.7% of  revenues  for
fiscal 1999,  primarily  due to the  acquisition  of  additional  Company  owned
stores.

     Costs and Expenses.  Cost of Sales as a percentage of related manufacturing
and retail  sales  decreased  to 81.7% in fiscal 2000 from 82.8% in fiscal 1999.
The reduction in costs was attributable to improved manufacturing margins as the
Company was able to leverage  existing  plant  capacity on higher  manufacturing
sales volumes.

     General and  administrative  expenses  increased to $ 6,694,107 or 14.6% of
revenues for fiscal 2000 from  $6,136,510  or 15.4% of revenues for fiscal 1999.
General and administrative  expenses expressed as a percentage of total revenues
decreased  to 14.6% in fiscal 2000 from 15.4% in fiscal  1999.  The  increase in
dollars  spent is primarily  attributable  to  additional  administrative  costs
associated   with  recently   acquired   Company   owned  stores.   General  and
administrative  expenses  expressed  as a  percentage  of  revenues  continue to
decline as the Company continues to leverage its existing infrastructure.

     Depreciation  and amortization  expense  increased to $2,774,033 or 6.1% of
revenues  for fiscal 2000 from  $2,249,340  or 5.6% of revenues for fiscal 1999.
The increase was primarily  attributable to depreciation on Company owned stores
acquired during fiscal 2000.

     Income from Operations.  Income from operations  increased to $5,209,777 or
11.4% of revenues for fiscal 2000 from $3,591,093 or 9.0% of revenues for fiscal
1999.  The increase is primarily  attributable  to increased  sales for 2000 and
improved margins.

     Interest  expense,  net for fiscal 2000  increased to $1,960,103 or 4.3% of
revenues from  $1,407,018  or 3.5% of revenues for fiscal 1999.  The increase in
interest  expense is primarily  attributable to debt incurred in connection with
the Chesapeake Bagel Bakery acquisition during the 3rd quarter of 1999.

     Loss on the sale of investments  increased to $338,926 for fiscal 2000 from
$0 for fiscal 1999. The loss in 2000 was  attributable to the Company's  trading
activities in marketable equity and debt securities.

     Extraordinary  item.  Gain  from the  early  extinguishment  of debt,  net,
decreased  to $0 for  fiscal  2000  from  $240,023  in  fiscal  1999.  The  gain
represents a discount earned for the prepayment of the Manhattan Bagel Unsecured
Creditors'  Trust Note,  which was partially offset by the costs associated with
obtaining such discount.

     Net Income.  Net income for fiscal 2000 increased to $6,010,926 or 13.1% of
revenues from $2,424,098 or 6.1% of revenues in fiscal 1999. The primary reasons
for the increase in net income were the increased  revenue base for fiscal 2000,
and the realization of certain income tax benefits.

Income Taxes

     The  Company  accounts  for  income  taxes  under  Statement  of  Financial
Accounting  Standards  No. 109 (SFAS  109).  Realization  of  deferred  taxes is
dependent on future events and earnings,  if any, the timing and extent of which
are  uncertain.   During  1999,  MBC  contributed   substantially   all  of  the
profitability of the Company and accordingly,  the valuation  allowance relating
to such deferred tax assets has been reversed.  The offsetting  benefit has been
reflected  as a  reduction  of the  goodwill  recorded  in  connection  with the
acquisition  of  MBC.   During  2000,   the  Company   evaluated  its  tax  loss
carryforwards  and related  deferred tax asset resulting in the recognition of a
deferred income tax benefit of $3,100,178. At December 31, 2000, the Company had
net operating  loss  carryforwards  of  approximately  $39,700,000  available to
offset future  taxable  income.  These  amounts  expire at various times through
2020. As a result of ownership changes resulting from sales of equity securities
and the acquisition of MBC the Company's  ability to use the loss  carryforwards
is subject to  limitations  as defined in Sections 382 of the  Internal  Revenue
Code of 1986, as amended.

Results of Operations

     Year Ended December 26, 1999 Compared To Year Ended December 27, 1998

     All  revenue  and  expense   figures  below  reflect  the  results  of  the
acquisition of Manhattan Bagel Company, Inc. on November 24, 1998.

     Revenues.  Total revenues  increased  131.0% to $39,925,398 for fiscal 1999
from  $17,282,524  for  fiscal  1998.   Manufacturing   revenues   increased  to
$25,104,635  or 62.9% of revenues.  The increase was primarily  attributable  to
manufacturing  revenues  associated  with MBC being  included  in the  Company's
results for fiscal 1999.  Royalties and franchise related revenues  increased to
$6,171,413 or 15.5% of total revenues from $2,728,137 or 15.8% of total revenues
for the  comparable  1998 period.  The increase was  primarily  attributable  to
royalties  and  franchise  revenues  associated  with MBC being  included in the
Company's  results for fiscal 1999 and additional  revenues  attributable to the
acquisition  of the assets of CBB during  fiscal 1999.  Retail  sales  decreased
30.0% to $8,649,350 for fiscal 1999 from  $12,361,242  for the  comparable  1998
period, primarily due to the sale of Company-owed stores to franchisees.

     Costs and Expenses.  Cost of Sales as a percentage of related manufacturing
and retail sales improved to 82.8% in fiscal 1999 from 85.6% in fiscal 1998. The
reduction  in costs was  attributable  to a more  profitable  product mix as the
Company  shifted  from a  predominantly  retail  sales mix in  fiscal  1998 to a
predominantly manufactured goods sales mix in fiscal 1999.

     General and  administrative  expenses  as a  percentage  of total  revenues
decreased  to 15.4% in fiscal  1999 from 20.0% in fiscal  1998.  The  decline in
general and  administrative  expenses as a percentage of total revenues reflects
the  elimination  of  duplicative  expenses  after the  acquisition  of MBC, the
Company's efforts to streamline certain administrative  functions and the higher
revenue base available in fiscal 1999.

     Depreciation  and  amortization  expenses as a percentage of total revenues
decreased to 5.6% for fiscal 1999 from 8.5% for fiscal 1998  primarily due to an
increase in the Company's  revenue  base,  the sale of  Company-owned  stores to
franchisees and the Company's compliance with FASB 121.

     In fiscal 1998, the Company  recorded the following  charges:  a $4,235,266
non-cash charge in compliance with FASB 121; a $1,874,212  restructuring  charge
relating  to the closing of its New York  office and costs  associated  with the
elimination of duplicate corporate functions; and a $350,000 provision for store
closings. No similar charges where recorded in fiscal 1999.

     Income from Operations. Income from operations increased to $ 3,591,093 for
fiscal 1999 from a loss from  operations  of  ($6,566,143)  in fiscal 1998.  The
increase in income from  operations  in 1999  reflects the  Company's  increased
revenue base  coupled with  post-acquisition  cost savings  attributable  to the
acquisition of MBC and the elimination of non-cash  charges pursuant to FASB 121
and store closing costs.

     Interest  expense,  net for fiscal 1999  increased to $1,407,018 or 3.5% of
revenues  from  $925,467 or 5.4% of revenues  for fiscal  1998.  The increase in
interest  expense  is  attributable  to debt  incurred  in  connection  with the
acquisitions of MBC and CBB.

     Extraordinary item. The extraordinary item in fiscal 1999 resulted from the
early extinguishment of debt at a discount from its face value. During 1999, the
Company  settled its liability  with the Manhattan  Bagel  Unsecured  Creditors'
Trust for an amount less than its carrying value.  The discount,  net of related
costs incurred to extinguish the debt is reflected as an  extraordinary  item in
fiscal 1999. There were no comparable items in fiscal 1998.

     Net Income.  Net income for fiscal 1999  increased to $2,424,098 or 6.1% of
revenues from a loss of  ($7,491,610) or (43.4%) of revenues in fiscal 1998. The
primary  reasons for the increase in net income were the increased  revenue base
for fiscal 1999,  elimination of non-cash charges in connection with realization
of assets,  elimination  of provision  for store  closing costs and cost savings
associated  with the  integration  of New World  Coffee  and MBC  administrative
functions.

Liquidity and Capital Resources

     In a series of closings  from April 18, 2000  through  June 21,  2000,  the
Company completed a private  placement  consisting of 1,360,390 shares of Common
Stock and 444,190 shares of convertible  Series C Preferred  Stock. The proceeds
from the offering, net of related offering expenses were $4,144,305.

     In August 2000,  the Company  issued  16,216  shares of Series D redeemable
preferred  stock  realizing  proceeds  of  $14,377,677  net of related  offering
expenses.

     The  Company  plans to  satisfy  any of its  capital  requirements  in 2001
through  cash  flow  from  operations  and the sale of  Company-owned  stores to
franchisees,  which should generate  additional cash. The Company may also raise
capital through additional equity offerings.

     At December  31,  2000,  the Company  had  working  capital of  $16,527,571
compared to working capital of $1,444,202 at December 26, 1999.

     The Company had net cash provided by operating activities of $2,094,753 for
fiscal 2000 and net cash  provided by operating  activities  of  $1,734,674  for
fiscal  1999.  The increase was  primarily  attributable  to the increase in net
income.

     The Company had net cash used in investing  activities of  $19,217,513  for
fiscal  2000  and  $2,864,229  for  fiscal  1999.  The  primary  use of cash for
investing activities was the acquisition of debt securities.

     The Company had net cash provided by financing  activities  of  $16,423,525
for fiscal 2000 and net cash used by  financing  activities  of  $1,259,730  for
fiscal  1999 The  primary  source of cash  provided  was  though the sale of the
Company's common stock and Series C and D Preferred Stock.

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.



ITEM 7. FINANCIAL STATEMENTS

     Information  in  response  to  this  item  is set  forth  in the  Financial
Statements beginning on page F-1 of this filing.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURES

     None.


                                    PART III

ITEM 9.  DIRECTORS,  EXECUTIVE  OFFICERS,  KEY EMPLOYEES,  PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The  directors,  key employees  and  executive  officers of the Company and
their ages as of the date of this 10-KSB are as follows:
<TABLE>
<CAPTION>

Name                                  Age                 Position with the Company
----                                  ---                 -------------------------

<S>                                   <C>                 <C>
R. Ramin Kamfar                       37                  Chairman and Chief Executive Officer and Director
William Rianhard                      43                  President and Chief Operating Officer
Jerold E.  Novack                     45                  Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Michael Konig                         40                  General Counsel
Michael Lubitz                        44                  Corporate Controller
Michael Ryan                          45                  Vice President - Franchise Services
David Ammons                          49                  Vice President - Marketing
Keith F. Barket (1)(2)                39                  Director (Class II)
Karen Hogan (1)                       39                  Director (Class I)
Edward McCabe (2)                     62                  Director (Class II)
Leonard Tannenbaum                    29                  Director (Class III)
Eve Trkla                             38                  Director (Agreement)
William Nimmo                         46                  Director (Agreement)
<FN>
(1) Member of Audit Committee
(2) Member of Compensation Committee
</FN>
</TABLE>

     Mr.  Kamfar has served as a Director  since  founding  the  Company  and as
Chairman and Chief  Executive  Officer  since  December  1998.  From May 1996 to
December  1998,  he  served as  President  and Chief  Executive  Officer  of the
Company.  Between  October 1993 and May 1996,  Mr.  Kamfar served in a number of
functions, including Co-President and Co-Chief Executive Officer of the Company.
Between 1988 and 1993, he worked in the  Investment  Banking  Division of Lehman
Brothers  Inc.,  New York,  NY, most recently as a Vice  President in the firm's
Private  Placement Group.  Mr. Kamfar is a director of Vsource,  Inc. Mr. Kamfar
has a B.S.  degree with  distinction  in Finance from the University of Maryland
and an M.B.A.  degree with distinction in Finance from The Wharton School at the
University of Pennsylvania.

     Mr. Rianhard became President and Chief Operating Officer of the Company in
May 2000. From October 1995 to April 2000, Mr. Rianhard was employed by Sara Lee
Corporation  as the  President  and Chief  Operating  Officer of Quikava,  Inc.,
Hingham,  MA., Chock Full o' Nuts Cafe franchising network. From 1976 to October
1995, Mr. Rianhard was employed by Allied Domecq U.S. Retailing,  Randolph,  MA.
the parent company of Dunkin'  Donuts,  in various  operations  and  development
positions,  serving the last four years as the Director of Concept  Development.
Mr. Rianhard has a B.A. degree from Ulster County College.

     Mr.  Novack joined the Company as Vice  President-Finance  in June 1994 and
has served as Executive Vice President,  Chief Financial Officer,  Treasurer and
Secretary since July 2000 and Chief Financial  Officer,  Treasurer and Secretary
since January 1999. From 1991 to 1994, he served as Vice President/Controller of
The Outdoor Furniture Store, Inc., Woodridge,  NJ a specialty retail chain. From
1988 to 1991, he served as Controller for Richmond Ceramic Tile, Inc., New York,
NY a retailer and  distributor  of ceramic tile.  From 1985 to 1988,  Mr. Novack
served as Assistant  Controller for Brooks Fashion Stores,  Inc., New York, NY a
specialty  retail chain.  Prior to 1985,  Mr.  Novack served as Import  Division
Controller for Mercantile Stores Company,  Inc., New York, NY a department store
chain.  Mr. Novack has a B.S. degree in Accounting from Brooklyn  College,  City
University of New York.

     Mr. Konig joined the Company in January 1999 and serves as General Counsel.
From March 1998 to  December  1998,  Mr.  Konig  served as a  consultant  to the
Company  regarding  its  acquisition  of Manhattan  Bagel Co., and  maintained a
separate  client base.  From 1997 to 1998,  Mr. Konig served as Chief  Operating
Officer and General  Counsel to Anthony L., L.L.C.  and J.S.P.  Footwear,  Inc.,
manufacturers and distributors of branded footwear and clothing lines. From 1989
to 1997,  Mr. Konig was an attorney in private  practice with  Greenbaum,  Rowe,
Smith, Ravin, Davis & Himmel, LLP of Woodbridge, NJ, concentrating in Commercial
Litigation,  Bankruptcy Law and Corporate  Transactions.  From 1987 to 1989, Mr.
Konig  was  an  attorney  in  private  practice  with  Ravin,  Sarasohn,   Cook,
Baumgarten,  Fisch & Baime of Roseland, NJ, concentrating in Bankruptcy Law. Mr.
Konig received a J.D. (cum laude) from  California  Western School of Law and an
M.B.A. in Finance with high honors from San Diego State University.

     Mr.  Lubitz,  joined the Company in February  1999 and serves as  Corporate
Controller.  From 1996 through  January of 1999,  Mr. Lubitz served as Corporate
Controller of The  Princeton  Review,  New York,  NY a leading test  preparation
company.  From 1986 to 1995,  Mr.  Lubitz was a Certified  Public  Accountant in
Public Practice with the firm of Becker, Sarran & Lubitz, Chartered of Bethesda,
MD. From 1982 to 1985, Mr. Lubitz served as Vice President - Finance of Resource
Ventures,  Inc.,  Alexandria,  VA, an international  trading and  transportation
company.  Prior to 1982,  Mr. Lubitz was an Auditor with Arthur  Andersen & Co.,
New York,  NY. Mr.  Lubitz  holds  B.S.  degrees in  Accounting  and  Industrial
Relations from Rider  University.  Mr. Lubitz received his C.P.A.  certification
from the state of Pennsylvania in 1980.

     Mr. Ryan has served as Vice  President - Franchise  Services of the Company
since  November 1998.  From 1995 to November 1998, Mr. Ryan served  initially as
Director of Operations,  and subsequently as Vice President - Franchise Services
of Manhattan  Bagel  Company,  Inc.  From 1994 to 1995, he served as Director of
Operations  for T.J.  Cinnamons,  Secaucus,  NJ. From 1973 to 1994, he served in
various capacities at Dunkin Donuts, most recently as Development Manager.

     Mr. Ammons has served as Vice President - Marketing  since April 2000. From
1996 to 1999,  Mr.  Ammons was  employed  by Allied  Domecq  U.S.  Retailing  as
Director of Field  Marketing for Dunkin'  Donuts,  Baskin Robbins and the Togo's
brands.   From  1992  to  1997,  Mr.  Ammons  was  employed  by  Foote,  Cone  &
Belding/Bozell  Worldwide Advertising as Vice President/Partner on the Taco Bell
account.  Mr. Ammons has a B.S. degree in Advertising and Public  Relations from
Youngstown State University.

     Mr.  Barket has served as a director  of the Company  since June 1995.  Mr.
Barket is the  Managing  Director - Real  Estate for Angelo,  Gordon & Co.,  New
York,  NY.  From 1988 to 1997,  Mr.  Barket was a Managing  Director of Amerimar
Enterprises Inc., New York, NY, a real estate investment and development company
during  which time he was involved in a variety of office,  retail,  residential
and hotel projects. From 1984 to 1986, he worked as a senior tax accountant with
Arthur  Andersen  & Co.,  New  York,  NY.  Mr.  Barket  has a B.A.  degree  from
Georgetown  University  and an  M.B.A.  degree  from The  Wharton  School at the
University of Pennsylvania.

     Mr. McCabe has served as director of the Company since  February  1997. Mr.
McCabe has served as a marketing and investment  banking  consultant since 1998.
From 1991 to 1998, Mr. McCabe was Chief  Executive  Officer of McCabe & Company,
New York, NY, an advertising and  communications  company.  From 1967 to 1986 he
served in various capacities,  most recently as President and Worldwide Creative
Director, at Scali, McCabe, Sloves, Inc., New York, NY, an advertising agency he
co-founded. He also serves on the advisory board of ThinkTanksWorldwide.com.

     Ms. Hogan has served as a director of the Company since December 1997. From
1992 to 1997, Ms. Hogan served as Senior Vice President, Preferred Stock Product
Management at Lehman Brothers,  Inc., New York, NY. From 1985 to 1992, Ms. Hogan
served as Vice  President,  New Product  Development  Group at Lehman  Brothers,
Inc., New York, NY. Ms. Hogan has a B.S. degree from the State University of New
York at Albany and an M.B.A.  degree in Finance  and  Economics  from  Princeton
University.

     Leonard  Tannenbaum,  C.F.A., has served as a director of the Company since
March 1999.  Mr.  Tannenbaum is currently  the Managing  Partner at MYFM Capital
LLC, a boutique  investment  banking firm, and a partner at BET Associates LP, a
$50 million  venture  capital fund. Mr.  Tannenbaum is a holder of the Chartered
Financial Analyst designation and is a member of AIMR. Mr. Tannenbaum  currently
serves on the board of directors of the  following  companies:  Corteq,  General
Devices, Timesys, an embedded Linux company, and Transcentives.com,  an Internet
holding company. Previously, Mr. Tannenbaum was the president of on-line auction
company  CollectingNation.com,  a  partner  in a  $50  million  hedge  fund,  an
assistant  portfolio manager at Pilgrim Baxter,  and an Assistant Vice President
in the small  company group of Merrill  Lynch.  Mr.  Tannenbaum  has an M.B.A in
Finance and  Bachelors of Science in Management  from the Wharton  School at the
University of Pennsylvania.

     Ms. Trkla has been an Agreement  Director  since August 2000 in  accordance
with the Stock  Purchase  Agreement,  and is a  controlling  person of Brookwood
Financial Partners, L.P., an affiliate of Brookwood New World Investors,  LLC, a
party to the Stock Purchase Agreement (see "Principal Stockholders").  Ms. Trkla
has been,  since May 1993, the Chief  Financial  Officer of Brookwood  Financial
Partners,  L.P. Ms.  Trkla's prior  experience in the financial  services  field
includes  eight years as a lender at The First  National  Bank of Boston and one
year as the Senior Credit  Officer at The First  National  Bank of Ipswich.  Ms.
Trkla also serves as a director of UbiquiTel,  Inc., a Sprint PCS affiliate. Ms.
Trkla is a cum laude graduate of Princeton University.

     Mr. Nimmo has been an Agreement  Director  since January 2001 in accordance
with the Stock Purchase  Agreement,  and is a partner at Halpern,  Denny & Co. a
private equity investment firm and party to the Stock Purchase  Agreement.  From
1989 to 1997, Mr. Nimmo was a partner at Cornerstone  Equity  Investors,  L.L.C.
and its predecessor firm,  Prudential  Equity  Investors,  Inc. Prior to joining
Prudential  Equity  Investors  in 1989;  he spent ten years  with J.P.  Morgan &
Company.  Mr.  Nimmo is a graduate of  Dartmouth  College and received an M.B.A.
from the Amos Tuck School of Business  Administration  at  Dartmouth.  Mr. Nimmo
serves on the Boards of a number of private companies.

     All directors  currently serve for one to three-year  terms and until their
successors  have been  elected and  qualified.  Beginning  with the  election of
directors in the year 2000, all directors are elected to terms of three years on
a staggered basis.  Officers are elected annually and serve at the discretion of
the board.  There are no family  relationships  between any of the  directors or
executive officers of the Company.

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation

     The  following   table   provides   certain   information   concerning  the
compensation  earned by the  Company's  Chief  Executive  Officer  for  services
rendered  in all  capacities  to the  Company  during  2000,  and any  executive
officers of the Company who received  compensation  in excess of $100,000 during
1998, 1999 and 2000 ("Named Executive Officers").

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                       Fiscal Year ended December 31, 2000
                                                                  Annual Compensation
                                   -----------------------------------------------------------------------------------
                                                                             Restricted Stock Grants     Securities
                                                                           ---------------------------
                                                            Other Annual                                 Underlying
                                                            Compensation                      Stock     Options/ SARs
Name and Principal Position         Salary ($)   Bonus ($)        ($)       Shares (#)       Value ($)       (#)
                                    ----------   ---------                  ----------       ---------       ---

R. Ramin Kamfar, Chairman and
<S>                                 <C>          <C>          <C>             <C>            <C>           <C>
Chief Executive Officer             $ 300,000    $ 105,000    $24,000(1)         --              --        250,000

William Rianhard, President and
Chief Operating Officer             $  98,923    $  25,000    $12,000(1)         --              --         60,000

Jerold E. Novack, Chief Financial
Officer                             $ 154,808    $  77,500     12,000(1)      100,000        $ 125,625     200,000



                       Fiscal Year ended December 26, 1999
                                                                  Annual Compensation
                                   -----------------------------------------------------------------------------------
                                                                             Restricted Stock Grants     Securities
                                                                           ---------------------------
                                                            Other Annual                                 Underlying
                                                            Compensation                      Stock     Options/ SARs
Name and Principal Position         Salary ($)   Bonus ($)        ($)       Shares (#)       Value ($)       (#)
                                    ----------   ---------                  ----------       ---------       ---

R. Ramin Kamfar, Chairman and Chief
Executive Officer                   $ 175,000    $ 87,500     $24,000(1)         --              --       250,000

Jerold E. Novack, Chief Financial
Officer                             $ 150,000    $ 37,500     $12,000(1)         --              --       125,000


                       Fiscal Year ended December 27, 1998
                                                                  Annual Compensation
                                   -----------------------------------------------------------------------------------
                                                                             Restricted Stock Grants     Securities
                                                                           ---------------------------
                                                            Other Annual                                 Underlying
                                                            Compensation                      Stock     Options/ SARs
Name and Principal Position         Salary ($)   Bonus ($)        ($)       Shares (#)       Value ($)       (#)
                                    ----------   ---------                  ----------       ---------       ---

R. Ramin Kamfar, Chairman and Chief
Executive Officer                   $ 137,500    $ 68,750     $24,000(1)         --              --           --

Jerold E. Novack, Chief Financial
Officer                             $ 118,462    $100,000     $12,000(1)         --              --           --

<FN>
(1) Represents car and commuting allowances for the respective individuals.
</FN>
</TABLE>

Stock Option Grants

     Set forth  below is  information  on grants of stock  options for the Named
Executive Officers for the period December 27, 1999 to December 31, 2000.

OPTION GRANTS IN 2000
<TABLE>
<CAPTION>

                                Individual Grants
                                                                                             Potential Realizable
                             Number of     Percentage of                                       Value At Assumed
                            Securities     Total Options      Exercise                         Annual Rates of
                            Underlying       Granted to        Price                             Stock Price
                              Option        Employees in       ($ per      Expiration            Appreciation
                              Granted       Fiscal Year        Share)         Date           for Option Term (1)
                              -------       -----------        ------         ----           -------------------

<S>                              <C>                 <C>       <C>          <C>   <C>        <C>              <C>
Jerold Novack..........          200,000             30.9%     $2.00        10/01/2010       $139,490         $459,048

R. Ramin Kamfar........          250,000             38.6%     $2.00        10/01/2010       $174,362         $573,809

William Rianhard.......           60,000              9.3%     $2.63        05/15/2010         $4,347         $100,214
<FN>
     (1)   The potential realizable value is calculated based on the term of the
           option at the time of grant (ten years). Assumed stock price
           appreciation of 5% and 10% is based on the fair value at the time of
           grant.
</FN>
</TABLE>


Fiscal Year-End Option Values

     The  following  table sets forth  certain  information  with respect to the
stock  options  held at  December  31,  2000 by the  Company's  Named  Executive
Officers.

                               2000 OPTION VALUES
<TABLE>
<CAPTION>

                                               Number of
                                         Securities Underlying                       Value of Unexercised
                                          Unexercised Options                        In-the-Money Options
                                              At Year End                            at Year End ($) (1)
                                    --------------------------------         -----------------------------------
             Name                   Exercisable        Unexercisable         Exercisable           Unexercisable
             ----                   -----------        -------------         -----------           -------------

<S>                                   <C>                  <C>                    <C>                     <C>
R. Ramin Kamfar...........            684,367                 -                   -                       -

Jerold E.  Novack.........            421,662                 -                   -                       -

William Rianhard..........             15,000              45,000                 -                       -
<FN>

     (1) Calculated based on an assumed share price of $1.125 per share, less
the exercise price payable for such shares.
</FN>
</TABLE>

Employment Contracts

     In September 2000, the Company entered into a new employment agreement with
Mr. Kamfar, the Company's  Chairman and Chief Executive  Officer.  The agreement
expires  on  December  31,  2001 but is  automatically  renewed  for  additional
one-year  periods  commencing  each January 1 unless  either party gives written
notice to the other of its desire not to renew such term,  which  notice must be
given no later than  ninety  (90) days prior to the end of each term on any such
renewal. The agreement provides for a compensation package of $300,000 per year,
and an annual  performance  bonus of between 35% and 100% of the base salary for
calendar year 2000 and any subsequent  calendar year. Each bonus is based on the
attainment of certain corporate and individual goals. Pursuant to the agreement,
Mr. Kamfar has agreed to maintain the  confidentiality  of any  confidential  or
proprietary information of the Company.

     In the event that the Company  terminates Mr.  Kamfar's  employment  upon a
change in control or terminates Mr. Kamfar's employment other than for cause, he
will be paid severance  compensation equal to three times his annual base salary
(at the rate  payable at the time of such  termination)  plus an amount equal to
the  greater  of three  times the  amount of his  bonus  for the  calendar  year
preceding such  termination or 35% of his base salary.  For a period of one year
following Mr.  Kamfar's  voluntary  termination  or termination  for cause,  Mr.
Kamfar  cannot  perform  services for,  have an equity  interest  (except for an
interest of 10% or less in an entity whose  securities  are listed on a national
securities  exchange) in any business (other than the Company) or participate in
the  financing,  operation,  management or control of, any firm,  corporation or
business  (other than the  Company)  that  engages in the  marketing  or sale of
specialty coffee as its principal business.

     Mr. Kamfar's employment  agreement defines a "change of control" as: 1) the
acquisition  of more than 40% of the  voting  stock of the  Company  by a single
person or group;  2) a change in the  majority  of the Board of  Directors  as a
result of a cash tender offer, merger, sale of assets or contested election;  3)
the  approval  by  shareholders  of the  Company  of a merger  or sale of all or
substantially  all of the Company's  assets;  4) the closing of a transaction in
which more than 50% of the Company's voting power is transferred and 5) a tender
offer  which  results  in a person  or a group  acquiring  more  than 40% of the
Company.

     In September 2000, the Company entered into a new employment agreement with
Mr. Novack,  the Company's  Executive Vice President,  Chief Financial  Officer,
Treasurer and Secretary.  The agreement  expires on June 30, 2001. The agreement
provides  for a  compensation  package  of  $160,000  per  year,  and an  annual
performance  bonus of 50% to 100% of the base salary based on the  attainment of
certain corporate, departmental and individual goals. Pursuant to the agreement,
Mr. Novack has agreed to maintain the  confidentiality  of any  confidential  or
proprietary information of the Company.

     In the event that Mr.  Novack's  employment  with the Company  ceases other
than for cause, he will be paid severance compensation of $200,000. For a period
of one year following Mr.  Novack's  voluntary  termination  or termination  for
cause,  Mr. Novack cannot perform  services for, have an equity interest (except
for an  interest  of 5% or less in an entity  whose  securities  are listed on a
national  securities  exchange)  in any  business  (other  than the  Company) or
participate  in the  financing,  operation,  management or control of, any firm,
corporation  or business  that  engages in the  marketing  or sale of  specialty
coffee or bagels as its principal business.

     In April 2000,  the Company  entered into an employment  agreement with Mr.
Rianhard with a term beginning May 15, 2000 and ending May 15, 2002,  which term
is  automatically  renewed from year to year unless either party gives notice to
the contrary not less than ninety (90) days prior to the commencement of any one
(1) year extension  period.  The Agreement  provides for annual  compensation of
$160,000  plus  such  increases  as the  Board of  Directors  may  approve.  The
Agreement  also  provides  for  an  annual  service  bonus  equal  to 25% of Mr.
Rianhard's base compensation and an annual performance bonus of up to 25% of Mr.
Rianhard's  base  compensation,  as determined  by the Board of  Directors.  The
Agreement also provides for an option to purchase  60,000 shares of common stock
at its closing price on April 12, 2000, a $12,000 annual automobile allowance, a
$12,000 annual rent allowance and a moving allowance.

     If there is a "change in  control",  Mr.  Rianhard  shall be  entitled to a
bonus  equal to 50% of his  base  compensation  for the  year in which  the same
occurs,  and if he is  terminated  within  six (6) months  after the  "change of
control,"   Mr.   Rianhard   would  be  entitled  to  receive  12  months'  base
compensation,  one year's bonus and 12 months' automobile allowance and would be
entitled to fully  exercise his options.  For a period of one year following Mr.
Rianhard's  voluntary  termination or termination for cause, Mr. Rianhard cannot
perform  services for, have an equity interest  (except for an interest of 5% or
less in an entity whose securities are listed on a national securities exchange)
in any  business  (other than the  Company)  or  participate  in the  financing,
operation,  management  or control of, any firm,  corporation  or business  that
engages in the marketing or sale of specialty  coffee or bagels as its principal
business.

Directors' Compensation

     Each  non-employee  director  of the Company is paid $2,000 for each of the
quarterly Board meetings of each calendar year, $1,000 for each additional Board
meeting held in the same calendar year and $500 for each committee meeting. Such
payments  are made in Common Stock of the Company.  Employee  directors  are not
compensated for service provided as directors.  Additionally,  each non-employee
director receives stock options to purchase 10,000 shares of Common Stock on the
date on which such person  first  becomes a  director,  and on October 1 of each
year if, on such date,  he or she shall have  served on the  Company's  Board of
Directors for at least six months.  The exercise  price of such options shall be
equal to the market  value of the  shares of Common  Stock on the date of grant.
All directors are  reimbursed  for  out-of-pocket  expenses  incurred by them in
connection with attendance of Board meetings and committee meetings.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers  and  directors,  and  persons  who own more  than ten  percent  of the
Company's common stock, to file reports of ownership and changes in ownership on
Forms  3, 4 and 5 with  the  Securities  and  Exchange  Commission  and  NASDAQ.
Officers,  directors and greater than ten percent  shareholders  are required by
Securities  and  Exchange  Commission  regulations  to furnish the Company  with
copies of all Section 16(a) forms they file. To the Company's  knowledge,  based
solely on its  review of the copies of such forms  received  by it, the  Company
believes that all Section 16(a) filing requirements  applicable to its officers,
directors and greater than ten percent beneficial owners have been complied with
for the fiscal year ended  December  31,  2000,  although a number of reports on
Form 4 and Form 5 for such  fiscal  year were filed after the end of such fiscal
year.

Indemnification of Directors and Officers and Related Matters

     The Company's  Certificate of Incorporation  limits,  to the maximum extent
permitted  by the General  Corporation  Law of the State of Delaware  ("Delaware
Law"), the personal liability of directors and officers for monetary damages for
breach  of  their  fiduciary  duties  as  directors  and  officers  (other  than
liabilities arising from acts or omissions which involve intentional misconduct,
fraud or knowing  violations of law or the payment of distributions in violation
of Delaware Law). The  Certificate of  Incorporation  provides  further that the
Company  shall  indemnify  to the fullest  extent  permitted by Delaware Law any
person made a party to an action or  proceeding  by reason of the fact that such
person was a director, officer, employee or agent of the Company. Subject to the
Company's  Certificate  of  Incorporation,  the Bylaws  provide that the Company
shall  indemnify  directors  and officers for all costs  reasonably  incurred in
connection with any action, suit or proceeding in which such director or officer
is made a party by virtue of his being an officer  or  director  of the  Company
except where such director or officer is finally  adjudged to have been derelict
in the performance of his duties as such director or officer.

     At present,  there is pending litigation  involving certain officers of the
Company where indemnification may be required. These involve routine litigations
in respect to which the  officers  were  believed  to be acting  solely in their
corporate capacity.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth certain  information  regarding  beneficial
ownership of the  Company's  Common Stock as of April 6, 2001 (i) by each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than five percent of the Company's Common Stock,  (ii) by each of the Named
Executive Officers,  (iii) by each of the Company's directors and nominees,  and
(iv) by all directors and executive  officers as a group.  The Company  believes
that the persons and entities named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially  owned by
them, subject to community property laws, where applicable.
<TABLE>
<CAPTION>

                                                                Shares Beneficially
Name and Address of Beneficial Owner **                                 Owned              Percentage
---------------------------------------                                 -----              ----------
<S>                                                                  <C>        <C>           <C>
Halpern Denny III, L.P.                                              10,605,140 (1)           39.21%
500 Boylston Street
Suite 1880
Boston, Massachusetts 02116

Brookwood New World Investors, LLC                                    3,263,178 (1)           16.56%
55 Tozer Road
Beverly, MA 01915

BET Associates, L.P.                                                  3,820,523 (2)           19.39%
3103 Philmont Avenue
Huntingdon Valley, PA 19006

Bruce Toll                                                            3,820,523 (2)           19.39%
3103 Philmont Avenue
Huntingdon Valley, PA 19006

Frank and Lydia LaGalia                                                 981,800               5.97%
2050 Center Avenue
Suite 200
Fort Lee, NJ 07024

R. Ramin Kamfar                                                       1,012,282 (3)           5.91%
     Chairman and Chief Executive
     Officer and Director

William Rianhard                                                         15,000 (4)             *
     President and Chief Operating Officer

Jerold E. Novack                                                        703,971 (5)           4.17%
     Executive Vice President - Finance
     Treasurer and Secretary

Keith F. Barket                                                          67,721 (6)             *
     Director

Edward McCabe                                                            48,532 (7)             *
     Director

Karen Hogan                                                              66,434 (8)             *
     Director

Leonard Tannenbaum                                                      138,972 (9)             *
     Director

Eve Trkla                                                                10,000 (10)            *
     Director

William Nimmo                                                            10,000 (11)            *
         Director

All directors and executive officers                                  2,072,912              11.65%
     As a group (9 persons)
<FN>

*    Less than one percent (1%).

**   Address  for each  officer and  director  of the  Company is the  Company's
     principal office located at 246 Industrial Way West, Eatontown, NJ.

(1)  Consists of common stock which may be purchased pursuant to warrants.

(2)  Includes  557,345 shares  beneficially  owned by BET  Associates,  L.P. and
     3,263,178 shares which may be purchased under warrants by it. Mr. Toll is a
     controlling person of BET Associates, L.P.

(3)  Includes 684,367 shares, which may be acquired upon the exercise of options
     which will be exercisable within 60 days.

(4)  Includes 15,000 shares,  which may be purchased pursuant to the exercise of
     options which will be exercisable within sixty (60) days.

(5)  Includes  421,662  shares,  which  may be  acquired  upon the  exercise  of
     options.

(6)  Includes  37,000  shares,  which  may be  acquired  upon  the  exercise  of
     presently exercisable options.

(7)  Includes  35,000  shares,  which  may be  acquired  upon  the  exercise  of
     presently exercisable options.

(8)  Includes  30,000  shares,  which  may be  acquired  upon  the  exercise  of
     presently exercisable options.

(9)  Includes  options to purchase 30,000 shares of common stock and warrants to
     purchase 70,000 shares of common stock.  Does not include  3,820,523 shares
     owned  beneficially by BET Associates,  L.P., of which Mr.  Tannenbaum is a
     limited partner owning 10% of the interest of the limited partners,  and of
     which shares Mr. Tannenbaum disclaims beneficial ownership.

(10) Includes  10,000  shares,  which  may be  acquired  upon  the  exercise  of
     presently  exercisable  options.  Ms.  Trkla  is a  controlling  person  of
     Brookwood  Financial  Partner,  L.P.,  an affiliate of Brookwood  New World
     Investors,  LLC (see Note (1) above).  Ms.  Trkla  disclaims  a  beneficial
     interest in the common  stock  beneficially  owned by  Brookwood  New World
     Investors, LLC.

(11) Includes  10,000  shares,  which  may be  acquired  upon  the  exercise  of
     presently  exercisable  options.  Does not include  10,605,140 shares owned
     beneficially  by Halpern Denny III, LP (see Note (1)) in which Mr. Nimmo is
     a partner.  Mr. Nimmo  disclaims a beneficial  interest in the common stock
     beneficially owned by Halpern Denny III, LP.
</FN>
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Leonard Tannenbaum, a director of the Company, is a limited partner and ten
(10%) owner in BET Associates,  L.P.  ("BET").  On August 11, 2000 BET purchased
approximately  8,108 shares of the Company's  Series D Preferred Stock for a sum
of $7,500,000.  In a related transaction on August 18, 2000, Brookwood New World
Investors,  LLC  ("Brookwood")  purchased  approximately  8,108  shares  of  the
Company's  Series D Preferred Stock for a sum of $ 7,500,000  (collectively  the
"Series D Financing").  Each of BET and Brookwood received a warrant to purchase
1,196,909  shares of the Company's common stock at a price of $.01 per share. In
connection  with the  Series D  Financing,  Mr.  Tannenbaum  received a fee of $
225,000 and a warrant to purchase 70,000 shares of the Company's common stock at
its closing price on August 18, 2000. In addition, Mr. Tannenbaum was designated
by BET as a director  of the  Company to serve for the period  specified  in the
Stock Purchase Agreement.

     Eve Trkla,  a director of the Company,  is the Chief  Financial  Officer of
Brookwood Financial Partners,  L.P., an affiliate of Brookwood. In addition, Ms.
Trkla was  designated by Brookwood as a director of the Company to serve for the
period specified in the Stock Purchase Agreement.

     On January 22, 2001, the Company consummated a sale of 20,000 shares of its
authorized  but unissued  Series F Preferred  Stock to Halpern  Denny III,  L.P.
("Halpern  Denny")  in  exchange  for the sum of $20  million.  At such time the
Company entered into a Series F Preferred Stock and Warrant  Purchase  Agreement
with Halpern Denny.  William  Nimmo, a director of the Company,  is a partner in
Halpern  Denny and Co., an affiliate  of Halpern  Denny III, LP and party to the
Stock Purchase Agreement. Mr. Nimmo was designated by Halpern Denny III, LP as a
director of the Company to serve for the period  specified in the Stock Purchase
Agreement.  In  connection  with the Series F Purchase  Agreement,  the  Company
issued  Halpern  Denny a warrant to purchase  8,484,112  shares of the Company's
common stock at an exercise price of $0.01 per share.

     BET and Brookwood had invested the sum of $15 million for substantially the
same  purpose as that  contemplated  by the Series F Purchase  Agreement,  which
investment  was made in August  2000,  and BET and  Brookwood  were then holding
Series D  Preferred  Stock,  which had a right to approve  the  creation  of the
Series F Preferred Stock.  Therefore,  the Company  considered it appropriate to
restructure the investment  documents  relating to the August 2000 investment by
BET and Brookwood.  Accordingly,  the Company, BET and Brookwood entered into an
Exchange  Agreement on January 22, 2001,  whereby  they  exchanged  all of their
outstanding  Series D Preferred  Stock,  including  accrued but unpaid dividends
(all of  which  were  retired)  for a total  of  16,398.33  shares  of  Series F
Preferred Stock. BET and Brookwood also exchanged the warrants  received by them
in August 2000 for  warrants to purchase an  aggregate  of  6,526,356  shares of
common stock of the Company.

     In addition,  the Company,  BET, Brookwood and Halpern Denny entered into a
Stockholders  Agreement,  which relates  principally  to the  composition of the
Board of  Directors of the  Company.  Pursuant to the terms of the  Stockholders
Agreement,  the  Company  will  have a Board  of  Directors  consisting  of nine
members.  BET is entitled to designate one (1) member to the Board of Directors.
Brookwood  is entitled  to  designate  one (1) member of the Board of  Directors
until such time as its Series F Preferred Stock, including any Notes issued upon
redemption  thereof,  have been paid for in full.  Halpern  Denny is entitled to
designate two members to the Board of Directors  (and has  designated  one as of
this time) until such time as its Series F Preferred Stock,  including any Notes
issued upon redemption  thereof,  have been paid in full, at which time it shall
be allowed to designate  one director,  which right will be continue  until such
time as it owns less than 2% of the outstanding common stock of the Company. The
Stockholders  Agreement  provides that should  Halpern Denny  designate a second
member to the Board of  Directors,  the  management  may designate an additional
member to the Board of Directors  bringing the total  membership of the Board of
Directors to nine persons.

     On March 29,  2001,  the  Company  consummated  a sale of 5,000  additional
shares of its  authorized,  but  unissued,  Series F Preferred  Stock to Halpern
Denny in exchange for the sum of $5,000,000. Pursuant to the terms of the Second
Series F Preferred Stock and Warrant  Purchase  Agreement (the "Second  Purchase
Agreement")  with Halpern Denny, the Company also sold Halpern Denny warrants to
purchase  2,121,028 shares of the Company's common stock at a price per share of
$.01 (subject to adjustment as provided in the form of warrant).

     For  further  information,  reference  is made to Note 14 to the  Financial
Statements-Subsequent  Events, and to the exhibits described in Item 13-Exhibits
and Reports on Form 8-K.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>

(a)    Exhibits

<S>      <C>
3.1      Articles of incorporation (1)
3.1.1    Restated Certificate of Incorporation (8)
3.2      By-laws (2)
3.3      Amendments to Bylaws (11)
4.1      Specimen Common Stock Certificate of Registrant (2)
4.2      Form of Representatives' Warrant Agreement, including Form of Representatives Warrant (2)
4.3      Certificate of Designation of Series B Preferred Stock (5)
10.1     1994 Stock Plan (2)
10.2     Investor Rights Agreement (2)
10.3     Directors' Option Plan (2)
10.4     Form of Franchise Agreement (6)
10.5     Form of Store Franchise Sale Agreement (6)
10.6     Manhattan Bagel Company, Inc. - DIP Amended Acquisition Agreement and Exhibits (7)
10.7     Manhattan Bagel Company, Inc. - Debtor in Possession First Amended Joint Plan of Reorganization (7)
10.8     Manhattan Bagel Company, Inc. - Debtor in Possession Confirmation Order (7)
10.9     Employment Agreement with R. Ramin Kamfar
10.10    Employment Agreement with William Rianhard
10.11    Employment Agreement with Jerold E. Novack
10.12    Credit Agreement dated August 31, 1999 by and among the Company, its active subsidiaries and BankBoston, N.A.(8)
10.13    Rights  Agreement  between New World  Coffee-Manhattan  Bagel,  Inc. and American Stock  Transfer & Trust Company,
         as Rights Agent, dated as of June 7, 1999(9)
10.14    Series F Preferred Stock and Warrant Purchase Agreement dated as of January 18, 2001, by and among the Company,
         Halpern Denny, BET and Brookwood (10)
10.15    Certificate of Designation, Preferences and Rights of Series F Preferred Stock as filed with the Delaware Secretary
         of State on January 18, 2001 (10)
10.16    Form of Note issuable to Halpern Denny, BET and Brookwood (10)
10.17    Form of Common Stock Purchase Warrant issued to Halpern Denny, BET and Brookwood (10)
10.18    Amended and Restated Registration Rights Agreement dated as of January 18, 2001, by and among the Company, Halpern Denny,
         BET and Brookwood (10)
10.19    Stockholders Agreement dated as of January 18, 2001, by and among the Company, Halpern Denny, BET and Brookwood (10)
10.20    Exchange Agreement dated as of January 18, 2001, by and among the Company, BET and Brookwood (10)
10.21    Bond Purchase Agreement dated as of January 17, 2001, by and among the Company,  Greenlight Capital,  L.P.,
         Greenlight Capital Qualified, L.P. and Greenlight Capital Offshore, Ltd. (10)
10.22    Form of Certificate of Designation, Preferences and Rights of Series E Preferred Stock (10)
10.23    Form of Common Stock Purchase Warrant issued to the Greenlight Entities (10)
10.24    Registration  Rights Agreement dated as of January 17, 2001, by and among the Company,  Greenlight Capital,  L.P.,
         Greenlight Capital Qualified, L.P. and Greenlight Capital Offshore, Ltd. (10)
10.25    Second  Series F Preferred  Stock and Warrant  Purchase  Agreement dated as of March 29, 2001, by and between the Company
         and Halpern Denny (11)
10.26    Form of Common Stock Purchase Warrant issued to Halpern Denny (11)
10.27    Amended  Certificate of Designation,  Preferences and Rights of Series F Preferred Stock as filed with the Delaware
         Secretary of State on March 29, 2001 (11)
10.28    Form of Note issuable to Halpern Denny, BET and Brookwood (11)
10.29    Amendment No. 1 to Exchange Agreement dated as of January 18, 2001, by and among the Company, BET and Brookwood (11)
10.30    Amendment No. 1 to Series F Preferred  Stock and Warrant  Purchase Agreement dated as of January 18, 2001, by and between
         the Company and Halpern Denny (11)
10.31    Amendment No. 1 to  Stockholders  Agreement  dated as of January 18, 2001, by and among the Company,  Halpern  Denny,
         BET and Brookwood (11)
10.32    Amendment  No. 1 to Amended  and  Restated  Registration  Rights Agreement  dated as of January  18,  2001,  by and among
         the Company, Halpern Denny, BET and Brookwood (11)
11.1     Statement re computation of per share earnings (included in the Financial Statements forming a part of this 10-KSB)
21.1     List of Subsidiaries
-----------------
<FN>

(1)      Incorporated by reference to Exhibit 3.2 from Registrant's registration statement on Form SB-2 (33-95764).
(2)      Incorporated by reference from Registrant's registration statement on Form SB-2 (33-95764).
(3)      Incorporated by reference from Registrant's Current Report on Form 8-K dated July 12, 1996.
(4)      Incorporated by reference from Registrant's Current Report on Form 8-K dated November 12, 1996.
(5)      Incorporated by reference from Registrant's Report on Form 10-KSB, for the Fiscal Year Ended December 29, 1996.
(6)      Incorporated by reference from Registrant's Report on Form 10-KSB, for the Fiscal Year Ended December 28, 1997.
(7)      Incorporated by reference from Registrant's Current Report on Form 8-K dated November 24, 1998.
(8)      Incorporated by reference from Registrant's Current Report on Form 8-K dated September 7, 1999.
(9)      Incorporated by reference from Registrant's Current Report on Form 8-K dated October 13, 1999.
(10)     Incorporated by reference from Registrant's Current Report on Form 8-K dated January 17, 2001.
(11)     Incorporated by reference from Registrant's Current Report on Form 8-K dated March 29, 2001.
</FN>
</TABLE>


(b)      Reports on Form 8-K

          None.

                                   Signatures

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        New World Coffee-Manhattan Bagel, Inc.

                                        By: /s/Ramin Kamfar
                                            ---------------
                                            Ramin Kamfar
                                            Chief Executive Officer

Dated: April 13, 2001

     In  accordance  with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
<TABLE>
<CAPTION>

             Signature                                 Title                                      Date
             ---------                                 -----                                      ----


<S>                                  <C>                                                     <C>
/s/Ramin R. Kamfar                   Chairman of the Board of Directors; Chief
------------------                   Executive Officer                                       April 13, 2001
Ramin R. Kamfar

/s/Jerold E. Novack                  Chief Financial Officer                                 April 13, 2001
-------------------
Jerold E. Novack

/s/Ed McCabe                         Director                                                April 13, 2001
------------
Ed McCabe


/s/Keith Barket                      Director                                                April 13, 2001
---------------
Keith Barket

/s/Leonard Tannenbaum                Director                                                April 13, 2001
---------------------
Leonard Tannenbaum

/s/Karen Hogan                       Director                                                April 13, 2001
--------------
Karen Hogan

/s/Eve Trkla                         Director                                                April 13, 2001
------------
Eve Trkla

/s/William Nimmo                     Director                                                April 13, 2001
----------------
William Nimmo
</TABLE>


                    NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
                                AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                                               Page

<S>                                                                                                               <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ............................................................           F-1

FINANCIAL STATEMENTS:

     Consolidated Balance Sheet as of December 31, 2000 .............................................           F-2

     Consolidated Statements of Operations for the Years Ended December 31, 2000
        and December 26, 1999 .......................................................................           F-3

     Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
        December 31, 2000 and December 26, 1999......................................................           F-4

     Consolidated Statements of Cash Flows for the Years Ended December 31, 2000
        and December 26, 1999 .......................................................................     F-5 - F-6

     Notes to Consolidated Financial Statements .....................................................    F-7 - F-18
</TABLE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


     To New World Coffee - Manhattan Bagel, Inc.:

     We have audited the  accompanying  consolidated  balance sheet of New World
Coffee - Manhattan Bagel,  Inc. (a Delaware  corporation) and subsidiaries as of
December  31,  2000,  and the related  consolidated  statements  of  operations,
changes in stockholders'  equity and cash flows for the years ended December 31,
2000 and December 26, 1999. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of New World Coffee - Manhattan
Bagel,  Inc. and  subsidiaries  as of December 31, 2000 and the results of their
operations  and their  cash  flows for the years  ended  December  31,  2000 and
December 26, 1999 in conformity with accounting principles generally accepted in
the United States.


/s/ Arthur Andersen LLP

Arthur Andersen LLP
New York, New York
March 26, 2001


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2000
<TABLE>
<CAPTION>

                                     Assets
Current Assets:
<S>                                                                                                 <C>
     Cash and cash equivalents                                                                      $2,271,107
     Franchise and other receivables, net of allowance
       for doubtful accounts of $723,329                                                             3,067,765
     Current maturities of notes receivable                                                            676,768
     Inventories                                                                                     1,436,124
     Prepaid expenses and other current assets                                                         621,030
     Deferred income taxes - current portion                                                           500,000
     Investment in debt securities                                                                  13,888,784
     Assets held for resale                                                                          5,141,491
                                                                                                     ---------
         Total current assets                                                                       27,603,069

Property, plant and equipment, net                                                                   6,969,731
Notes and other receivables, net of allowance
 for doubtful accounts of $1,542,725                                                                 1,221,861
Trademarks, net of accumulated amortization of $649,059                                             15,724,086
Goodwill, net of accumulated amortization of $761,471                                                2,325,959
Deferred income taxes                                                                                9,100,178
Other assets                                                                                         2,753,470
                                                                                                   -----------
         Total assets                                                                              $65,698,354
                                                                                                   ===========
                      Liabilities And Stockholders' Equity
Current Liabilities:
      Accounts payable                                                                              $2,708,398
      Accrued expenses                                                                               3,730,501
      Current portion of long-term debt                                                              4,422,522
      Current portion of obligations under capital leases                                              199,887
      Other current liabilities                                                                         14,190
                                                                                                  ------------
         Total current liabilities                                                                  11,075,498

Long-term debt                                                                                      13,689,957
Obligations under capital leases                                                                       362,896
Other long term liabilities                                                                          1,828,641
Commitments and contingencies (Note 11)

Series D Preferred Stock, $.001 par value; 25,000 shares authorized; 16,216
shares issued and outstanding                                                                       12,008,314

Stockholders' Equity:
      Preferred stock, $.001 par value; 2,000,000 shares authorized; 0 shares 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
       issued and outstanding
      Series C convertible preferred stock,  $.001 par value; 500,000 shares authorized; 0
       shares issued and outstanding                                                                         -
      Common stock, $.001 par value; 50,000,000 shares authorized; 15,404,828 shares issued
       and outstanding                                                                                  15,405
      Additional paid-in capital                                                                    45,180,828
      Accumulated deficit                                                                          (18,463,185)
                                                                                                   ------------
         Total stockholders' equity                                                                 26,733,048
                                                                                                    ----------
         Total liabilities and stockholders' equity                                                $65,698,354
                                                                                                   ===========
<FN>
     The accompanying notes are an integral part of this consolidated balance
sheet.
</FN>
</TABLE>


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 26, 1999
<TABLE>
<CAPTION>

                                                                                  2000             1999
                                                                                  ----             ----

Revenues:
<S>                                                                          <C>                <C>
       Manufacturing revenues                                                $26,011,188       $25,104,635
       Franchise-related revenues                                              7,714,511         6,171,413
       Retail sales                                                           11,997,182         8,649,350
                                                                              ----------         ---------
Total Revenues                                                                45,722,881        39,925,398

Cost of Sales                                                                 31,044,964        27,948,455
General and administrative expenses                                            6,694,107         6,136,510
Depreciation and amortization                                                  2,774,033         2,249,340
                                                                               ---------         ---------

Income from Operations                                                         5,209,777         3,591,093

Interest expense, net                                                          1,960,103         1,407,018
Loss on sale of investments                                                      338,926                 -
                                                                                 -------     -------------

Income before income taxes and extraordinary item                              2,910,748         2,184,075

Income tax benefit                                                             3,100,178                 -
                                                                               ---------                 -

Income before extraordinary item                                               6,010,926         2,184,075

Extraordinary item
Net gain from early extinquishment of debt                                             -           240,023
                                                                                       -           -------

Net Income                                                                     6,010,926         2,424,098

Dividends, accretion and beneficial conversion on preferred stock              2,127,713                 -
                                                                               ---------                 -

Net income available to common stockholders                                   $3,883,213        $2,424,098
                                                                              ==========        ==========

Net income per common share - Basic
Income before extraordinary item                                                   $.32               $.22
                                                                                =======            =======

Extraordinary item                                                                 $  -               $.02
                                                                                =======            =======

Net income                                                                          $.32              $.24
                                                                                ========           =======

Net income per common share - Diluted
Income before extraordinary item                                                    $.29              $.21
                                                                                ========           =======

Extraordinary item                                                                  $  -              $.02
                                                                                ========           =======

Net income                                                                          $.29              $.23
                                                                                ========           =======

Weighted average number of common shares outstanding:
Basic                                                                         12,074,356        10,317,490
                                                                              ==========        ==========

Diluted                                                                       13,374,975        10,692,613
                                                                              ==========        ==========
<FN>

The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 26, 1999

<TABLE>
<CAPTION>

                                                            Series B Preferred  Series C Preferred      Common          Common
                                                                  Stock                Stock             Stock           Stock
                                                             Shares    Amount     Shares    Amount      Shares          Amount
                                                             ------    ------     ------    ------      ------          ------


<S>                                                             <C>     <C>        <C>      <C>          <C>             <C>
BALANCE, December 27, 1998                                    58.5      $--        --       $--          9,721,322       $9,722

    Issuance of common stock, net of offering expenses                                                   1,167,171        1,167

    Common stock issued in connection with the
       conversion of Series B convertible preferred
       stock.                                                (58.5)      --        --        --            425,015          425

    Net Income                                                  --       --        --        --                 --           --
                                                           -------    -------- ---------  ---------     ----------      -------

BALANCE, December 26, 1999                                      --       --        --        --         11,313,508       11,314

   Issuance of common stock, net of offering expenses           --       --        --        --          1,228,458        1,228

   Private placement of securities consisting of common
    Series C preferred stock, net of
   offering expenses                                            --       --     444,190      444         1,530,292        1,530

  Issuance of warrants in connection with Series D
   Preferred stock                                              --       --        --        --                 --           --

   Conversion of Series C preferred stock                       --        --   (444,190)    (444)        1,332,570        1,333

    Dividends and accretion on preferred stock                  --       --        --        --                 --           --

   Net Income                                                   --       --        --        --                 --           --
                                                           -------    -------- ---------  ---------      ----------      -------

BALANCE, December 31, 2000                                      --    $  --        --     $  --          15,404,828      $15,405
                                                           =======    ======== =========  =========      ===========     =========
</TABLE>

<TABLE>
<CAPTION>
                                                               Additional                       Total
                                                                Paid-in      Accumulated    Stockholders'
                                                                Capital        Deficit         Equity
                                                                -------        -------         ------


<S>                                                           <C>           <C>              <C>
BALANCE, December 27, 1998                                    $33,703,916   ($24,770,496)    $8,943,142

    Issuance of common stock, net of offering expenses          1,003,358             --      1,004,525
    Common stock issued in connection with the
       conversion of Series B convertible preferred
       stock.                                                       (425)             --             --

    Net Income                                                         --      2,424,098      2,424,098
                                                                ---------      ----------     ---------

BALANCE, December 26, 1999                                     34,706,849    (22,346,398)    12,371,765

   Issuance of common stock, net of offering expenses           1,835,490             --      1,836,718

   Private placement of securities consisting of common
    Series C preferred stock, net of
    offering expenses                                           5,405,378     (1,263,046)     4,144,306

  Issuance of warrants in connection with Series D
   Preferred stock                                              3,234,000             --      3,234,000

   Conversion of Series C preferred stock                           (889)             --             --

   Dividends and accretion on preferred stock                         --        (864,667)      (864,667)

   Net Income for the year                                            --        6,010,926      6,010,926
                                                              -----------       ---------      ---------

BALANCE, December 31, 2000                                    $45,180,828    ($18,463,185)   $26,733,048
                                                              ===========    =============   ===========
<FN>

The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 26, 1999

<TABLE>
<CAPTION>

                                                                                     2000               1999
                                                                                     ----               ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                <C>                  <C>
 Net income                                                                        $6,010,926           $2,424,098
 Adjustments to reconcile net income to net cash provided by operating activities
   Depreciation and amortization                                                    2,774,033            2,249,545
   Gain on sales of fixed assets                                                    (338,679)            (703,822)
   Loss on sales of investments                                                       338,926                    -
   Extraordinary gain from the early extinguishment of debt                                 -            (240,023)
   Deferred tax asset                                                              (3,100,178)                   -

   Changes in operating assets and liabilities-
      Franchise and other receivables, net                                        (1,056,367)          (1,046,789)
      Inventories                                                                     409,230            (489,624)
      Prepaid expenses and other current assets                                     (345,336)             (69,621)
      Other assets                                                                  (446,446)              655,522
      Receipts on notes receivable                                                    230,277              994,881
      Advances under notes receivable                                               (276,379)            (602,400)
      Accounts payable                                                                693,695              264,056
      Accrued expenses                                                              (528,730)          (1,058,549)
      Other liabilities                                                           (2,270,219)            (642,600)
                                                                                  -----------            ---------

Net cash provided by operating activities                                           2,094,753            1,734,674
                                                                                    ---------            ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                             (335,176)          (1,432,429)
   Proceeds from sales of fixed assets                                                467,000              951,636
   Proceeds from sales of debt securities                                           3,183,988                    -
   Additions to assets held for resale                                                      -               38,017
   Investment in debt securities                                                 (17,411,698)                    -
   Deferred acquisition costs                                                       (865,258)                    -
   Net cash paid for acquisitions                                                 (4,166,369)          (2,421,453)
                                                                                  -----------          -----------

Net cash used in investing activities                                            (19,127,513)          (2,864,229)
                                                                                 ------------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of stock, net of offering expenses                                     19,412,200            1,004,525
   Proceeds from notes payable                                                      1,500,000           13,787,620
   Payment of liabilities in connection with acquired assets                      (2,474,090)          (3,666,217)
   Repayments of capital leases                                                     (229,157)            (571,598)
   Early retirement of debt                                                                 -          (4,650,000)
   Repayments of notes payable                                                    (1,785,428)          (7,164,060)
                                                                                  -----------          -----------

Net cash provided by (used in) financing activities                                16,423,525          (1,259,730)
                                                                                   ----------          -----------

Net decrease in cash                                                                (609,235)          (2,389,285)

CASH and cash equivalents, beginning of year                                        2,880,342            5,269,627
                                                                                    ---------            ---------

CASH and cash equivalents, end of year                                             $2,271,107           $2,880,342
                                                                                   ==========           ==========
</TABLE>


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 26, 1999

<TABLE>
<CAPTION>

                                                                                     2000                1999
                                                                                     ----                ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<S>                                                                                <C>                  <C>
   Cash paid during the period for interest                                        $1,965,207           $1,262,976

NONCASH INVESTING AND FINANCING ACTIVITIES:

   Equipment acquired under capital leases                                            397,889              511,034

   Notes received from sale of fixed assets                                                 -               45,000

   Conversion of Series B Convertible
      Preferred Stock to Common Stock                                                       -             (30,000)

   Issuance of notes related to acquisitions                                                -            1,500,000

   Issuance of stock in connection with consulting services                           946,470                    -

   Dividend payments on Series D Preferred paid in stock                              460,714                    -

DETAILS OF ACQUISITION
   Assets acquired                                                                  5,116,369                    -
   Note receivable extinguished                                                   (1,250,000)                    -
   Notes issued                                                                             -          (1,500,000)
   Estimated accruals at time of acquisition                                                -          (2,500,000)
   Intangible assets acquired                                                         300,000            6,421,453
                                                                                      -------            ---------

Cash paid for acquisition                                                           4,166,369            2,421,453

Cash acquired                                                                              -                     -
                                                                                   ----------           ----------

Net cash paid for acquisition                                                      $4,166,369           $2,421,453
                                                                                   ==========           ==========

<FN>

The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 31, 2000 AND DECEMBER 26, 1999

1. Nature of Business, Organization and Significant Accounting Policies

Nature of Business and Organization

     New World Coffee - Manhattan  Bagel,  Inc.  operates and  franchises  bagel
bakeries  and coffee  bars in 26 states  throughout  the  United  States and the
District of Columbia.  The first  Company-owned New World Coffee store opened in
1993 and the first franchised New World Coffee store opened in 1997. On November
24,  1998,  the Company  acquired the stock of Manhattan  Bagel,  Company,  Inc.
("MBC"). On August 31, 1999, the Company acquired the assets of Chesapeake Bagel
Bakery ("CBB"). . At December 31, 2000, the Company's retail system consisted of
approximately  347 stores,  including 44  Company-owned  and 303  franchised and
licensed stores.

     The Company is vertically  integrated  and has bagel dough and cream cheese
manufacturing plants in Eatontown, NJ and Los Angeles, CA, and a coffee roasting
plant in Branford,  CT. The Company's products are sold to franchised,  licensed
and   Company-owned   stores   as  well  as  to   wholesale,   supermarket   and
non-traditional outlets.

Principles of Consolidation

     The consolidated  financial  statements  herein include the accounts of the
Company and its wholly owned subsidiaries.  All material  intercompany  accounts
and transactions have been eliminated.

Fiscal Year

     The Company's annual accounting period ends on the last Sunday in December.
The fiscal  year-end  dates for 2000 and 1999 are December 31, 2000 and December
26, 1999, resulting in years containing 53 weeks and 52 weeks, respectively.

Cash and Cash Equivalents

     The Company  considers  securities  with maturities of three months or less
when purchased to be cash equivalents. The Company had cash equivalents totaling
$905,216 at December 31, 2000, which were comprised of money market accounts and
overnight treasury investments, which cost approximate market value.

Inventories

     Inventories  are  stated at the lower of cost or  market,  with cost  being
determined by the first-in,  first-out method. At December 31, 2000, inventories
consist of the following:

                      Finished goods                  $ 1,085,445
                      Work in process                     147,607
                      Raw Materials                       203,072
                                              -------------------

                                                       $1,436,124
                                              ===================

Investment in Debt Securities

     Investments in debt securities are reported at fair value. 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  December  31,  2000,  the  cost of  debt  securities
approximate  their fair value and,  accordingly,  no unrealized gain or loss has
been recorded.

Property, Plant and Equipment

     Property,  plant and  equipment  are  recorded  at cost.  Expenditures  for
maintenance and repairs are generally charged to expense as incurred.  Leasehold
improvements are amortized over the shorter of their useful lives or the term of
the related leases by use of the straight-line method.  Depreciation is provided
using the straight-line method over the following estimated useful lives:

        Leasehold improvements                            5 to 15 years
        Store equipment                                   3 to 7 years
        Furniture and fixtures                            5 to 7 years
        Office equipment                                  3 to 5 years

Trademarks

     Trademarks  resulting  from  the  acquisition  of MBC  and  CBB  are  being
amortized on a straight-line basis over a period of 30 years.

Goodwill

     Goodwill  resulting  from the  acquisition  of MBC is being  amortized on a
straight-line basis over a period of 25 years.

Long-Lived Assets

     The Company's  policy is to record  long-lived  assets at cost,  amortizing
these costs over the expected useful lives of the related assets.  In accordance
with Statement of Financial  Accounting  Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," these  assets are  reviewed  on a periodic  basis for  impairment  whenever
events or changes in  circumstances  indicate  that the carrying  amounts of the
assets  may  not be  realizable.  Furthermore,  the  assets  are  evaluated  for
continuing  value and proper useful lives by comparison to expected  future cash
flows.  Management  reviewed  all  long  lived  assets  and  determined  that no
impairment exists at December 31, 2000.

 Revenue Recognition

     Manufacturing revenues are generally recognized upon shipment to customers.

     Retail sales are recognized when payment is tendered at the point of sale.

     Pursuant to the franchise agreements, franchisees are generally required to
pay an initial franchise fee and a monthly royalty payment equal to a percentage
of the  franchisee's  gross sales.  Initial  franchise  fees are  recognized  as
revenue when the Company performs  substantially  all of its initial services as
required by the franchise  agreement.  Royalty fees from franchisees are accrued
as earned.

     Royalty income,  initial franchise fees and gains on sales of Company-owned
stores to franchisees are included in franchise revenues.

Advertising Costs

     The Company expenses advertising costs as incurred.

Deferred Rent

     Certain of the  Company's  lease  agreements  provide  for  scheduled  rent
increases  during  the lease term or for rental  payments  commencing  at a date
other  than  initial  occupancy.  Provision  has  been  made for the  excess  of
operating lease rental expense, computed on a straight-line basis over the lease
term, over cash rentals paid.

Fair Value of Financial Instruments

     Franchise  notes  receivable  (Note 4) are estimated by discounting  future
cash flows  using the  current  rates at which  similar  loans  would be made to
borrowers with similar credit ratings.  The fair value of debt and notes payable
outstanding is estimated by discounting  the future cash flows using the current
rates offered by lenders for similar borrowings with similar credit ratings. The
carrying  amounts  of  franchise  and other  receivables  and  accounts  payable
approximate their fair value.

Concentration of Credit Risk

     Financial   instruments   that   potentially   subject   the   Company   to
concentrations  of credit risk consist  primarily of cash and cash  equivalents,
debt securities and notes and accounts  receivable.  The Company  maintains cash
and cash equivalents with various major financial  institutions.  During 2000, a
substantial  portion of the Company's  manufacturing  revenues were derived from
sales to its sole  distributor.  At December  31, 2000 the Company has  accounts
receivable  from  its  distributor  of  $871,404.   The  Company  believes  that
concentrations  of credit  risk with  respect  to notes and  franchise  accounts
receivable  are limited due to the large  number and  geographic  dispersion  of
franchises  comprising the Company's frnchise base. The Company performs ongoing
credit  evaluations  of its  franchises  and  maintains  reserves for  potential
losses.

Reporting Comprehensive Income

     In 1998,  the  Company  adopted  SFAS  No.  130,  "Reporting  Comprehensive
Income."  SFAS No. 130  establishes  new rules for the  reporting and display of
comprehensive income and its components.  The Company's comprehensive net income
is equal to its net income for the years ended  December  31, 2000 and  December
26, 1999

Earnings Per Share

     In accordance  with SFAS No. 128,  "Earnings Per Share," basic earnings per
common share amounts  ("basic EPS") are computed by dividing net earnings by the
weighted  average number of common shares  outstanding and exclude any potential
dilution.  Diluted earnings per common share amounts assuming dilution ("diluted
EPS") are computed by  reflecting  potential  dilution of the  Company's  common
stock equivalents.

Segment Disclosure

     The Company  adopted the  provisions  of SFAS No.  131,  "Disclosure  about
Segments of an  Enterprise  and Related  Information."  SFAS 131,  applicable to
public  companies,  which  establishes  new standards for reporting  information
about operating  segments in annual financial  statements.  The Company does not
believe that it operates in more than one segment.

Income Taxes

     The  Company  accounts  for  income  taxes  in  accordance  with  SFAS  109
"Accounting for Income Taxes" using the asset and liability  method.  Under this
method  deferred tax assets and  liabilities  are  recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amount of  existing  assets  and  liabilities  and their tax bases for
operating  profit  and tax  liability  carryforward.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred  tax assets or  liabilities  of a
change in tax rates is recognized in the period that the tax change occurs.

Stock-Based Compensation

     SFAS No. 123 establishes  financial  accounting and reporting standards for
stock-based  employee  compensation  plans. SFAS No. 123 encourages  entities to
adopt a  fair-value-based  method of accounting  for stock  compensation  plans.
However,  SFAS No. 123 also permits entities to continue to measure compensation
costs under pre-existing accounting pronouncements with the requirement that pro
forma  disclosures of net income and earnings per share be included in the notes
to  financial  statements.  The  Company  has  elected  to adopt the  disclosure
requirements  of SFAS No.  123 and show pro  forma  results  of net  income  and
earnings per share data.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Recent Pronouncements

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments  and Hedging  Activities,"  ("SFAS No. 133"),  as amended,  which is
effective  for all  quarters of the fiscal year  beginning  after June 15, 2000.
This Statement  establishes  accounting  and reporting  standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts, and for hedging securities.  The Company expects that the adoption of
SFAS No.  133 will not have a  material  impact  on the  Company's  consolidated
financial position, results of operations and cash flows.

2.  Acquisitions

     On August 31, 1999,  the Company  acquired the assets of  Chesapeake  Bagel
Bakery  ("CBB"),  a franchisor of bagel bakeries  operating under the Chesapeake
Bagel Bakery brand name. The purchase price approximated  $6,421,000  consisting
of  $2,421,000  in cash paid to the seller,  $1,500,000  in notes payable to the
seller  and  the  accrual  of   $2,500,000  of  post   acquisition   liabilities
representing unearned franchise fees and post closing store conversion costs.

     The purchase  price was  allocated to the assets  acquired and  liabilities
assumed based on management's estimate of their fair market value at the date of
acquisition, which was determined by an independent appraisal. The allocation of
purchase price was done based on the information available to management at that
time.  Should additional  information come to the attention of management,  such
amounts may be revised  accordingly.  The impact of the CBB  acquisition was not
material to the financial statements.

     On May 5, 2000, the Company  acquired  certain lien rights on substantially
all the  assets of New York Bagel  Enterprises  ("NYBE")  and its  wholly  owned
subsidiary  Lots `A Bagels,  Inc.  ("LAB")  from a bank.  Both NYBE and LAB were
operating as Debtors in Possession  under Chapter 11 of the bankruptcy  code. On
May 13, 2000, the Company acquired the leases and other assets of 17 NYBE stores
through NYBE's  bankruptcy  proceeding.  In addition,  the Company  acquired all
trademarks and franchise rights for 12 stores operating under the New York Bagel
& Deli trade name.  The store  assets  acquired  are included as Assets held for
resale in the  accompanying  balance sheet,  as the Company  intends to sell the
stores to franchisees.  On July 12, 2000, in LAB's  bankruptcy  proceeding,  the
Company acquired the leases and other assets of an additional 6 LAB stores.

     The purchase  price was  allocated to the assets  acquired and  liabilities
assumed based on management's estimate of their fair market value at the date of
acquisition.  The allocation of purchase price was done based on the information
available to management at that time. Should additional  information come to the
attention of management, such amounts may be revised accordingly.  The impact of
the NYBE and LAB acquisitions was not material to the financial statements.

     On June 26, 2000, the Company acquired the operating assets of 13 Manhattan
Bagel  stores  in  Western  New York from a  franchisee  that was  operating  in
Bankruptcy. The store assets were acquired for cash approximating $1,037,000 and
settlement of a note  receivable with a carrying value of $1,250,000 held by the
Company.  The stores  acquired  are  included  in assets  held for resale in the
accompanying balance sheet, as the Company intends to sell them to franchisees.

     The purchase  price was  allocated to the assets  acquired and  liabilities
assumed based on management's estimate of their fair market value at the date of
acquisition.  The allocation of purchase price was done based on the information
available to management at that time. Should additional  information come to the
attention of management, such amounts may be revised accordingly.  The impact of
the acquisition of the Western New York stores was not material to the financial
statements.


3. Property, Plant and Equipment

     Property,  Planet and equipment consist of the following as of December 31,
2000:

         Leasehold improvements                         $3,734,657
         Store/factory equipment                         5,335,541
         Furniture and fixtures                            179,894
         Office equipment                                1,514,985
                                                         ---------
                                                        10,765,077

         Less-
         Accumulated depreciation and amortization     (3,795,346)
                                                       -----------
                                                       $ 6,969,731
                                                       ===========

     Depreciation and amortization expense totaled approximately  $2,774,033 and
$2,249,340  for the  years  ended  December  31,  2000 and  December  26,  1999,
respectively.

4. Notes Receivable

     During  1998,  the  Company  issued  promissory  notes  to  franchisees  to
facilitate their construction of stores and provide other initial operating cash
flows,  including franchise fees. The notes are payable with interest thereon at
rates  ranging  from  6-10%  per  annum  and  are  generally  to be paid in full
simultaneously upon the closing of a subsequent financing by the franchisee. The
notes have terms expiring through November 2004. Substantially all of the assets
of the franchisee's store are pledged as collateral for the notes.

5. Other Assets

     Other assets consist of the following as of December 31, 2000:


         Security deposits                              $  423,513
         Deferred acquisition costs                      1,811,728
         Other                                             518,229
                                                           -------
                                                        $2,753,470
                                                        ==========

6.  Long-Term Debt

     Long-Term debt consists of the following at December 31, 2000:
<TABLE>
<CAPTION>


<S>                                                                                            <C>
        Note payable to a bank (a)                                                             $11,000,000
        Revolving credit note payable to a bank (a)                                              3,000,000
        Promissory note payable in connection with Chesapeake Bagel Bakery                       1,500,000
        acquisition (b)
        Note payable to New Jersey Economic Development Authority (c)                            2,240,000
        Other (d) (e)                                                                              372,479
                                                                                               -----------
                                                                                                18,112,479

        Less - Current portion                                                                   4,422,522
                                                                                               -----------
                                                                                               $13,689,957
                                                                                               ===========
<FN>

     (a) As of August 31, 1999, the Company refinanced its senior debt through a
note  payable to a bank.  The note is payable as to interest  only for the first
year of the Note Agreement with quarterly principal installments due thereafter,
through  December  31,  2002.  The note  carries a  variable  rate of  interest,
permitting  the Company to select an  interest  rate based upon either the prime
rate or the  Eurodollar  rate,  adjusted  by margin  percentages  defined in the
credit agreement. The interest rate at December 31, 2000 was 10.75%. The note is
secured by  substantially  all assets of the Company.  In  addition,  the credit
agreement  between the lender and the Company  requires  the Company to maintain
certain  financial  ratios  and places  certain  restrictions  on the  Company's
ability to incur  indebtedness,  dispose of assets or merge with another company
without the consent of the lender.

     As a part  of the  refinancing  discussed  above,  the  Company  secured  a
$3,000,000  revolving  credit  facility with a bank.  At December 31, 2000,  the
entire  credit  facility  was  outstanding.  The credit  facility  is payable as
interest only for its term, with all unpaid  principal due on December 31, 2002.
The credit facility carries a variable rate of interest,  permitting the Company
to select an interest  rate based upon  either the prime rate or the  Eurodollar
rate,  adjusted  by margin  percentages  defined  in the credit  agreement.  The
interest  rate at  December  31,2000  was  10.75% on  $1,500,000  of the  credit
facility for which the Company had selected a Eurodollar  rate option and 12.00%
on $1,500,000 of the credit  facility for which the Company had selected a prime
rate option. The note is secured by substantially all assets of the Company.

     (b) As a part of the acquisition of the assets of Chesapeake  Bagel Bakery,
the Company  entered  into a note payable to the seller.  The note  provides for
quarterly  payments of interest only at 10% with principal  payments of $675,000
and $825,000 in 2003 and 2004,  respectively.  The note is due in full on August
31, 2004 and is secured by the related assets of Chesapeake Bagel Bakery.

     (c) In December 1998, the Company entered into a note payable of $2,800,000
with the New Jersey Economic Development Authority at an interest rate of 9% per
annum. The note has a 10-year maturity.  Principal is paid annually and interest
is paid  quarterly.  The note is secured by equipment and leaseholds  located at
the Company's Eatontown, NJ facility.

     (d) In June 1997, a  promissory  note of $770,000 was issued by the Company
in connection with the Coopers acquisition.  The note is payable over four years
in equal installments and bears interest at 6%. The note was discounted using an
interest  rate of 10%.  The note is secured by certain  store  assets  purchased
pursuant to the acquisition.

     (e) The Company is obligated under a mortgage payable on its plant in South
Carolina.  The mortgage  bears interest at prime plus 1.25% and matures in March
2010. The mortgage is secured by the associated real estate.
</FN>
</TABLE>


     Scheduled  maturities  of the notes  payable as of December 31, 2000 are as
follows:

                            2001                       $4,422,522
                            2002                        5,822,679
                            2003                        5,500,488
                            2004                        1,142,815
                            2005                          317,729
                            Thereafter                    906,246
                                                          -------
                                                      $18,112,479
                                                      ===========

     Interest expense on long-term debt totaled  approximately $ 2,123,196 and $
1,482,765  for the  years  ended  December  31,  2000  and  December  26,  1999,
respectively.


7. Accrued Expenses

   Accrued expenses consist of the following at December 31, 2000:
<TABLE>
<CAPTION>

<S>                                                                           <C>
   Estimated future liabilities resulting from MBC acquisition                $1,147,437
       Accrued payroll and related (including bonuses and severance
            payments)                                                            744,713
   Accrued professional fees                                                      97,711
   Accrued interest expense                                                      527,535
   Other                                                                       1,213,105
                                                                               ---------
                                                                              $3,730,501
                                                                              ==========
</TABLE>
8. Private Placement

     In a series of closings  from April 18, 2000  through  June 21,  2000,  the
Company completed a private  placement  consisting of 1,360,390 shares of Common
Stock and 444,190 shares of convertible  Series C Preferred  Stock. The proceeds
from the offering, net of related offering expenses were $4,144,305 exclusive of
169,902  shares of common stock  issued to the  placement  agent.  Each share of
Series C Preferred  Stock was converted  into 3 shares of the  Company's  Common
Stock upon the effective date of the  registration of the Common Stock issued in
connection with the offering (September 11, 2000). The Company accounted for the
offering  pursuant to the rules under ETIF Issue 98-5.  Pursuant to these rules,
convertible  securities with an embedded  conversion  right that is in-the-money
when the security is issued are  considered  to contain a beneficial  conversion
feature.  The value of the beneficial  conversion  feature  associated  with the
Series C Preferred Stock issued was $ 1,263,045. This amount has been charged to
accumulated deficit and was accounted for as a reduction in net income available
to common stockholders for the purpose of computing earnings per share.

9.  Stockholders' Equity

Series A and Series B Convertible Preferred Stock

     The Series B Convertible  Preferred Stock bears no dividend and has limited
voting rights except as provided under the General  Corporation Law of the State
of Delaware.  The stock is convertible into shares of common stock in accordance
with the Certificate of Designation of Series B Convertible  Preferred Stock. In
1998,  51.25 shares of the Series B Convertible  Preferred  Stock were converted
into  240,556  shares of Common  Stock.  In 1999,  58.5  shares of the  Series B
Convertible Preferred Stock were converted into 425,015 shares of Common Stock

     On June 7, 1999, the Company's  Board of Directors  authorized the issuance
of a Series A Junior  Participating  Preferred  Stock in the  amount of  700,000
shares. This issuance was made in accordance with the Stockholders'  rights plan
discussed below.

Series C Convertible Preferred Stock

     In connection  with a private  placement  (See Note 9), the Company  issued
444,190 shares of Series C Convertible  Preferred stock.  Each share of Series C
Preferred  Stock was converted into 3 shares of the Company's  Common Stock upon
the effective date of the  registration of the Common Stock issued in connection
with the offering (September 11, 2000). The Series C Convertible Preferred Stock
provided for a cumulative  dividend equal to 10% per annum,  based upon a deemed
value of $ 7.00 per share.  Pursuant to the terms of the offering,  the Series C
Convertible Preferred Stock was converted to 1,332,570 shares of common stock on
the effective date of the registration of the common stock.

Series D Redeemable Preferred Stock

     On August  11,  2000,  the  Company,  Brookwood  New World  Investors,  LLC
("Brookwood") and BET Associates, L.P. ("BET") entered into a Series D Preferred
Stock and Warrant  Purchase  Agreement  (the  "Purchase  Agreement").  The first
closing,  under the  Purchase  Agreement,  pursuant to which BET  purchased  its
Series D Preferred Stock and its Warrant (as defined below),  occurred on August
11, 2000.  The second  closing under the Purchase  Agreement,  pursuant to which
Brookwood purchased its Series D Preferred Stock and Warrant (as defined below),
occurred  on  August  18,  2000.  Under  the  terms of the  Purchase  Agreement,
Brookwood and BET each  purchased (i) 8,108.108  shares of New World's  Series D
Preferred Stock (the "Series D Preferred  Stock") and (ii) a warrant to purchase
up to  1,196,910  shares  of the  Common  Stock  of the  Company,  each of which
represents the right to purchase approximately 7.7% of the Common Stock (each, a
"Warrant").  Pursuant  to the  Purchase  Agreement,  the  number of shares  that
Brookwood  and BET may receive  upon  exercise  of their  Warrants is subject to
upward   adjustment   depending  upon  certain   future  events   affecting  the
capitalization of the Company. The shares of Common Stock issuable upon exercise
of  a  Warrant  are  entitled  to  registration  rights  under  the  terms  of a
Registration  Rights Agreement among New World, the Brookwood and BET. Under the
terms of the Purchase Agreement,  if the Company fails to take actions to redeem
the Series D Preferred Stock within one year of the closing, the Company will be
required to issue to each of Brookwood  and BET,  each quarter for the next four
quarters,  additional warrants  representing the right to purchase an additional
1.34% of the Company's Common Stock,  subject to reduction for any redemption(s)
of Preferred Stock that occur during that year. Further,  under the terms of the
Purchase Agreement,  if the Company fails to take actions to redeem the Series D
Preferred Stock within two years of the closing. The Company will be required to
issue to each of Brookwood  and BET,  each  quarter for the next four  quarters,
additional  warrants  representing an additional  2.015% of the Company's Common
stock,  subject to reduction for any redemption(s)  that occur during that year.
The Series D Preferred  Stock  provided for a cumulative  dividend equal to 7.5%
per annum,  based upon a deemed value of $1,000 per share.  The warrants have an
exercise  price of $.01 per share and have a term of 5 years.  The fair value of
the warrants at the date of grant of $3,234,000, as determined by an independent
appraisor,  was recorded as a reduction  in the carrying  amount of the Series D
Preferred Stock and is being accreted over the three year period to the earliest
fixed  redemption  date.  In  January  2001,  the Series D  Preferred  Stock was
exchanged for newly  authorized  Series F Redeemable  Preferred  Stock (See Note
14). As of December 31, 2000,  the  components of Series D Redeemable  Preferred
Stock were included in the accompanying balance sheet as follows:


                      Proceeds from issuance of Series          $15,000,000
                      D Preferred Stock

                      Fees and commissions                        (622,353)

                      Value assigned to warrants
                      issued in connection with Series
                      D Preferred Stock                         (3,234,000)

                      Accretion of warrant value and
                      dividends                                    864,667
                                                                   -------
                                                               $12,008,314
                                                               ===========


Common Stock

     During 1999 the Company's  stockholders  approved an increase in the number
of common shares authorized for issuance to 50,000,000 shares.

     On  August  17,  1999,  the  Company's  stockholders  approved  a  restated
certificate  of   incorporation,   which  provided  for  a  one  for  two  stock
combination.  Pursuant  to this  restatement,  each  holder  of one share of the
Company's  stock became a holder of one-half share of the Company's  stock.  The
accompanying financial statements give retroactive effect to this stock split.

     On November 4, 1999, the Company  completed a private  placement of 481,738
shares realizing  approximately  $650,000 net of offering expenses.  On or about
May 24, 1998, July 2, 1998 and November 20, 1998 the Company  completed  private
placements of 727,060, 431,034 and 277,500 shares of Common Stock, respectively,
realizing  approximately  $1,576,000,  $1,000,000  and  $500,000 in net proceeds
after  commissions  and costs.  Additionally,  500,000  warrants to purchase the
Company's common stock at an exercise price of $2.00 per share were issued to an
entity for certain services provided in connection with the MBC acquisition. The
value  of such  warrants  is  approximately  $675,000  has  been  included  as a
component of the total purchase price of the acquisition.

     During  2000,  the Company  completed  a private  placement  consisting  of
1,360,390  shares of Common  Stock and 444,190  shares of  convertible  Series C
Preferred Stock (see note 8).

Stockholders' Rights Plan

     On June 7, 1999 the Board declared a dividend  distribution of one Right on
each  outstanding  share of the Company's Common Stock, as well as on each share
later issued.  Each Right will allow  stockholders to buy one one-hundredth of a
share of Series A Junior  Participating  Preferred Stock at an exercise price of
$10.00.  The Rights become exercisable if an individual or group acquires 15% or
more of the  Company's  Common Stock,  or if an individual or group  announces a
tender offer for 15% or more of the Company's  Common Stock. The Company's Board
can redeem the Rights at $0.001 per Right at any time before any person acquires
15% or more of the outstanding  Common Stock.  In the event an individual  ("the
Acquiring  Person")  acquires 15% or more of the outstanding  Common Stock, each
Right will entitle its holder to purchase,  at the Right's  exercise price,  one
one-hundredth  of a share of Preferred  Stock--which is convertible  into Common
Stock at one-half  of the then value of the Common  Stock,  or to purchase  such
Common Stock directly if there are a sufficient number of shares of Common Stock
authorized.  Rights  held by the  Acquiring  Person  are  void  and  will not be
exercisable to purchase shares at the bargain  purchase price. If the Company is
acquired in a merger or other business combination transaction,  each Right will
entitle its holder to purchase,  at the Right's  then-current  exercise price, a
number of the  acquiring  company's  common shares having a market value at that
time of twice the Right's exercise price.

Warrants

     As of December 31,2000,  the Company has 3,747,760 warrants outstanding all
of which were  exercisable  at December 31, 2000.  These  warrants have exercise
prices  ranging from $.01 - $18.15 per share and have terms ranging from 5 to 10
years. Such warrants were issued in connection with financings and certain other
services.

Stock Options

     The Company's  1994 Stock Plan (the "1994 Plan")  provides for the granting
to employees of incentive  stock  options and for the granting to employees  and
consultants  of  nonstatutory  stock options and stock purchase  rights.  Unless
terminated  sooner,  the 1994 Plan will terminate  automatically in August 2004.
The Board of Directors has the authority to amend, suspend or terminate the 1994
Plan,  subject  to any  required  stockholder  approval  under  applicable  law,
provided  that no such  action may affect any share of common  stock  previously
issued and sold or any option previously granted under the 1994 Plan.

     Options generally become exercisable in ratable  installments over a period
of up to 4 years.  A total of  375,000  shares  of common  stock  are  currently
reserved for issuance pursuant to the 1994 Plan and all have been issued.

     The Company's 1995  Directors'  Stock Option Plan (the  "Directors'  Option
Plan") was  adopted by the Board of  Directors  and  approved  by the  Company's
shareholders in August 1995. Unless terminated  sooner, the Director Option Plan
will terminate automatically in August 2005. The Board of Directors may amend or
terminate the Directors'  Option Plan at any time;  provided,  however,  that no
such action may adversely  affect any outstanding  option without the optionee's
consent and the  provisions  affecting the grant and terms of options may not be
amended more than once during any six-month period. A total of 100,000 shares of
common stock have been reserved for issuance under the  Directors'  Option Plan.
The  Directors'  Option Plan  provides for the automatic  grant of  nonstatutory
stock  options to  nonemployee  directors  of the  Company.  These  options vest
immediately upon grant.

     A summary  of the  Company's  options  activity  during  the  years  ending
December 31, 2000 and December 26, 1999 is presented in the table and  narrative
below:
<TABLE>
<CAPTION>

                                                                      2000                           1999
                                                        -------------------------------------------------------------
                                                                           Weighted
                                                                           Average                     Weighted
                                                                           Exercise                    Average
                                                        Options            Price         Options       Exercise Price
                                                        -------            -----         -------       --------------

<S>                                                    <C>                  <C>           <C>             <C>
Outstanding, beginning of year                         1,284,179            $2.81         865,578         $3.24

   Grant                                                 643,550             2.86         425,000          1.97
   Exercised                                                   -                -               -             -
   Forfeited                                                   -                -         (6,399)          4.78
                                                       ---------                        ---------

Outstanding, end of year                               1,927,729             2.56       1,284,179          2.81
                                                       =========             ====       =========          ====

Exercisable, end of year                               1,874,329             2.57         780,179          3.03
                                                       =========             ====       =========          ====

Weighted average, fair value of options granted                             $ .88                         $ .56
                                                                            =====                         =====
</TABLE>


     The following table  summarizes  information  about the Company's two stock
option plans at December 31, 2000:

<TABLE>
<CAPTION>

                     Number Outstanding   Weighted Average                             Number
                       at December 31,        Remaining       Weighted Average     Exercisable at     Weighted Average
  Exercise Prices           2000          Contractual Life     Exercise Price    December 31, 2000     Exercise Price
  ---------------           ----          ----------------     --------------    -----------------     --------------

<S>       <C>              <C>                     <C>                <C>            <C>                      <C>
  $1.66 - $2.00            1,109,367               9.28               $1.98          1,096,867                $1.98

  $2.01 - $5.00              800,962               7.46               $3.22            760,062                $3.26

 $5.01 - $11.00               17,400               5.71               $9.49             17,400                $9.49
                              ------                                                    ------


                           1,927,729                                  $2.56          1,874,329                $2.57
                           =========                                  =====          =========                =====
</TABLE>



SFAS No. 123

     Had compensation cost for these plans been determined  consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>

                                                                   2000                       1999
                                                                   ----                       ----
<S>                                                          <C>                        <C>
         Net income (loss):
         As reported                                         $6,010,926                 2,424,098
         Pro forma                                            5,000,655                 1,972,286

         Basic net income (loss) per common share:
         As reported                                                .32                       .24
         Pro forma                                                  .24                       .19

         Diluted net income (loss) per common share:
         As reported                                                .29                       .23
         Pro forma                                                  .21                       .18
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the  Black-Scholes  option  pricing  model with the  following  weighted-average
assumptions used for grants in 2000 and 1999,  respectively:  risk-free interest
rates of 6.0% and 5.5%;  expected dividend yields of 0%; expected lives of 5 and
4 years; expected stock price volatility of 78%.

10. Income Taxes

     A summary of the  significant  components of deferred assets as of December
31,2000 is as follows:
<TABLE>
<CAPTION>

<S>                                                                        <C>
     Operating loss carryforwards                                          ($15,884,831)
                 Non-cash charges not yet realized for tax reporting
                     Purposes                                                  (509,040)
                 Allowance for doubtful accounts                               (782,651)
                                                                              ----------

                 Net deferred tax assets                                    (17,176,522)
                 Valuation allowance                                           7,576,344
                                                                               ---------
                                                                              $9,600,178
                                                                              ==========
</TABLE>

     At December 31, 2000, the Company had net operating loss  carryforwards  of
approximately  $39,700,000  available to offset future taxable income. These net
operating loss  carryforwards  expire on various dates through 2020. As a result
of  ownership  changes  resulting  from  sales  of  equity  securities  and  the
acquisition  of MBC the  Company's  ability  to use the  loss  carryforwards  is
subject to limitations as defined in Sections 382 of the Internal  Revenue Code,
as amended.

     During 2000, the Company  evaluated its tax loss  carryforwards and related
deferred tax asset resulting in the recognition of a deferred income tax benefit
of $3,100,178.  This benefit relates  primarily to expected  utilization of loss
carryforwards related to New World Coffee prior to the acquisition of MBC.

     In 1999, MBC contributed substantially all the profitability of the Company
and accordingly, the valuation allowance of $6,500,000 on its net operating loss
carryforwards has been reversed.  The offsetting benefit has been reflected as a
reduction in the goodwill recorded in the acquisition of MBC.

11. Commitments and Contingencies

Operating Leases

     The Company  leases  office and retail space under  various  non-cancelable
operating  leases.  Property leases normally require payment of a minimum annual
rental plus a pro rata share of certain landlord operating expenses.

     As of December  31,2000,  approximate  future minimum rental payments under
non-cancelable  operating  leases  for  the  next  five  years  and  the  period
thereafter are as follows:

                 Year ending:
                     2001                                 $ 3,191,603
                     2002                                   3,024,652
                     2003                                   2,937,904
                     2004                                   2,887,751
                     2005                                   2,511,345
                     2005 and thereafter                    5,390,211
                                                          -----------
                     Total                                $19,943,466
                                                          -----------

     Rent  expense  under  operating  leases was  approximately  $2,617,384  and
$2,849,000  for the  years  ended  December  31,  2000 and  December  26,  1999,
respectively.

Capital Leases

     The Company has capital  leases for computer  equipment  used in its stores
and offices.  As of December 31, 2000, payments under such capital leases are as
follows:

                 Year ending:
                    2001                                   $ 291,800
                    2002                                     202,735
                    2003                                     162,457
                    2004                                     118,076
                    2005                                      13,049
                                                              ------

                                                             788,117

          Less- Amount representing interest                 225,334
                                                             -------

                                                            $562,783
                                                            ========

Employment Agreements

     The Company has entered into  employment  agreements with three officers of
the Company expiring  between June 2001 and May 2002.  Minimum base salaries and
bonuses for the term of these employment agreements total approximately $845,000
annually, of which the Company is committed to pay $1,160,000 after December 31,
2000.

Contingencies

     From time to time,  the  Company  is a party to  litigation  arising in the
normal  course of its  business  operations.  In the opinion of  management  and
counsel,  it is not  anticipated  that the  settlement or resolution of any such
matters  will  have  a  material  adverse  impact  on  the  Company's  financial
condition, liquidity or results of operations.

Related Party Transactions

     In  connection  with the  Series D  Financing,  a director  of the  Company
received  a fee of  $225,000  and a warrant  to  purchase  70,000  shares of the
Company's common stock at its closing price on August 18, 2000.

     During 1999, a Company  controlled  by one of the  Company's  Directors was
paid a $150,000 advisory fee in connection with the refinancing of the Company's
debt.

12. Assets Held For Resale

     In 1998,  the  Company  determined  that it would  seek to sell the  assets
relating to stores it had previously  acquired in accordance  with the Company's
strategy to sell its Company-owned stores to franchisees.  The Company evaluated
the  reliability  of the carrying  amount of such assets based on the  estimated
fair value of such assets  which was  determined  based on the stores  estimated
selling prices.  Based on this evaluation,  the Company wrote off  approximately
$1,439,000 of goodwill and fixed assets relating to six locations. The remaining
value of such assets was classified as held for sale based on the Company's plan
and intent to dispose of such stores by the end of fiscal 2000. During 2000, the
Company  reviewed the  salability  of these  assets  based upon  current  market
conditions  and the prospect for sale within the next year. As a consequence  of
this review,  approximately $ 234,000 of assets held for sale were  reclassified
to Property and Equipment and Goodwill based upon  managements  expectation that
such assets would not be sold in the year 2001.

     During 2000, the Company  acquired certain store assets in upstate New York
and in Oklahoma,  Colorado  and Kansas (See Note 2). Such assets,  approximating
$4,854,000 have been classified as assets held for sale based upon the Company's
plan and intent to dispose of such stores by the end of fiscal 2001.

13. Other Long-Term Liabilities

     Other long-term  liabilities represent certain costs, which the Company has
accrued and which are not expected to come due within the next fiscal year.  The
liabilities  consist of $174,617 of deferred rent obligations and  approximately
$1,654,024 of other expenses relating to acquisitions (such as trustee and other
fees) not expected to come due within the next year.

14. Subsequent Events

     On January 22, 2001, the Company consummated a sale of 20,000 shares of its
authorized  but unissued  Series F Preferred  Stock to Halpern  Denny III,  L.P.
("Halpern  Denny")  in  exchange  for the sum of $20  million.  At such time the
Company entered into a Series F Preferred Stock and Warrant  Purchase  Agreement
with Halpern Denny.

     The Series F Preferred Stock accrues  dividends payable in shares of Series
F Preferred  Stock at the rate of 16% per annum for the first  year,  which rate
increases  semi-annually  thereafter  at the rate of 2% per annum.  The Series F
Preferred  Stock,  including  accrued  dividends,  is redeemable at such time as
there is a combination  between the Company and Einstein or three years from the
date of issue, whichever is sooner. If a redemption takes place prior to the end
of such  three-year  period,  the  Company  is  entitled  to redeem the Series F
Preferred Stock by issuing subordinated senior notes (the "Notes") to the holder
of the  Series F  Preferred  Stock.  The Notes  would  bear  interest  at a rate
comparable to the dividend  rate under the Series F Preferred  Stock and are due
and payable  three  years from the date of the initial  issuance of the Series F
Preferred  Stock  (January 22, 2004).  In connection  with the Series F Purchase
Agreement,  the Company  issued  Halpern  Denny a warrant to purchase  8,484,112
shares of the  Company's  common stock at an exercise  price of $0.01 per share.
The  Series F  Purchase  Agreement  provides  that  for so long as the  Series F
Preferred Stock has not been redeemed for cash (including  payment of the Notes,
if any), or until there is a combination  between the Company and Einstein and a
redemption of the Series F Preferred Stock, including delivery of the Notes (but
not payment of the same),  Halpern Denny shall receive additional warrants equal
to 1.5% of the fully  diluted  common  stock of the Company  (excepting  certain
options and  warrants)  on January 22, 2002 and on each  succeeding  June 30 and
December 31. This warrant has a term of five years. The warrant further provides
that it would be exercisable for additional  shares under certain events, as set
forth in the warrant.  The  Certificate of Designation of the Series F Preferred
Stock  provides  so long as any  shares  of  Series  F  Preferred  Stock  remain
outstanding,  the  Company may not,  without the vote or written  consent by the
holders of at least 67% of the then outstanding shares of the Series F Preferred
Stock,  voting together as a single class:  (i) amend or repeal any provision of
the  Company's  Certificate  of  Incorporation  or  By-Laws  in a  manner  which
materially  and adversely  affects the rights and  preferences of the holders of
Series F Preferred  Stock;  (ii) authorize or issue shares of any class of stock
having any preference or priority as to dividends or assets  superior to or on a
parity with the Series F Preferred  Stock;  (iii) pay or declare any dividend on
any other type or class of securities,  other than a dividend  payable in Common
Stock or rights;  (iv)  repurchase  or redeem any shares of capital stock of the
Company other than the redemption of the Series F Preferred Stock; (v) authorize
(i) a sale of any  material  asset of a value in  excess  of  $1,000,000  of the
Company or any  subsidiary or  subsidiaries  of the Company,  (ii) a sale of any
substantial  portion  of  the  assets  of  the  Company  or  any  subsidiary  or
subsidiaries   (other  than  sales  of  stores  owned  by  the  Company  or  its
subsidiaries) or (iii) a  recapitalization  or  reorganization of the Company or
any  subsidiary  or  subsidiaries  of the  Company  (other  than  stock  splits,
combinations and/or dividends); (vi) take any action that results in the Company
or any subsidiary or subsidiaries of the Company incurring or assuming more than
$1,000,000 of funded indebtedness (other than borrowings of up to $17,119,848 by
the Company for funded  debt,  either on an  individual  or  accumulative  basis
except (A) that the Company may obtain  substitute  financings  for its existing
line of credit on similar terms from a substitute  lender up to the  outstanding
loan  balance on the existing  line of credit on the date of such  substitution,
and (B) as  contemplated  by the Series F Purchase  Agreement;  (vii) effect any
change  of  control  event,  except as  contemplated  by the  Series F  Purchase
Agreement and the Exchange Agreement (as hereinafter defined); (viii) effect (i)
an  acquisition of another  corporation  or other entity,  or a unit or business
group of  another  corporation  or  entity,  by merger or  otherwise,  except as
contemplated  by the Series F Purchase  Agreement and the Exchange  Agreement or
(ii) the purchase of all or substantially all of the capital stock, other equity
interests or assets of any other entity or person, except as contemplated in the
Series F Purchase Agreement and the Exchange Agreement; (ix) increase the number
of directors of the Board of Directors of the Company except as  contemplated in
the Series F Purchase Agreement and the Exchange Agreement;  (x) effect or allow
fundamental  change in the  nature of the  Company's  business;  (xi)  otherwise
materially  affect the rights,  privileges and preferences of the holders of the
Series F Preferred  Stock; or (xii) effect any change of the executive  officers
of the Company.  Under the Certificate of  Designation,  the holders of Series F
Preferred Stock,  except as otherwise  required under the laws of Delaware or as
set forth in the  Certificate of  Designation,  are not entitled or permitted to
vote on any matter required or permitted to be voted upon by the stockholders of
the  Company.  Under the  Certificate  of  Designation  the majority of the then
outstanding Series F Preferred Stock, voting or consenting,  as the case may be,
as one class,  will be entitled  to elect up to four  directors  (the  "Series F
Directors"). If (i) dividends on the Series F Preferred Stock are in arrears and
unpaid for any quarterly period,  which failure to pay continues for a period of
thirty  (30)  days;  or (ii) the  Company  fails  to  discharge  any  redemption
obligation  with  respect  to the  Series F  Preferred  Stock  and such  failure
continues more than 90 days following a mandatory  redemption date, then (A) the
number of members comprising the Company's board of directors will automatically
increase by such number so that such  additional  directors  (but  including the
board seats elected by the holders of Series F Preferred Stock)  constitutes not
less than 50% of the board of  directors  of the  Company and (B) the holders of
the  majority  of the then  outstanding  Series F  Preferred  Stock,  voting  or
consenting, as the case maybe, as one class, will be entitled to elect directors
to the  board of  directors  to fill the  vacancies  created  by such  increase,
provided that such directors are designated  equally by (A) Halpern Denny on the
one hand,  and (B) Brookwood and BET on the other hand.  Such voting rights will
continue until such time as, in the case of a dividend default, all dividends in
arrears on the Series F Preferred Stock are paid in full and, in the case of the
failure to redeem,  until payment of the  Redemption  Price in cash or until the
Notes are  delivered,  at which time the term of the  directors  elected on such
default will terminate.  The Company may not modify, change, affect or amend its
Certificate of  Incorporation  or the Certificate of Designation to increase the
authorized Series F Preferred Stock,  without the affirmative vote or consent of
holders  of at least a 67% of the  shares  of  Series  F  Preferred  Stock  then
outstanding, voting or consenting, as the case may be, as one class.

     BET and Brookwood had invested the sum of $15 million for substantially the
same  purpose as that  contemplated  by the Series F Purchase  Agreement,  which
investment  was made in August  2000,  and BET and  Brookwood  were then holding
Series D  Preferred  Stock,  which had a right to approve  the  creation  of the
Series F Preferred Stock.  Therefore,  the Company  considered it appropriate to
restructure the investment  documents  relating to the August 2000 investment by
BET and Brookwood.  Accordingly,  the Company, BET and Brookwood entered into an
Exchange  Agreement,  whereby they exchanged all of their  outstanding  Series D
Preferred  Stock,  including  accrued  but unpaid  dividends  (all of which were
retired)  for a total of  16,398.33  shares of  Series F  Preferred  Stock.  The
closing of the  exchange of Series F Preferred  Stock for the Series D Preferred
Stock took place on or about January 22, 2001.  BET and Brookwood also exchanged
the  warrants  received  by them in August  2000 for  warrants  to  purchase  an
aggregate of 6,526,356 shares of common stock of the Company.  The form of these
warrants is substantially identical to the form of the warrant issued to Halpern
Denny including the provisions  thereof  relating to the increase of the warrant
shares,  except that the semi-annual increases are an aggregate of 1.154% of the
fully  diluted  common  stock of the  Company  (excepting  certain  options  and
warrants).  In connection with the Series F Purchase  Agreement and the Exchange
Agreement,  the parties entered into an Amended and Restated Registration Rights
Agreement. In addition, the parties entered into a Stockholders Agreement, which
relates principally to the composition of the Board of Directors of the Company.
Pursuant to the terms of the  Stockholders  Agreement,  the Company  will have a
Board of Directors  consisting of nine members. BET is entitled to designate one
(1) member to the Board of Directors. Brookwood is entitled to designate one (1)
member of the Board of  Directors  until  such  time as its  Series F  Preferred
Stock, including any Notes issued upon redemption thereof, have been paid for in
full.  Halpern  Denny is  entitled  to  designate  two  members  to the Board of
Directors (and has designated one as of this time) until such time as its Series
F Preferred Stock, including any Notes issued upon redemption thereof, have been
paid in full, at which time it shall be allowed to designate one director, which
right  will  be  continue  until  such  time  as it  owns  less  than  2% of the
outstanding  common stock of the Company.  The Stockholders  Agreement  provides
that should  Halpern Denny  designate a second member to the Board of Directors,
the  management  may  designate an  additional  member to the Board of Directors
bringing the total  membership  of the Board of Directors to nine  persons.  The
Stockholders  Agreement  further  provides that if the  combination  between the
Company  and  Einstein  is not  accomplished  within 12 months  from the date of
closing,  or if its Board of Directors is not then controlled or scheduled to be
controlled  by the Company,  such  additional  designee of  management  shall be
withdrawn.  The Stockholders  Agreement also contains  provisions giving Halpern
Denny,  BET and Brookwood  certain rights of first refusal to provide  financing
and certain  co-sale rights for the common stock they may purchase upon exercise
of their warrants.  Also in connection with the Series F Purchase  Agreement and
the  Exchange  Agreement,  the  Company  amended its bylaws to provide (a) for a
Board of  Directors  composed of nine members and (b) to provide that any filing
by the  Company  under the  United  States  Bankruptcy  Code shall  require  the
approval of75% of the full Board of Directors.

     On or about  January 17, 2001,  the Company  entered into the Bond Purchase
Agreement  (the  "Bond  Purchase  Agreement")  with  Greenlight  Capital,  L.P.,
Greenlight  Capital Qualified,  L.P. and Greenlight Capital Offshore,  Ltd. (the
"Greenlight Entities").  Pursuant to the Bond Purchase Agreement, the Greenlight
Entities formed a limited liability company  ("Bondco") and funded the same with
$10 million for the purchase of Bonds.  The Company is the exclusive  manager of
Bondco.  At such time as there is a  combination  of the Company with  Einstein,
Bondco  may sell  its  Bonds  and the  Company  will  share  in the  profits  or
exclusively  bear the  losses  in  relation  thereto,  based  upon an  agreed to
accretion in the  Greenlight  Entities'  investment.  Alternatively,  Bondco may
retain its Bonds or  securities  issued in lieu  thereof or may sell the same to
the Company in exchange for a newly created  Class of Series E Preferred  Stock.
The Series E Preferred  Stock  provides for the payment of dividends at the rate
of 15% per annum  increasing by 2% each 6 months after the first year  following
the initial investment by the Greenlight  Entities.  These dividends are payable
in Series E Preferred Stock.  The Series E Preferred Stock, if issued,  shall be
redeemed three years from the date of the investment in Bondco by the Greenlight
Entities. In connection with the Bond Purchase Agreement, the Company issued the
Greenlight Entities warrants to purchase an aggregate of 4,242,056 shares of the
Company's common stock at $0.01 per share. The Bond Purchase  Agreement provides
that for so long as there has not been a  combination  between  the  Company and
Einstein,  or there has been a combination  but the Series E Preferred Stock was
not  issued to the  Greenlight  Entities,  or the Series E  Preferred  Stock was
issued  but has  not  been  redeemed,  the  Greenlight  Entities  shall  receive
additional warrants equal to 0.9375% of at the fully diluted common stock of the
Company  (excepting certain options and warrants) on January 17, 2002 and at the
beginning of each succeeding three month period. This warrant has a term of five
years. In addition,  warrants for an additional 1.5% of the fully diluted common
stock shall be issued at such time as the Series F Preferred  Stock is redeemed.
The Company and the  Greenlight  Entities  entered  into a  registration  rights
agreement relating to the shares purchasable under the warrants.

     The  Company  used the  proceeds  from  the  initial  financing  by BET and
Brookwood,  and the financings with Halpern Denny and the Greenlight entities to
purchase certain 7.25% subordinated convertible debentures due in June 2004 (the
"Bonds") of Einstein/Noah Bagel Corporation ("Einstein").

15. Subsequent Events (Unaudited)

     On March 29,  2001,  the  Company  consummated  a sale of 5,000  additional
shares of its  authorized,  but  unissued,  Series F Preferred  Stock to Halpern
Denny in exchange for the sum of $5,000,000. Pursuant to the terms of the Second
Series F Preferred Stock and Warrant  Purchase  Agreement (the "Second  Purchase
Agreement")  with Halpern Denny, the Company also sold Halpern Denny warrants to
purchase  2,121,028 shares of the Company's common stock at a price per share of
$.01  (subject to  adjustment  as provided in the form of warrant).  The rights,
preferences and designations of the Series F Preferred Stock are set forth in an
Amended Certificate of Designation, Rights and Preferences of Series F preferred
Stock (the  "Amended  Certificate  of  Designation")  which are identical to the
Series F  Preferred  Stock  created  in January  2001.  In  connection  with the
execution and delivery of the Second Purchase  Agreement,  BET Associates,  L.P.
("BET") and Brookwood New World Investors,  LLC  ("Brookwood"),  each waived any
preemptive  rights  they may have had to the  issuance of  additional  shares of
Series of Preferred Stock as provided for in the Second  Purchase  Agreement and
consented to the filing of the Amended  Certificate  of  Designation to increase
the number of shares of Series F Preferred  Stock the Company is  authorized  to
issue to 73,000.

     In April 2001 the Company entered into an agreement with the Trustee of the
Boston  Chicken Plan Trust,  the majority  stockholder  of Einstein,  to support
confirmation of the Plan of Reorganization  (the "Plan") filed by the Trustee in
the Chapter 11 cases of ENBC and Einstein/Noah  Bagel Partners,  L.P.  ("ENBP"),
now pending in the United  States  Bankruptcy  Court for the District of Arizona
(the "Court").  Under the Plan, holders of ENBC's 7.25% Debentures due June 2004
shall be given the option of  converting  to equity in the  reorganized  ENBC or
having their bonds reinstated through payment of all accrued interest and future
compliance with the terms of the Indenture.

     In April 2001,  the Company also entered into an agreement  with one of the
Trustee's proposed exit lenders for the Plan, to confirm New World's support for
the Plan,  pursuant to which New World would agreed to convert its Debentures to
equity in reorganized ENBC. Under the conversion price and formulae in the Plan,
New World would receive  approximately 3.9 million shares of reorganized  ENBC's
new common  stock,  which the Company  anticipates  would  result in the Company
becoming the largest stockholder in reorganized ENBC.

     There is no assurance that the Plan will be confirmed.

     In April 2001, the Company's Board elected  Leonard  Tannenbaum to serve in
an advisory  capacity as Vice Chairman of the Board, with compensation of $5,000
per month for a period of time to be determined by the Board.