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 26, 1999

[   ] 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
                   Title of Each Class       WHICH REGISTERED:
             Common Stock, $.001 par value        NASDAQ

       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. $39,925,398

     The aggregate market value of the voting stock held by  non-affiliates  per
the closing stock price as of March 10, 2000 is $38,536,914.

     As of March 10, 2000,  11,418,345 shares of common stock of the issuer were
outstanding.


<PAGE>



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.

                                      -1-
<PAGE>
ITEM 1.  BUSINESS

General

     New World Coffee - Manhattan Bagel, Inc. is the largest franchisor 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")  resulting in the addition of 6  Company-owned  and 285  franchised  and
licensed  Manhattan Bagel stores.  On August 31, 1999, the Company  acquired the
assets of  Chesapeake  Bagel  Bakery  ("CBB")  resulting  in the  addition of 80
franchised and licensed  Chesapeake  Bagel Bakery stores.  At December 26, 1999,
the Company's retail system consisted of approximately 377 stores,  including 15
Company-owned and 362 franchised and licensed stores.

     The Company is  vertically  integrated  with 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.

Industry Overview

     The US  market  for  specialty  coffee is large,  fragmented  and  growing.
According to the National  Coffee  Association's  1999 National  Coffee Drinking
Trends  report,  approximately  62% of all consumers (age 10+) drink coffee on a
weekly basis,  they drink an average of 3.5 cups per day, and the overall number
of  coffee  drinkers  has  grown  from  approximately  140  million  in  1990 to
approximately  168 million in 1999.  The gourmet  coffee segment of the industry
has  experienced  strong growth over the past decade and is expected to continue
to grow.  From 1997 to 1999 the percentage of the U.S.  population  that drank a
gourmet coffee beverage increased 40%.

     The US market for bagels is also large,  fragmented and growing.  According
to the American Bagel  Association  sale of bagels has grown rapidly,  from $429
million in 1993 to $2.3 billion in 1996.  According to CREST, a market  research
firm, household  expenditures in the bagel bakery category increased by 40% from
1996  through  1999.  Management  believes  this  growth has been  driven by (i)
greater consumer awareness and appreciation of gourmet coffee,  specialty drinks
and  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.

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 small
to  medium-sized  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 product  sales 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

                                      -2-
<PAGE>
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 coffee,  bagels and cream cheeses 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 deliver lower  operating  costs and
improved product quality.  The Company believes that its centralized  production
of bagel, cream cheese, and coffee products allows for more consistent, superior
products,  better  quality  control and more rapid  development,  production and
deployment  of new products  into stores  systemwide.  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
or  production.  The  Company  has  recently  made  improvements  in its  coffee
packaging  system and  continues  to evaluate  it's  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 time  critical  day parts.
During  1999,  the Company  completed a redesign  of its  Manhattan  Bagel Store
design.  The new design, to be utilized in stores opening in the year 2000, will
more  effectively  promote the Company's  product  offerings and will allow more
prominent display of seasonal product selections.

     Training  and  Development.  The  Company's  strategy  is to  place  strong
emphasis on identifying and retaining qualified  franchisees and employees,  and
invest substantial resources in training them in customer service,  beverage and
food preparation,  and sales skills. 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 to building a loyal customer base.

     Wholesale  Sales.  The  Company's  strategy  is to leverage  its  efficient
manufacturing  systems,  quality  products  and  brand  names  in  developing  a
significant  wholesale  business.  The Company believes that food  distributors,
chain  grocery  stores,  food service  outlets and similar  customers  offer the
Company  opportunity to maximize its production  capacity and distribute product
through many more outlets than its franchised and Company-owned  stores.  During
1999, the Company established a wholesale sales department and added significant
new business in the convenience store and supermarket areas.

Expansion

     A total of 14 franchised  stores were opened during 1999. The Company plans
to open  approximately  40  franchised  stores in 2000,  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 all 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,  selection and
availability  of suitable  store  locations,  negotiation  of suitable  lease or
financing  terms,  constraints on permitting and  construction of stores and the
hiring,  training and retention of management and other personnel.  Accordingly,
there can be no assurance  that the Company's  franchisees  will be able to meet
planned growth targets.
                                      -3-
<PAGE>
     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.

     The Company has received interest from the international business community
for foreign  franchising  opportunities  with both the  Manhattan  Bagel and New
World Coffee Brands.  During 1999, the Company  licensed its first franchisee in
Iceland.  The  Company  believes  that  the  international  market  presents  an
opportunity to expand its brands.  During the year 2000, the Company  intends to
utilize its franchise development department to expand the international market.

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
function, style and customer comfort with the Company's traditional red and blue
color scheme and simple  furnishings in a relaxed social  atmosphere.  Walls are
covered with murals designed to relate to 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 1999,
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 18 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  enhance  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 three 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.

                                      -4-

<PAGE>



Sourcing, Manufacturing & Distribution

     The Company  believes that  controlling the manufacture and distribution of
coffee, bagels and cream cheeses are important elements to 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.  The Company blends and supplies a wide variety of
cream cheeses,  including low fat and no fat cream cheeses to substantially  all
of the Manhattan  Bagel stores.  The Company  purchases  plain cream cheese from
independent suppliers and mixes in ingredients at its manufacturing  facilities.
The  Company  currently  produces  cream  cheese  in its  Eatontown,  NJ and Los
Angeles, CA manufacturing facilities.

     Coffee Sourcing.  The Company  purchases only the highest 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 and packages its coffee in its Branford, CT manufacturing facility.

     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 store level marketing  programs target the trade area of each
store,  making extensive use of direct mail and couponing.  In areas of dominant
influence, 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 26. 1999,  there were 362  franchised  stores
operating in 26 states and the District of Columbia.  Additionally,  the Company
had  franchise  agreements  signed for  approximately  8  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.

                                      -5-
<PAGE>

     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 developing  stores 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

     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.

     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.

                                      -6-
<PAGE>
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  management  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 26, 1999, the Company had 390 employees, of whom 138 were store
personnel,  170 were plant and support services personnel, and 82 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.

                                      -7-
<PAGE>


ITEM 2.  PROPERTIES

     As of  December  26, 1999 the Company  and its  franchisees  and  licensees
operated 377 stores,  consisting  of 38 New World Coffee  stores,  259 Manhattan
Bagel stores and 80 Chesapeake Bagel Bakery stores as follows.

STORE LOCATIONS
<TABLE>
<CAPTION>

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

<S>                                <C>             <C>            <C>
Alabama                            0               3              3
California                         1              27             28
Colorado                           0               5              5
Connecticut                        6               5             11
Delaware                           0               5              5
District of Columbia               0               3              3
Florida                            0              28             28
Georgia                            0              14             14
Illinois                           0               1              1
Kansas                             0               1              1
Louisiana                          0               1              1
Maryland                           0              17             17
Massachusetts                      0               2              2
Michigan                           0               4              4
Minnesota                          0               1              1
Missouri                           0               1              1
Nevada                             0               2              2
New Jersey                         0              63             63
New York                           8              43             51
North Carolina                     0              16             16
Ohio                               0               6              6
Pennsylvania                       0              63             63
South Carolina                     0               4              4
Texas                              0               8              8
Utah                               0               1              1
Virginia                           0              37             37
West Virginia                      0               1              1
                         ------------  --------------  -------------

TOTAL                             15             362            377
                         ============  ==============  =============
</TABLE>

                                      -8-
<PAGE>



     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 sqft
                                            Bagel University/Coffee University
                                            Bagel/Cream Cheese Manufacturing
                                            Distribution

Los Angeles, CA (b)                         Regional Offices                                     24,000 sqft
                                            Bagel/Cream Cheese Manufacturing
                                            Distribution

Greenville, SC (c)                          Bagel/Cream Cheese Manufacturing                     12,500 sqft

Branford, CT (d)                            Office/Training Facilities                            5,400 sqft
                                            Coffee Roasting Plant
<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, 2000. </FN>
</TABLE>

     The Company  believes  that its current  facilities  are  adequate  for its
present and contemplated operations.

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 March 24, 1999, a special meeting of the stockholders of the Company was
held at the  offices of the  company  pursuant  to a Notice of Meeting and Proxy
Statement  dated  February 18, 1999. At the special  meeting,  the  stockholders
approved  a change  of the name of the  Company  to New  World  Coffee-Manhattan
Bagel,  Inc.  and an increase in the  authorized  common  stock from  20,000,000
shares,  par value $.001 per share to  50,000,000  shares of common  stock,  par
value $.001 per share.

     On August 17, 1999, the annual meeting of the  stockholders  of the Company
was held at the offices of the company pursuant to a Notice of Meeting and Proxy
Statement  dated July 12, 1999.  At the  meeting,  the  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
stockholders,  among  other  matters,  approved a staggered  Board of  Directors
whereby  not more than  two-fifths  of the Board of  Directors  will be  elected
during any one year.

                                      -9-

<PAGE>


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 was effective August 24, 1999. <TABLE> <CAPTION>

Fiscal 1998                                                            High             Low
                                                                       ----             ---

<S>                                                                    <C>              <C>
First Quarter (From December 29, 1997 to March 29, 1998)               $4.00            $2.56
Second Quarter (From March 30, 1998 to June 28, 1998)                  $3.82            $3.00
Third Quarter (From June 29, 1998 to September 27, 1998)               $3.50            $1.62
Fourth Quarter (From September 28, 1998 to December 27, 1998)          $3.00            $1.50

Fiscal 1999                                                            High             Low
                                                                       ----             ---

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
</TABLE>

     On March 10,  2000 the  closing  price for the  Company's  Common  Stock as
reported by NASDAQ was $3.375 per share.

     As of March 10, 2000, there were approximately 156 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 the largest franchisor 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.
resulting in the addition of 6  Company-owned  and 285  franchised  and licensed
Manhattan Bagel stores.  On August 31, 1999, the Company  acquired the assets of
Chesapeake  Bagel Bakery resulting in the addition of 80 franchised and licensed
Chesapeake  Bagel Bakery  stores.  At December 26, 1999,  the  Company's  retail
system consisted of approximately 377 stores, including 15 Company-owned and 362
franchised and licensed stores.

     The Company is  vertically  integrated  with 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.

                                      -10-


<PAGE>

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.

                                      -11-
<PAGE>

     Year Ended December 27, 1998 Compared To Year Ended December 28, 1997

     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 8.9% to $17,282,524 for fiscal 1998 from
$15,867,868 for fiscal 1997.  Manufacturing  revenues increased to $2,193,145 or
12.7% of revenues. There were no such comparable revenues in 1997. Royalties and
franchise  related  revenues  increased to $2,728,137 or 15.8% of total revenues
from $820,515 or 5.2% of total revenues for the comparable  1997 period.  Retail
sales decreased  17.9% to $12,361,242  for fiscal 1998 from  $15,047,353 for the
comparable  1997 period,  primarily  due to the sale of  Company-owed  stores to
franchisees.

     Costs and Expenses. Retail costs as a percentage of retail sales for fiscal
1998  increased  to 87.8%  from 87.3% for fiscal  1997  primarily  due to a 1.1%
increase in  miscellaneous  store  expenses,  and a 0.5%  increase in  personnel
costs,  which were  partially  offset by a 1.0% decrease in cost of goods due to
more efficient  purchasing.  Manufacturing  costs of sales and related  overhead
expenses were 73.3% of manufacturing revenues in 1998.

     Depreciation  and  amortization  expenses as a percentage of total revenues
for fiscal 1998 decreased to 8.5% from 14.4% for fiscal 1997 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.

     General and  administrative  expenses as a percentage of total revenues for
fiscal 1998  increased to 20.0% from 18.8% for fiscal 1997  primarily due to the
acquisition of Manhattan  Bagel and additional  training costs incurred from the
sale of Company-owned stores to franchisees.

     In 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.
In 1997, in compliance with FASB 121, the Company  recorded a non-cash charge of
$3,480,977. See Note 3 Impairment of "Long-Lived Assets" on page F-10 and Note 9
"Store Provisions for Store Closings and Reorganization Costs" on page F-13.

     Interest  expense,  net for fiscal  1998  increased  to $925,467 or 5.4% of
revenues  from  $424,533  or 2.7% of  revenues  for fiscal  1997.  Approximately
$624,000 of the 1998 expense is  attributable  to interest and  financing  costs
relating to the Manhattan Bagel Company, Inc. acquisition.

     Net Loss.  Net loss for fiscal 1998  increased to  $7,491,610 or 43.3% as a
percentage  of revenues,  from  $6,736,157 or 42.5% of revenues for fiscal 1997.
The primary  components  of this  increase were an increase of 13.5% in one-time
provisions  and  non-cash  charges and an increase of 2.8% in interest  expense,
which were partially  offset by improvements in income from operations of 14.0%.
Net loss  before  one-time  charges for fiscal  1998 was  $1,032,132  or 6.0% of
revenues compared to $2,955,180 or 18.6% of revenues for fiscal 1997.

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
profitablility 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. At December 26, 1999,  the Company had net  operating  loss
carryforwards  of approximately  $25,000,000  available to offset future taxable
income.  These  amounts  expire at various  times  through  2019. As a result of
ownership  changes  resulting from sales of equity securities and the acquistion
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.

                                      -12-
<PAGE>


Liquidity and Capital Resources

     On November 4, 1999, the Company  completed a private  placement of 481,738
shares realizing approximately $650,000 net of offering expenses.

     On August 31, 1999, the Company  completed a $15,000,000 debt  transaction
with a Bank  consisting  of a term  loan in the  amount  of $12,000,000  and a
revolving  credit  facility  of $  3,000,000  of which the  Company  had drawn $
1,500,000 as of the date of the transaction.  Proceeds from the debt transaction
were used to  extinguish  the  Company's  debt to BET  Associates,  L.P. and the
Manhattan Bagel Unsecured Creditors' Trust and for the acquisition of the assets
of Chesapeake Bagel Bakery as well for general corporate purposes.

     On August 31, 1999, the Company  completed a $1,500,000  debt  transaction
with the  seller of the  assets  of  Chesapeake  Bagel  Bakery  pursuant  to the
acquisition of such assets. The note provides for quarterly payments of interest
only at 10%, with principal  payments totaling $675,000 and $825,000 in fiscal
2003 and 2004, respectively.

     On December 23,  1998,  the  Company,  through its wholly owned  subsidiary
Manhattan  Bagel  Company,  Inc.  completed a $2.8  million  refinancing  of its
Economic  Development  Agency bonds. These bonds have a 10-year maturity with an
interest rate of 9%.

     The  Company  plans to  satisfy  any of its  capital  requirements  in 2000
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 26, 1999, the Company had working capital of $1,444,202
compared to working capital of $469,490 at December 27, 1998.

     The Company had net cash provided by operating activities of $1,734,674 for
fiscal 1999 and net cash used in operating  activities of $4,018,232  for fiscal
1998. The primary reasons for the improvement in cash provided by operations was
the increase in net income for fiscal 1999.

     The Company had net cash used in investing  activities  of $ 2,864,229  for
fiscal 1999 and $2,253,082 for fiscal 1998.The primary use of cash for investing
activities was the  acquisition  of the assets of Chesapeake  Bagel Bakery and
capital expenditures for improvements to the Company's infrastructure.

     The Company had net cash used by financing  activities  of  $1,259,730  for
fiscal 1999 and net cash  provided by financing  activities  of  $10,391,928 for
fiscal 1998.  The primary use of cash for  financing  activities  relates to the
repayment  of debt and  additional  costs  the  Company  has  agreed  to  absorb
subsequent to the  reorganization  of the Manhattan  Bagel Company,  Inc. During
fiscal 1999, the Company paid approximately  $3,666,000 of costs attributable to
the acquisition of MBC.

Hardware and Software System, Year 2000 Compliance

     During 1999, the Company  performed a comprehensive  review of all hardware
and  related  software  for year  2000  compliance.  Upgrades  were made to both
hardware and software at the Company's headquarters and in Company-owned stores.
All hardware and software  installed was certified as year 2000  compliant.  All
systems were tested prior to the close of the 1999 calendar year.

     The Company has experienced no incidences of non-compliant software or
hardware during the year 2000 to date.

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.

                                      -13-
<PAGE>

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.

                                      -14-

<PAGE>
                                    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                       36                  Chairman and Chief Executive Officer and Director
Sanford Nacht                         67                  President and Chief Operating Officer
Jerold E.  Novack                     44                  Chief Financial Officer, Treasurer and Secretary
Michael Konig                         39                  General Counsel
Michael Lubitz                        43                  Corporate Controller
Michael Ryan                          44                  Vice President - Franchise Services
Rocco Fiorentino                      44                  Vice President - Business Development
Keith F.  Barket/(1)/(2)              38                  Director
Karen Hogan/(1)                       38                  Director
Edward McCabe/(2)                     61                  Director
Leonard Tannenbaum                    28                  Director
<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.  Prior to Lehman Brothers,  Mr. Kamfar worked at First
Growth  (U.K.)  Ltd.  where he gained  experience  in real  estate  finance  and
development.  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.  Nacht has  served as  President  and Chief  Operating  Officer  of the
Company since December 1998. From September 1997 to December 1998, Mr. Nacht, as
President of Sterling  Management  Group, LLC,  Princeton,  NJ, served Manhattan
Bagel  Company,  Inc. as a management and  operations  consultant.  From 1995 to
1997,  Mr.  Nacht was  employed by York  Management  Services,  Inc.,  a private
investment and turnaround management company located in Somerset, NJ, in various
positions  including  President and Chief Executive Officer.  From 1990 to 1994,
Mr. Nacht was Chief  Executive  Officer for Gordon  Construction,  New York, NY.
From 1974 to 1985, Mr. Nacht served as a regional Master Franchisor for ERA Real
Estate,  where he developed the New Jersey and Pennsylvania markets for ERA. Mr.
Nacht has an  undergraduate  degree from the Wharton School at the University of
Pennsylvania and an M.B.A. degree from Pace University.

     Mr.  Novack joined the Company as Vice  President-Finance  in June 1994 and
has served as Chief Financial  Officer 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 MBC, and maintained a separate client base.
From March 1997 to March 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 generating $60 million
of annual revenues. From September 1989 to March 1997, Mr.

                                      -15-
<PAGE>
 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  September  1987 to September
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,  C.P.A  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 CPA 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,  New Jersey.  From 1973 to 1994,  he
served in various  capacities at Dunkin  Donuts,  most  recently as  Development
Manager.

     Mr.  Fiorentino has served as Vice  President - Development  since November
1998.  From May 1996 to  November  1998,  Mr.  Fiorentino  served as Director of
Business  Development  of Manhattan  Bagel  Company,  Inc. From 1985 to 1996, he
served as President of Specialty Bakeries, Inc., Moorestown, NJ, a franchisor of
Bagel  Builders,  a company  which he  co-founded  and sold to  Manhattan  Bagel
Company, Inc. in 1996.

     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.

     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.

     Mr. Tannenbaum, C.F.A., has served as a director of the Company since March
1999. Mr. Tannenbaum is currently a managing partner at MYFM Capital,  LLC which
he founded in 1999.  He is also  President  of  CollectingNation.com,  a leading
online  auction  site.  From April  1997 to 1999,  he was a  principal  with LAR
Management,  Inc., a hedge fund manager. From June 1996 to April 1997, he was an
associate with Pilgrim Baxter, a mutual fund manager.  From 1994 to 1996, he was
an Assistant  Vice  President  and analyst in the Small Company Group at Merrill
Lynch. Mr. Tannenbaum is a director of Contech, Inc., a publicly traded company.
Mr.  Tannenbaum  is a  graduate  of The  Wharton  School  of The  University  of
Pennsylvania,  where he received a B.S. in Strategic Management and an M.B.A. in
Finance.

     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 will be elected to terms of three

                                      -16-
<PAGE>
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.

                                      -17-
<PAGE>


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  1999,  and any  executive
officers of the Company who received  compensation  in excess of $100,000 during
1998 and 1999 ("Named Executive Officers").

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                             Annual Compensation
                                                             -------------------
                                                                                           Securities
                                                                                           Underlying
                                                                        Other Annual        Options/
     Name and Principal Position         Salary ($)     Bonus ($)     Compensation ($)      SARs (#)
     ---------------------------         ----------     ---------     ----------------      --------

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

Sanford Nacht...................            $160,000        $40,000           $4,800(1)        -
 President and Chief Operating
 Officer

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

Barry Levine                                $120,000        -                 $6,000(1)        -
 Vice President - Coffee

Robert Williams                             $120,000        -                 $6,000(1)        -
 Vice President - Coffee
<FN>
     (1) Represents car and commuting allowances for the respective individuals.
</FN>
</TABLE>

                                      -18-

<PAGE>
Stock Option Grants

     Set forth  below is  information  on grants of stock  options for the Named
Executive Officers for the period December 27, 1998 to December 26, 1999.





                              OPTION GRANTS IN 1999
<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>
Jerold Novack............          125,000                100%      $2.00           12/01/09      $87,181      $286,905

<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  27,  1998 by the  Company's  Named  Executive
Officers.

                               1999 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.......                 184,367                      -               $74,127                      -

Jerold E.  Novack......                 221,662                      -              $208,123                      -

Sanford Nacht.........                   62,500                 62,500               $85,938                $85,938
<FN>


     (1)  Calculated based on an assumed share price of $3.375 per share, less the exercise price payable for such shares.
</FN>
</TABLE>

Employment Contracts

     As of February 1999, the Company  approved a new employment  agreement with
Mr. Kamfar, the Company's  Chairman and Chief Executive  Officer.  The agreement
expires  on  December  31,  2000 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 $175,000 per year,
and an annual  performance  bonus of up to 50% of the base  salary for  calendar
year  1999  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 two times his annual base salary
(at the rate  payable at the time of such  termination)  plus an amount equal to
the greater of two times the amount of his bonus for the calendar year preceding
such  termination or 25% 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,

                                      -19-
<PAGE>
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.

     As of February 1999, the Company  approved a new employment  agreement with
Mr. Novack, the Company's Chief Financial Officer. The agreement expires on June
30, 2000.  The  agreement  provides for a  compensation  package of $130,000 per
year, increasing to $150,000 per year on July 1, 1999, and an annual performance
bonus  of 25% to 50% 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 the Company terminates Mr. Novack's employment other than
for cause, he will be paid severance  compensation  equal to his base salary (at
the rate payable at the time of such  termination)  for a period of nine months.
In the event Mr. Novack terminates his employment  voluntarily,  he will be paid
severance compensation equal to his base salary (at the rate payable at the time
of such  termination)  for a period  of six  months.  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.

     As of November 1998, the Company entered into an employment  agreement with
Mr.  Nacht,  the  Company's  President  which was amended as of March 2000.  The
agreement  expires  on  December  1,  2000,  but is  automatically  renewed  for
additional one-year periods unless either party gives 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 commencement of any such renewal.  The agreement provides
for a  compensation  package of $160,000 per year, an annual service bonus equal
to twenty-five (25%) percent of the base salary payable during each fiscal year,
and an annual  performance  bonus of up to twenty-five (25%) percent of the base
salary  payable  during each fiscal year. In lieu of any of the foregoing  bonus
provisions  for the year ending  December 31,  1998,  Mr. Nacht is entitled to a
guaranteed  bonus of (i) $100,000  payable  within ten days after the  effective
date of the plan of  reorganization  of Manhattan  Bagel Company,  Inc. and (ii)
$100,000 payable during calendar year 1999, at the same time as 1998 bonuses are
paid to other  executive  employees  of the  Company  but in no event later than
March 31, 1999. Pursuant to the agreement,  Mr. Nacht has agreed to maintain the
confidentiality of any confidential or proprietary information of the Company.

     In the event that the Company  terminates Mr. Nacht's employment other than
for cause,  he will be paid  severance  compensation  equal to his  annual  base
salary  (at the rate  payable at the time of such  termination)  for a period of
nine months. In the event Mr. Nacht terminates his employment  voluntarily,  Mr.
Nacht will be paid severance  compensation  equal to his annual base salary plus
annual service bonus (at the rate payable at the time of such termination) for a
period  of  six  months.  For a  period  of  two  years  following  Mr.  Nacht's
termination  for any reason  other than an  unremedied  material  default by the
Company,  Mr.  Nacht  cannot,  directly  or  indirectly,  within 50 miles of any
location  operated by the Company or a  franchisee,  conduct or have an interest
in, or consult for or have any relationship with any business 25% or more of the
sales of which are represented by sales of coffee and bagels.

     As of November 24, 1998, the Company  entered into an employment  agreement
with Mr. J. Gennusa, the Company's Vice President  Manufacturing.  The agreement
expires on November  23,  2000,  but is  automatically  renewed  for  additional
one-year periods unless either party gives 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  commencement  of any such renewal.  The  agreement  provides for a
compensation  package of $132,500 per year, an annual performance bonus of up to
twenty-five  (25%) percent of the base salary payable during each fiscal year if
the  annual  operating  budget  of the  Company  for such  fiscal  year has been
achieved,  and an annual performance bonus of up to twenty-five (25%) percent of
the base salary  payable  during each  fiscal year if the  operating  budget for
which Mr. J. Gennusa is responsible is achieved. In addition, Mr. J. Gennusa has
been granted  options to purchase up to 125,000  shares of the Company's  common
stock at an exercise  price of $3.31,  which  options  expire ten years from the
date of grant. Pursuant to the agreement,  Mr. J. Gennusa has agreed to maintain
the  confidentiality  of any  confidential  or  proprietary  information  of the
Company. In the event that Mr. J. Gennusa's  employment  agreement is terminated
for any reason other than the  expiration of its term,  the Company shall not be
obligated to pay any  compensation  or expenses or provide other  benefits other
than those accrued to the date of termination.

     As of November 24, 1998, the Company  entered into an employment  agreement
with Mr. A. Gennusa,  the Company's Vice President  Construction.  The agreement
expires on November  23,  2000,  but is  automatically  renewed  for  additional
one-year periods unless either party gives 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  commencement  of any such renewal.  The  agreement  provides for a
compensation  package of $132,500 per year, an annual performance bonus of up to
twenty-five  (25%) percent of the base salary payable during each fiscal year if
the  annual  operating  budget  of the  Company  for such  fiscal  year has been
achieved,  and an annual performance bonus of up to twenty-five (25%) percent of
the base salary  payable  during each  fiscal year if the  operating  budget for
which Mr. A. Gennusa is responsible is achieved. In addition, Mr. A. Gennusa has
been granted  options to purchase up to 125,000  shares of the Company's  common
stock at an exercise  price of $3.31,  which options  expire ten years from the
date of grant. Pursuant to the agreement,  Mr. A. Gennusa has agreed to maintain
the  confidentiality  of any  confidential  or  proprietary  information  of the
Company. In the event that Mr. A. Gennusa's  employment  agreement is terminated
for any reason other than the  expiration of its term,  the Company shall not be
obligated to pay any  compensation  or expenses or provide other  benefits other
than those accrued to the date of termination.

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.

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 March 10, 2000 (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>
Manhattan Bagel Unsecured Creditors' Trust                                          1,086,957               9.52%

R.  Ramin Kamfar....................................................                  447,317(1)            3.92%
  Chairman and Chief Executive Officer
  And Director

Sanford Nacht ......................................................                   62,500(2)               *
  President and Chief Operating Officer

Jerold E.  Novack ..................................................                  392,862(3)            3.44%
  Vice President - Finance

Keith F.  Barket ...................................................                   42,361(4)               *
  Director

Edward McCabe ......................................................                   28,348(5)               *
  Director

Karen Hogan ........................................................                   35,274(6)               *
  Director

Leonard Tannenbaum .................................................                   26,005(6)               *
  Director

All directors and executive officers
 As a group (11 persons)............................................                1,679,322              14.71%
--------------------
*Less than one percent (1%).

                                      -22-
<PAGE>
<FN>

     (1)  Includes  184,367  shares  which may be acquired  upon the exercise of
          presently exercisable options.

     (2)  Includes  62,500  shares  which may be acquired  upon the  exercise of
          presently exercisable options. Does not include 62,500 shares
          underlying  stock options which are not exercisable  within 60 days.

     (3)  Includes  221,662  shares  which may be acquired  upon the exercise of
          presently exercisable options.

     (4)  Includes  27,000  shares  which may be acquired  upon the  exercise of
          presently exercisable options.

     (5)  Includes  25,000  shares  which may be acquired  upon the  exercise of
          presently exercisable options.

     (6)  Includes  20,000  shares  which may be acquired  upon the  exercise of
          presently exercisable options.
</FN>
</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On or about March 25, 1998,  the  officers of the Company,  R. Ramin Kamfar
and Jerold E.  Novack,  signed an  agreement  to  purchase  four stores from the
Company.  Mr. Kamfar is Chief Executive Officer of the Company and Mr. Novack is
Chief Financial Officer. The purchase price was $1,250,000. This transaction was
approved by the Board of Directors of the Company. The Company believes that the
terms of this  transaction  are as  favorable to the Company a those which could
have been obtained from  unaffiliated  third parties.  During 1999, these stores
were resold.

     Leonard Tannenbaum, a director of the Company, is a limited partner and
ten (10%) owner in BET  Associates,  L.P.  ("BET").  On November 24,  1998,  the
Company  completed a $5 million  dollar debt  transaction  with BET, which funds
were used for the acquisition of Manhattan Bagel. In 1999, the obligation to BET
was repaid pursuant to the refinancing of the Company's debt. In connection with
the refinance of the Company's debt, a Company  controlled by Mr. Tannenbaum was
paid $150,000 in advisory fees for services provided.


                                      -23-
<PAGE>
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)
     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     1999 Employment Agreement with R.  Ramin Kamfar (to be filed)
     10.3     1999 Employment Agreement with Jerold Novack (to be filed)
     10.4     Investor Rights Agreement (2)
     10.5     Directors' Option Plan (2)
     10.6     Form of Franchise Agreement (6)
     10.7     Form of Store Franchise Sale Agreement (6)
     10.8     Manhattan  Bagel  Company,  Inc. - Debtor in Possession  Amended  Acquisition  Agreement and Exhibits
              (7)
     10.9     Manhattan  Bagel  Company,  Inc. - Debtor in Possession  First  Amended Joint Plan of  Reorganization
              (7)
     10.10    Manhattan Bagel Company, Inc.  - Debtor in Possession Confirmation Order (7)
     10.11    1999 Employment Agreement with Sanford Nacht, as amended (to be filed)
     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)
     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 (10)
     27.1     Financial Data Schedule
-----------------
<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 Report on Form 10-KSB, for
          the Fiscal Year Ended December 27, 1998.

</FN>
</TABLE>
(b) Reports on Form 8-K

During the fourth  quarter of 1999,  the Company filed a Report on Form 8-K with
respect to a letter of intent to acquire New York Bagel Enterprises, Inc.


                                      -24-

<PAGE>




                                   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: March 27, 2000

     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
the dated indicated. <TABLE> <CAPTION>



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

<S>                                  <C>                                          <C>
/s/Ramin R.  Kamfar                  Chairman of the Board of Directors; Chief
----------------------               Executive Officer                            March 27, 2000
Ramin R.  Kamfar

/s/Jerold E.  Novack                 Chief Financial Officer                      March 27, 2000
----------------------
Jerold E.  Novack

/s/Ed McCabe                         Director                                     March 27, 2000
----------------------
Ed McCabe

/s/Keith Barket                      Director                                     March 27, 2000
----------------------
Keith Barket

/s/Leonard Tannenbaum                Director                                     March 27, 2000
----------------------
Leonard Tannenbaum

/s/Karen Hogan                       Director                                     March 27, 2000
----------------------
Karen Hogan
</TABLE>

                                      -25-
<PAGE>




                    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 26, 1999                                                         F-2

     Consolidated Statements of Operations for the Years Ended December 26, 1999 and December 27, 1998          F-3

     Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
        December 26, 1999 and December 27, 1998                                                                 F-4

     Consolidated Statements of Cash Flows for the Years Ended December 26, 1999
        and December 27, 1998                                                                             F-5 - F-6

     Notes to Consolidated Financial Statements                                                          F-7 - F-18

</TABLE>
<PAGE>


                    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  26,  1999,  and the related  consolidated  statements  of  operations,
changes in stockholders'  equity and cash flows for the years ended December 26,
1999 and December 27, 1998. 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  generally  accepted  auditing
standards.  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 26, 1999 and the results of their
operations  and their  cash  flows for the years  ended  December  26,  1999 and
December 27, 1998, in conformity with generally accepted accounting principles.




Arthur Andersen LLP
New York, New York
March 24, 2000


                                      F-1

<PAGE>

            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 26, 1999

<TABLE>
<CAPTION>


                                                        Assets
<S>                                                                                                         <C>
Current Assets:
     Cash and cash equivalents                                                                              $2,880,342
     Franchise and other receivables, net                                                                    2,011,398
     Current maturities of notes receivable                                                                  1,959,454
     Inventories                                                                                             1,845,354
     Prepaid expenses and other current assets                                                                 275,694
     Deferred income taxes - current portion                                                                   500,000
     Assets held for resale                                                                                  1,595,036
                                                                                                       ----------------
          Total current assets                                                                              11,067,278

Property, plant and equipment, net                                                                           7,017,513
Notes and other receivables, net                                                                             1,143,073
Trademarks, net                                                                                             15,988,993
Goodwill, net                                                                                                2,312,645
Deferred income taxes                                                                                        6,000,000
Deposits and other assets                                                                                      495,296
                                                                                                       ----------------
          Total Assets                                                                                     $44,024,798
                                                                                                       ================

                                         Liabilities And Stockholders' Equity
Current Liabilities:
      Accounts payable                                                                                      $2,014,703
      Accrued expenses                                                                                       4,554,880
      Current portion of long-term debt                                                                      2,840,492
      Current portion of obligations under capital leases                                                      163,359
      Other current liabilities                                                                                 49,642
                                                                                                       ----------------
          Total current liabilities                                                                          9,623,076

Long-term debt                                                                                              15,557,416
Obligations under capital leases                                                                               230,692
Deferred rent                                                                                                  227,065
Other long term liabilities                                                                                  6,014,784
Commitments and contingencies (Note 13) 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                                                                                        -
      Common stock, $.001 par value; 50,000,000 shares authorized; 11,313,508 shares issued
       and outstanding                                                                                          11,314
      Additional paid-in capital                                                                            34,706,849
      Accumulated deficit                                                                                  (22,346,398)
                                                                                                       ----------------
         Total stockholders' equity                                                                         12,371,765
                                                                                                       ----------------
         Total liabilities and stockholders' equity                                                        $44,024,798
                                                                                                       ================

     The accompanying  notes are an integral part of this  consolidated  balance
sheet.
</TABLE>


                                      F-2


<PAGE>


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE YEARS ENDED DECEMBER 26, 1999 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>

                                                                                          1999                 1998
                                                                                   -------------------    ----------------

<S>                                                                                  <C>                     <C>
Revenues:
       Manufacturing revenues                                                        $25,104,635             $2,193,145
       Franchise-related revenues                                                      6,171,413              2,728,137
       Retail sales                                                                    8,649,350             12,361,242
                                                                                   -------------------    ----------------
Total Revenues                                                                        39,925,398             17,282,524

Cost of Sales                                                                         27,948,455              12,463894
General and administrative expenses                                                    6,136,510              3,461,839
Depreciation and amortization                                                          2,249,340              1,463,456
Provision for store closings and reorganization costs                                          -              2,224,212
Non-cash charge in connection with the realization of assets                                   -              4,235,266
                                                                                   -------------------    ----------------
        Income (loss) from Operations                                                  3,591,093             (6,566,143)
Interest expense, net                                                                  1,407,018                925,467
                                                                                   -------------------    ----------------
        Income before extraordinary item                                               2,184,075             (7,491,610)
Extraordinary item
       Net gain from early extinquishment of debt                                        240,023                   -
                                                                                   -------------------    ----------------

Net Income (loss)                                                                     $2,424,098            ($7,491,610)
                                                                                   ===================    ================

Net income (loss) per common share - Basic
     Income (loss) before extraordinary item                                                $.22                 $(1.09)
                                                                                   ===================    ================
     Extraordinary item                                                                     $.02                   -
                                                                                   ===================    ================
     Net income(loss)                                                                       $.24                 $(1.09)
                                                                                   ===================    ================


Net income (loss) per common share - Diluted
     Income (loss) before extraordinary item                                                $.21                 $(1.09)
                                                                                   ===================    ================
     Extraordinary item                                                                     $.02                   -
                                                                                   ===================    ================
     Net income(loss)                                                                       $.23                 $(1.09)
                                                                                   ===================    ================

Weighted average number of common shares outstanding:
        Basic                                                                              10,317,490         6,857,846
                                                                                   ===================    ================
        Diluted                                                                            10,692,613         6,857,846
                                                                                   ===================    ================
The accompanying notes are an integral part of these consolidated statements.

</TABLE>



                                      F-3
<PAGE>
            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           FOR THE YEARS ENDED DECEMBER 26, 1999 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>


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

<S>               <C> <C>                                              <C>      <C>          <C>        <C>
BALANCE, December 28, 1997 ...........................      --         $--      109.75       $--        $5,817,072

    Issuance of common stock, net of offering expenses      --          --          --        --         2,176,738
    Common stock issued in connection with the
       conversion of Series B convertible preferred
       stock .........................................      --          --      (51.25)       --           240,555
    Common stock issued in connection with the
       acquisition (Note 10) .........................      --          --          --        --         1,486,957
    Net loss

                                                            --          --          --        --              --

                                                          ------      ------     ------      ------     ----------

BALANCE, December 27, 1998 ...........................      --          --        58.5        --         9,721,322

    Issuance of common stock, net of offering expenses                                                   1,167,171
    Common stock issued in connection with the
       conversion of Series B convertible preferred
       stock .........................................      --          --       (58.5)       --           425,015

    Net Income .......................................      --          --          --        --              --
                                                          ------      ------     ------      ------     ----------


BALANCE, December 26, 1999 ...........................      --         $--          --       $--        11,313,508
                                                          ======      ======     ======      ======     ==========

                                                                        Additional                        Total
                                                           Common Stock   Paid-in      Accumulated     Stockholders'
                                                              Amount      Capital        Deficit           Equity
                                                              ------      -------        -------           ------


BALANCE, December 28, 1997 ...........................      $   5,817    $ 25,179,258    ($17,278,886)   $  7,906,189


    Issuance of common stock, net of offering expenses          2,177       4,376,386            --         4,378,563
    Common stock issued in connection with the
       conversion of Series B convertible preferred
       stock .........................................            241            (241)           --              --
    Common stock issued in connection with the
       acquisition (Note 10) .........................          1,487       4,148,513            --         4,150,000
    Net loss                                                     --              --        (7,491,610)     (7,491,610)
                                                          -----------    ------------      ----------      ----------


BALANCE, December 27, 1998 ...........................         9,722       33,703,916     (24,770,496)      8,943,142

    Issuance of common stock, net of offering expenses          1,167       1,003,358            --         1,004,525
    Common stock issued in connection with the
       conversion of Series B convertible preferred
       stock .........................................            425          (425)             --                 -

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

BALANCE, December 26, 1999 ...........................   $     11,314    $ 34,706,849    ($22,346,398)   $ 12,371,765
                                                          ===========    ============     ===========    ============

</TABLE>

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

                                      F-4
<PAGE>



            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE YEARS ENDED DECEMBER 26, 1999 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>


                                                                                              1999            1998
                                                                                              ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                       <C>              <C>
 Net income (loss)                                                                        $ 2,424,098      ($7,491,610)
 Adjustments  to  reconcile  net loss to net cash used in  operating  activities
   Changes due to restructuring and store closing activities:
      Non-cash charge in connection with the realization of assets                                  -        4,235,266
      Provision for store closing costs and restructuring charges                                   -        2,224,212
   Write-off of fixed assets                                                                        -                -
   Depreciation and amortization                                                            2,249,545        1,463,456
   Gain on sales of fixed assets                                                             (703,822)      (1,623,442)
   Extraordinary gain from the early extinguishment of debt                                 (240,023)
   Provision for uncollectable notes receivable                                                     -          198,331
   Changes in operating assets and liabilities-
      Receivables                                                                          (1,046,789)          54,708
      Inventories                                                                            (489,624)          22,111
      Prepaid expenses                                                                        (69,621)         (54,366)
      Deposits and other assets                                                               655,522          564,041
      Receipts on notes receivable                                                            994,881       (1,902,409)
      Advances under notes receivable                                                        (602,400)         546,199
      Accounts payable                                                                        264,056          163,956
      Accrued expenses                                                                     (1,058,549)      (2,235,537)
      Deferred rent                                                                          (261,637)        (183,148)
      Other Liabilities                                                                      (380,963)               -
                                                                                            ---------        ---------
        Net cash provided by (used in) operating activities                                 1,734,674       (4,018,232)
                                                                                            ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                                    (1,432,429)        (835,771)
   Proceeds from sales of fixed assets                                                        951,636        3,485,676
   Additions to assets held for resale                                                         38,017                -
   Net cash paid for acquisitions                                                          (2,421,453)      (4,902,987)
                                                                                           -----------      -----------
        Net cash used in investing activities                                              (2,864,229)      (2,253,082)
                                                                                           -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of common stock, net of offering expenses                                       1,004,525        4,203,570
   Proceeds from notes payable                                                             13,787,620        7,860,612
   Proceeds from capital leases                                                                                 43,916
   Payment of liabilities in connection with acquired assets                               (3,666,217)
   Repayments of capital leases                                                              (571,598)        (386,963)
   Early retirement of debt                                                                (4,650,000)
   Repayments of notes payable                                                             (7,164,060)      (1,329,207)
                                                                                           -----------      -----------
        Net cash (used in) provided by financing activities                                (1,259,730)      10,391,928
                                                                                           -----------      -----------
        Net (decrease) increase in cash                                                    (2,389,285)       4,120,614

CASH, beginning of year                                                                     5,269,627        1,149,013
                                                                                            ---------        ---------

CASH, end of year                                                                          $2,880,342       $5,269,627
                                                                                           ==========      ===========
</TABLE>

                                      F-5

<PAGE>


            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
           FOR THE YEARS ENDED DECEMBER 26, 1999 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>


                                                                                                  1999            1998
                                                                                                  ----            ----


<S>                                                                                            <C>             <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest,
   net of amount capitalized                                                                   $1,262,976      $1,036,176

NONCASH INVESTING AND FINANCING ACTIVITIES:

   Equipment acquired under capital leases                                                        511,034          33,169
   Notes received from sale of fixed assets                                                        45,000       1,781,000
   Conversion of Series A, B, and C
      Convertible Preferred Stock to Common Stock                                                       -       4,230,054


   Conversion of Series B Convertible
      Preferred Stock to Common Stock                                                            (30,000)         512,500



   Issuance of notes related to acquisitions                                                    1,500,000      10,500,000
   Issuance of Common Stock related to acquisition                                                              4,150,000
   Issance of Common Stock as payment of promissory note                                                        1,392,500
   Issuance of Common Stock to vendors as payment
     for property, equipment and services rendered                                                                485,000

DETAILS OF ACQUISITION
   Assets acquired                                                                                      -      13,062,037
   Liabilities assumed                                                                                  -     (8,322,528)
   Notes issued                                                                               (1,500,000)     (5,500,000)
   Estimated accruals at time of acquisition                                                  (2,500,000)     (3,600,000)
   Value of equity issued                                                                               -     (4,825,000)
   Intangible assets acquired                                                                   6,421,453      17,114,336
                                                                                                ---------      ----------
      Cash paid for acquisition                                                                 2,421,453       7,928,845
                                                                                                ---------       ---------
      Cash acquired                                                                                     -       3,025,858
                                                                                                        -       ---------
      Net Cash Paid for Acquisition                                                            $2,421,453      $4,902,987

</TABLE>

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


                                      F-6
<PAGE>



            NEW WORLD COFFEE - MANHATTAN BAGEL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     DECEMBER 26, 1999 AND DECEMBER 27, 1998

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. The Company
acquired the stock of Manhattan Bagel Company, Inc.("MBC") on November 24, 1998,
resulting in the addition of 6  Company-owned  and 285  franchised  and licensed
Manhattan Bagel stores.  On August 31, 1999, the Company  acquired the assets of
Chesapeake  Bagel Bakery ("CBB")  resulting in the addition of 80 franchised and
licensed  Chesapeake  Bagel Bakery  stores.  At December 26, 1999, the Company's
retail system consisted of approximately 377 stores,  including 15 Company-owned
and 362 franchised and licensed stores.

     The Company is  vertically  integrated  with 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 1999 and 1998 are December 26, 1999 and December
27, 1998, resulting in years containing 52 weeks.

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
$625,000 at December 26, 1999 which were comprised of money market  accounts and
certificates of deposit which costs approximate  market value.  Included in cash
and cash  equivalents  is a certificate  of deposit of $200,000  which secures a
note payable.

Inventories

     Inventories  are  stated at the lower of cost or  market,  with cost  being
determined by the first-in, first-out method.

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

                                      F-7
<PAGE>


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.  See Note 3 for  detail  of  impairments  identified  by the  Company  in
performing  this  evaluation  during 1998. The Company does not believe that any
impairment occured in 1999.

Franchise Fee Revenue Recognition

     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 5) 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  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  notes  payable
approximate their fair value.

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; however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity.

                                      F-8
<PAGE>
Earnings Per Share

     Effective  December 28, 1997,  the Company,  as required,  adopted SFAS No.
128,  "Earnings  Per Share." In  accordance  with SFAS No. 128,  basic  earnings
(loss) per common  share  amounts  ("basic  EPS") are  computed by dividing  net
earnings(loss)  by the weighted average number of common shares outstanding and
exclude any potential dilution. Diluted earnings (loss) per common share amounts
assuming dilution ("diluted EPS") are computed by reflecting  potential dilution
of the Company's common stock equivalents.

Segment Disclosure

     In June 1997, the FASB issued SFAS No. 131,  "Disclosure  about Segments of
an  Enterprise  and  Related   Information."  SFAS  131,  applicable  to  public
companies,  established new standards for reporting  information about operating
segments in annual financial  statements.  The disclosure prescribed by SFAS 131
is effective  beginning  with the year ended December 31, 1998. The Company does
not believe that it operates in more than one segment.

Income Taxes

     The Company provides for federal and state income taxes using the liability
method in accordance with the Financial Accounting Standards Board ("FASB") SFAS
No. 109.  SFAS No. 109  requires  the  recognition  of  deferred  tax assets and
liabilities  for the expected  future tax  consequences of events that have been
recognized in the Company's financial statements or tax returns.

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 loss 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.


2.   Acquisitions

     On November 24, 1998, the Company  acquired  Manhattan Bagel Company,  Inc.
under  a plan  of  reorganization.  The  purchase  price  totaled  approximately
$23,853,000,  consisting of $7,300,000 of cash paid to MBC creditors; $5,500,000
in notes  payable to MBC  creditors;  $4,150,000 of equity issued in the form of
shares of the Company's common stock and the accrual of certain post acquisition
expenses  of  $6,903,000,   including  indemnifications  of  up  to  $1,500,000,
guarantees of certain  liabilities  of up to $1,500,000 and certain post closing
reorganization costs of up to $3,903,000.

     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 and the difference  between the cost of acquiring the assets and the
underlying fair market value of the net assets  acquired,  including  identified
intangibles, was treated as goodwill, which is being amortized over 25 years.

     During 1999, the Company identified approximately $ 2,000,000 of additional
post acquisition  expenses and reorganization  costs that it expects to incur in
connection  with the  acquisition  of MBC.  This  amount has been  reflected  as
additional  goodwill  and  accrued  liabilities  consistent  with the  treatment
discussed above.

       In connection with the acquisition,  two former  principals of MBC signed
employment  agreements and one former  principal  signed a consulting  agreement
with the Company, all of which will terminate November 23, 2000.

                                      F-9
<PAGE>
     The  consolidated  statements  of  operations  of the  Company  include the
results of MBC and its wholly owned subsidiary,  I&Joy,  Inc., since the date of
acquisition.

     Following is the  unaudited pro forma  presentation  as if the purchase had
occurred on December 28, 1997 (Unaudited):

                                               Years Ended
                                         December 27, 1998
                                         -----------------

Revenue                                        $46,003,000
Operating loss                               ($10,645,000)
Net loss                                     ($13,575,000)
Net loss per share                                 ($0.99)

     The pro forma information presented above does not purport to be indicative
of the results that actually would have been obtained if the combined operations
had been  conducted  during  the  periods  presented,  nor does it purport to be
indicative of future periods of the combined operations.


     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.

3.   Impairment Of Long Lived Assets

     In the fourth  quarter of 1998,  the Company  recorded a noncash  charge to
earnings  of  approximately   $4.2  million  based  on  its  evaluation  of  the
realizability of certain long-lived assets.  This charge includes  approximately
$3.0 million in writedowns of the book value of certain  stores and $1.2 million
in writedowns of goodwill related to the Willoughby's and Coopers  acquisitions.
For  assets  to be held  and  used,  realizability  was  evaluated  based on the
estimated undiscounted future cash flows attributable to such assets as compared
to the book values of such assets. When an impairment existed,  such assets were
written  down to their net  realizable  value.  For  assets to be  disposed  of,
realizability was evaluated based on the fair value of the assets to be disposed
of, which was determined based upon estimated selling prices of the locations.

     During 1999, the Company  evaluated the  realizability of long-lived assets
consistent with the methodology  discussed above. No charge was made to earnings
during  1999 as value of the  estimated  discounted  cash flows from such assets
exceeded the carrying value of the underlying assets.

4.  Property and Equipment

     Property and equipment consist of the following as of December 26, 1999:

             Leasehold improvements                            $ 3,691,050
             Store/factory equipment                             3,686,497
             Furniture and fixtures                                196,665
             Office equipment                                    1,627,985
                                                           ----------------
                                                                 9,202,197

                                      F-10
<PAGE>
             Less-
             Accumulated depreciation and amortization          (2,184,684)
                                                           ----------------
                                                               $ 7,017,513
                                                           ================




     Depreciation and amortization expense totaled approximately  $1,565,393 and
$1,212,300  for the  years  ended  December  26,  1999 and  December  27,  1998,
respectively.

5.  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 from November 1999 to November 2004. Substantially all
of the assets of the franchisee's store are pledged as collateral for the notes.

6.  Other Assets

     Other assets consist of the following as of December 26, 1999:


      Security Deposits                                $386,828
      Other                                             108,468
                                                   -------------
                                                       $495,296
                                                   =============


                                      F-11
<PAGE>


7.  Long-term Debt

  Long-term debt consists of the following at December 26, 1999:
<TABLE>
<CAPTION>


<S>                                                                             <C>
        Note payable to a bank (a)                                              $12,000,000
        Revolving credit note payable to a bank (a)                               1,500,000
        Promissory note payable in connection with Chesapeake Bagel Bakery        1,500,000
        acquisition (b)
        Note payable to New Jersey Economic Development Authority (c)             2,520,000
        Promissory notes payable in connection with Cooper's acqusition (d)         385,000
        Mortgage payable (e)                                                        255,669
        Note payable to a bank (f)                                                  136,779
        Other                                                                       100,460
                                                                            ----------------
                                                                                 18,397,908

        Less - Current portion                                                    2,840,492
                                                                            ----------------
                                                                                 $15,557,416
                                                                            ================
<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.
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 Note is due
in full on December 31, 2002. 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  26,  1999,
$1,500,000 of borrowing was unused and available under the credit facility.  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

     (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  commencing
November 1999 and interest is paid quarterly beginning March 1999.

     (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%.

     (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.

     (f) In May 1999,  the  Company  entered  into a note  payable  to a bank of
$200,000.  The note is payable in 23 monthly  installments  of $ 9,029 including
principal  and interest at 7.82%.  The note  matures in April 2001.  The note is
secured  by a  $200,000  certificate  of  deposit  held  by the  bank  which  is
restricted and included in Cash and cash equivalents in

                                      F-12
<PAGE>
the accompanying financial statements.
</FN>
</TABLE>


     Scheduled  maturities  of the notes  payable as of December 26, 1999 are as
follows:


                            2000                       $2,840,492
                            2001                        3,358,048
                            2002                        5,822,679
                            2003                        4,000,488
                            2004                        1,144,001
                            Thereafter                  1,232,200
                                                   ---------------

                                                      $18,397,908
                                                   ===============


     Interest expense on long-term debt totaled  approximately $ 1,482,765 and $
224,000  for  the  years  ended   December  26,  1999  and  December  27,  1998,
respectively.

8.  Accrued Expenses

        Accrued expenses consist of the following at December 26, 1999:
<TABLE>
<CAPTION>

<S>                                                                                <C>
           Estimated future liabilities resulting from MBC acquisition             $1,119,680
           Accrued payroll and related (including bonuses and severance
           payments)                                                                1,020,917
           Accrued professional fees                                                  106,015
           Accrued interest expense                                                   391,303
           Other                                                                    1,916,965
                                                                              ----------------

                                                                                   $4,554,880
                                                                              ================
</TABLE>

9.   Provision For Store Closings and Reorganization Costs

     As of  December  27,  1998,  the Company has  recorded a  provision,  and a
corresponding  accrual,  of  $350,000  relating  to five stores that the company
expected to close.  Additionally,  during 1998 the Company  closed what had been
the  corporate  offices of New World prior to the  acquisition  of MBC, at which
time all operations and corporate offices were  centralized.  In connection with
this move,  the Company has recorded a charge of  $1,874,212 to the statement of
operations during the year ended December 27, 1998,  primarily  comprised of the
abandonment  of assets at the previous  location with a remaining  book value of
approximately  $1,000,000  and the accrual for certain  bonuses,  severance  and
relocation  costs  relating  to  the  move.  During  1999  bonuses,   severance,
relocation costs, and store closing costs mentioned above were paid.

10.   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

                                      F-13
<PAGE>

Stockholders' rights plan discussed below.

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  acquisition.  The
value  of such  warrants  is  approximately  $675,000  has  been  included  as a
component of the total purchase price of the acquisition.

     In  connection  with the  acquisition  of MBC (Note 2), the Company  issued
1,486,957 shares of common stock to creditors and employees of MBC. During 1998,
568,534  and  24,667  shares of common  stock were  issued as payment  for notes
payable and employee bonuses respectively.

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 26, 1999, the Company has 1,907,927 warrants outstanding all
of which were  exercisable  at December 26, 1999.  These  warrants have exercise
prices  ranging from $.02 - $18.16 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

                                      F-14
<PAGE>
of common stock are  currently  reserved for issuance  pursuant to the 1994 Plan
and all have been issued.

     In  1998  the  Company  granted  40,000  board-approved  options  to  three
employees  outside of the 1994 Plan and the Directors'  Option Plan. In 1999 the
Company granted 125,000  board-approved  options to one employee  outside of the
1994 Plan and the Directors' Option Plan.

     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's 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 total of 142,000 and 92,000 options
were  granted  under the  Directors'  Option  Plan as of  December  26, 1999 and
December 27, 1998, respectively.

     A summary of the status of the  Company' two stock option plans at December
26, 1999 and  December  27,  1998,  and  changes  during the years then ended is
presented in the table and narrative below: <TABLE> <CAPTION>

                                                                           1999                      1998
                                                                           ----                      ----
                                                                                Weighted
                                                                                Average                     Weighted
                                                                                Exercise                     Average
                                                                  Options        Price        Options    Exercise Price
                                                                  -------        -----        -------    --------------

<S>                                                               <C>             <C>        <C>                <C>
Outstanding, beginning of year                                    365,578         $3.60      444,088            $4.96

   Grant                                                           50,000          1.74       20,000             2.00

   Exercised                                                            -             -            -                -

   Forfeited                                                      (6,399)          4.78     (98,510)             3.86

Outstanding, end of year                                          409,179          3.35      365,578             3.60

Exercisable, end of year                                          405,179          3.38      251,779             3.86

Weighted average, fair value of options granted                                   $ .56                         $ .63
</TABLE>

     The following table  summarizes  information  about the Company's two stock
option plans at December 26, 1999:

                                      F-15
<PAGE>
<TABLE>
<CAPTION>

                     Number Outstanding   Weighted Average                             Number
                       at December 26,        Remaining       Weighted Average     Exercisable at     Weighted Average
  Exercise Prices           1999          Contractual Life     Exercise Price    December 26, 1999     Exercise Price
  ---------------           ----          ----------------     --------------    -----------------     --------------

<S>        <C>             <C>                  <C>                 <C>                 <C>                    <C>
   $1.66 - $$2.00          61,867               7.92                $1.67               61,867                 $1.67


   $2.01 - $5.00          329,312               8.50                $3.32              325,562                 $3.36


   $5.01 - $11.00          18,000               6.00                $9.54               17,750                 $9.68
                           ------                                                       ------

                          409,179                                   $3.35              405,179                 $3.38
                          =======                                   =====              =======                 =====
</TABLE>

                                      F-16

<PAGE>


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:

                                              1999                        1998
                                             -----------------------------------

         Net income (loss):
            As reported                      $2,424,098             ($7,491,610)
            Pro forma                         1,972,286              (8,010,540)

         Basic net income (loss) per common share:
            As reported                             .24                    (.55)
            Pro forma                               .19                    (.58)

         Diluted net income (loss) per common share:
            As reported                             .23                    (.55)
            Pro forma                               .18                    (.58)

     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 1999 and 1998,  respectively:  risk-free interest
rates of 5.5% and 6.2%;  expected  dividend  yields of 0%;  expected  lives of 4
years; expected stock price volatility of 78% and 57%.

11.  Income Taxes

     A summary of the  significant  components of deferred assets as of December
26,1999 is as follows:
<TABLE>
<CAPTION>


<S>                                                                                <C>
                    Operating loss carryforwards                                   ($10,000,000)
                    Non cash charges not yet realized for tax  reporting
                    purposes                                                         (3,268,582)
                    Accrued liabilities                                              (1,062,000)
                    Other                                                                694,373
                                                                                  ---------------
                          Net deferred tax assets                                   (13,636,209)
                    Valuation allowance                                                7,136,209
                                                                                  ---------------
                                                                                      $6,500,000
                                                                                  ===============
</TABLE>

     At December 26, 1999, the Company had net operating loss  carryforwards  of
approximately  $25.0  million  available  to offset  future  taxable  income for
federal income tax purposes.  These net operating loss  carryforwards  expire on
various dates through 2019.  The Company's  ability to utilize its net operating
loss  carryforwards  will be subject  to annual  limitations  in future  periods
pursuant to the "change in ownership  rules"  under  Section 382 of the Internal
Revenue Code, as amended.

     In  1999,  MBC  contributed  substantially  all the  profitablility  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.

12.  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 rate share of certain landlord operating expenses.

                                      F-17
<PAGE>
     As of December 26, 1999,  approximate  future minimum rental payments under
non-cancelable  operating  leases  for  the  next  five  years  and  the  period
thereafter are as follows:

                 Year ending:

                    2000                            $2,555,744
                    2001                             2,511,170
                    2002                             2,412,378
                    2003                             2,393,409
                    2004                             2,219,398
                    Thereafter                       7,216,195
                                                     ---------

                                                   $19,308,294
                                                   ===========

     Rent  expense  under  operating  leases was  approximately  $2,849,000  and
$2,617,000  for the  years  ended  December  26,  1999 and  December  27,  1998,
respectively.

Capital Leases

     The Company has capital  leases for computer  equipment  used in its stores
and offices.  As of December 26, 1999, payments under such capital leases are as
follows:

                 Year ending:

                    2000                                            $285,086
                    2001                                             137,795
                    2002                                              67,072
                    2003                                              37,208
                    2004                                              24,567
                                                                   ---------
                                                                    $551,728

Less- Amount representing interest                                   157,677
                                                                   ---------
                                                                    $394,051
                                                                   =========

Employment Agreements

     The Company has entered into employment agreements with six officers of the
Company expiring between July 1999 and December 2000.  Minimum base salaries and
bonuses  for  the  term  of  these  employment   agreement  total  approximately
$1,584,000, of which the Company is committed to pay $695,000 after December 26,
1999.

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  in  the  Company's  financial
condition, liquidity or results of operations.

Related Party Transactions

     During 1998, two officers of the Company signed and agreed to purchase four
stores  from  the  Company  for a total  purchase  price  of  $1,250,000,  which
generated a gain to the Company of approximately  $545,000.  One of these stores
was sold to an unrelated  party during 1998. In 1999, the remaining  stores were
sold.

     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.

                                      F-18

<PAGE>


13.  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.  This
write-off is part of the impairment of long-lived  assets  further  discussed in
Note 3. The remaining value of such assets is being  classified as held for sale
in the accompanying  consolidated balance sheet, based on the Company's plan and
intent to dispose of such stores by the end of fiscal 2000.

14.  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 $2,700,000 of certain indemnifications and guarantees and
approximately  $2,500,000 of other expenses  relating to  acquisitions  (such as
trustee and other fees) not expected to come due within the next year.



                                      F-19