U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ________________
Commission File number 0-28058
BIG CITY BAGELS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-3137508
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
99 Woodbury Road, Hicksville, NY 11801
(Address of Principal Executive Offices)
(516) 932-5050
(Issuer's Telephone Number Including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At August 8, 1996, Issuer had
outstanding 4,808,750 shares of Common stock, par value $.001 per share.
Page 1 of 14 Pages
Exhibit Index - None
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIG CITY BAGELS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, 1995 June 30,1996
<S> <C> <C>
ASSETS
Current Assets:
Cash $37,991 $2,944,322
Accounts Receivable 19,580 80,849
Inventory 47,933 54,889
Promissory Note Receivable 0 20,000
Prepaid Expenses and Other Current Assets 9,572 46,956
--------------------------------------------
Total Current Assets $115,076 $3,147,016
Fixed Assets, Net of Accumulated
Depreciation 934,378 923,065
Intangible Assets, Net of Accumulated
Amortization 31,230 314,513
Deferred Registration Costs 25,000 0
Security Deposits 31,947 34,447
--------------------------------------------
TOTAL $1,137,631 $4,419,041
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Current Liabilities:
Stockholder and Partner Loans $200,000 $72,000
Notes Payable 87,712 15,300
Unearned Franchise Fee Income 309,250 307,500
Accounts Payable 278,390 190,472
Accrued Expenses 35,660 30,922
--------------------------------------------
Total Current Liabilities $911,012 $616,194
Deferred Rent Payable 26,261 24,507
Loans Payable, Noncurrent 11,044 5,653
Stockholder and Partner Loans, Noncurrent 262,468 43,347
--------------------------------------------
Total Liabilities $1,210,785 $689,701
--------------------------------------------
Stockholders' Equity and Partners' Capital:
Preferred Stock $.001 par value; 1,000,000
shares authorized; no shares outstanding
Common Stock $.001 par value; 10,000,000 shares authorized;
2,818,750 shares issued and outstanding, December 31,
1995; and 4,808,750 shares issued and outstanding June 30,
1996
2,819 4,809
Additional Paid-In Capital 972,181 4,185,288
Partners' Capital 255,456 0
Accumulated Deficit (1,303,610) (408,257)
Unearned Portion of Compensatory Stock 0 (52,500)
--------------------------------------------
Total Stockholders' Equity(Deficiency)
and Partners' Capital (73,154) 3,729,340
--------------------------------------------
TOTAL $1,137,631 $4,419,041
============================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
BIG CITY BAGELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Product Sales by Company-Owned $681,048 $640,526 $346,753 $340,393
Stores
Product Sales to Franchisees and Others 198,290 73,463 111,668 28,136
Franchise Fees 185,500 10,000 65,500 10,000
Royalty Income 52,145 8,428 31,928 4,476
-----------------------------------------------------------------------
Total Revenues 1,116,983 732,417 555,849 383,005
-----------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of Sales 384,988 251,645 211,536 141,650
Selling, General and Administrative 1,325,749 868,513 758,669 452,929
Amortization of Debt Discount 683,542 0 257,059 0
on Bridge Loan
Interest Expense, 39,408 10,527 12,646 3,066
Net of Interest Income
-----------------------------------------------------------------------
Total Costs and Expenses 2,433,687 1,130,685 1,239,910 597,645
-----------------------------------------------------------------------
NET LOSS $(1,316,704) $ (398,268) $(684,061) $(214,640)
=======================================================================
Net Loss Per Common Share $(0.38) $(0.13) $(0.17) $(0.07)
=======================================================================
Weighted Average Common Shares
Outstanding 3,490,433 3,000,000 3,980,865 3,000,000
=======================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
BIG CITY BAGELS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
<TABLE>
Additional Unearned Portion of
Common Stock Paid-In Partners' Accumulated Compensatory Stock
Shares Amount Capital Capital Deficit Shares Amount Total
------ ------ ------- ------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996 .... 2,818,750 $ 2,819 $ 972,181 $ 255,456 $(1,303,610) $(73,154)
Issuance of Rights to
Receive Bridge ............. 683,542 683,542
Units and Warrants
Exchange of Partnership
Interests For Common Stock . 181,250 181 500,565 (211,199) 289,547
Termination of
S Corporation Status ........ (2,167,800) 2,167,800 0
Shares Issued Through
Public Offering ............. 1,293,750 1,294 4,137,315 4,138,609
Exercise of Rights to
Receive Bridge Units ........ 500,000 500 (500) 0
Shares Issued as
Compensation ................ 15,000 15 59,985 15,000 $(60,000) 0
Amortization of
Compensatory Stock .......... 7,500 7,500
Net Loss .................... (44,257) (1,272,447) (1,316,704)
----------------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 ...... 4,808,750 $4,809 $ 4,185,288 $ 0 $ (408,257) 15,000 $(52,500) $3,729,340
====================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
BIG CITY BAGELS, INC.
CONSOLIDATED CASH FLOWS STATEMENTS
<TABLE>
For the Six Months Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,316,704) $(398,268)
--------------------------------------------------
Adjustments to Reconcile Net Loss to Net Cash (used in)
Operating Activities:
Depreciation and Amortization 75,606 52,455
Amortization of Debt Discount on Bridge Loans 683,542 0
(Increase) Decrease in:
Accounts Receivable (61,269) (49,446)
Inventory (6,956) 79
Notes Receivable (20,000) 0
Prepaid Expenses and Other Current Assets (37,384) (3,033)
Increase (Decrease) in:
Unearned Franchise Fee Income (1,750) 111,000
Deferred Rent Payable (1,754) 2,484
Accounts Payable (87,918) 83,495
Accrued Expenses (4,738) 48,706
--------------------------------------------------
Total Adjustments 537,379 245,740
--------------------------------------------------
Net Cash Used in Operating Activities (779,325) (152,528)
--------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets (50,529) (12,384)
Increase in Security Deposits (2,500) (1,922)
--------------------------------------------------
Net Cash Used in Investing Activities (53,029) (14,306)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Public Offering 4,163,609 0
Proceeds from Bridge Loan 1,000,000 0
Repayment of Bridge Loan (1,000,000) 0
Proceeds from Stockholder Loans 0 178,468
Repayment of Stockholder Loans (347,121) 0
Repayment of Notes Payable (77,803) 0
--------------------------------------------------
Net Cash Provided by Financing Activities 3,738,685 178,468
--------------------------------------------------
NET INCREASE IN CASH 2,906,331 11,634
Cash, Beginning 37,991 51,594
--------------------------------------------------
Cash, Ending $2,944,322 $63,228
==================================================
<FN>
Supplemental Disclosure of Cash Paid:
Interest $87,649
Income Taxes 1,925 $2,778
Supplemental Disclosure of Noncash Financing Transactions:
(1) Upon the completion of the public offering, the Company acquired the limited partners interest in
Pumpernickel Partners, L.P. and the capital stock of Bagel Partners, Inc. for 181,250 shares of common
stock.
(2) The Company issued to an employee 15,000 shares of its common stock which vest over two years.
</FN>
</TABLE>
The accompanying notes are an integral part of the
financial statements.
-5-
<PAGE>
BIG CITY BAGELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A) - The Company and Basis of Presentation:
The information herein is unaudited. However, in the opinion
of management, such information reflects all adjustments
(consisting only of normal recurring accruals) necessary to
make the financial statements not misleading. Additionally, it
should be noted that the accompanying consolidated financial
statements do not purport to contain complete disclosures in
conformity with generally accepted accounting principles.
The results of operations for the six months ended June 30,
1996 are not necessarily indicative of the results of
operations for the full fiscal year ending December 31, 1996.
These statements should be read in conjunction with the
Company's financial statements for the fiscal year ended
December 31, 1995 appearing in the Company's Prospectus dated
May 7, 1996.
The Company commenced operations in 1993. Big City Bagels,
Inc. ("Big City") operates and franchises retail bagel stores
and sells its products wholesale to commercial accounts and
food service operators. Pumpernickel Partners, L.P.
("Pumpernickel") operates two such bagel stores. The financial
statements of the Company prior to May 13, 1996, include the
combined accounts of Big City and Pumpernickel (collectively,
the "Company"), which were under common control through such
date, as the principal stockholders of Big City were also the
principal stockholders of Bagel Partners, Inc. ("Bagel
Partners"), the general partner of Pumpernickel. At May 13,
1996, the limited partners of Pumpernickel and the
stockholders of Bagel Partners, Inc., exchanged their
partnership interests and all their capital stock,
respectively, for 181,250 shares of the Company's common
stock. Accordingly, from May 13, 1996, the financial
statements of the Company reflect the consolidated results of
Big City and its wholly-owned subsidiaries, Pumpernickel and
Bagel Partners. All significant intercompany balances and
transactions have been eliminated.
The transaction described in the preceding paragraph was
accounted for as a purchase of the interests of the
unaffiliated limited partners in Pumpernickel. The common
stock issued to the stockholders of Bagel Partners and the
affiliated limited partners of Pumpernickel was valued at
their respective equity interests in Pumpernickel. The excess
of the fair value of the shares of common stock (144,535
shares) issued to such limited partners over the book amount
of their interest in Pumpernickel has been assigned to the
franchise costs and included with intangible assets in the
accompanying balance sheet ($289,547).
In February 1996, the Company amended its certificate of
incorporation, increasing its authorized shares, and in March
1996, the Company effected a 28,187.5 for 1 stock split of its
common stock in the form of stock dividend payable to
shareholders of record on April 1, 1996 at the closing of the
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<PAGE>
Company's initial public offering of its securities
("Offering"). The accompanying financial statements reflect
these transactions retroactively.
On May 13, 1996 the Company completed the Offering. In
connection therewith, the Company raised gross proceeds of
$5,175,000. The Offering consisted of 1,293,750 units
(including the underwriters over-allotment option of 168,750
units), at a price of $4.00 per unit, each unit consisting of
one share of common stock and one Class A warrant which
entitles the holder thereof to purchase one share of common
stock at $4.50 per share for a three-year period commencing
one year after the effective date of the Offering.
(NOTE B) - Net (Loss) Per Share:
Net (loss) per share is computed on the basis of the weighted
average number of common shares outstanding during each period
adjusted for the 28,187.5 to 1 stock split and as if the
exchange described in Note A had occurred on January 1, 1995.
Warrants to purchase shares of common stock are anti-dilutive
and are excluded from the calculation.
(NOTE C) - Bridge Financing:
In January 1996, the Company completed a bridge financing,
pursuant to which it issued (i) an aggregate of $1,000,000
principal amount of promissory notes, which bear interest at
the rate of 8% per annum ("Bridge Notes") and (ii) the right
to receive upon the completion of the Offering an aggregate of
500,000 bridge units and 500,000 Class B redeemable common
stock purchase warrants ("Class B warrants"). Each bridge unit
consists of one share of common stock and one warrant
identical to the Class A warrants described in Note A. Two
Class B warrants, together, will entitle the holder to
purchase one share of common stock for $8.00 during the
three-year period commencing one year after the completion of
the Offering. The bridge units and Class B warrants contain
registration rights and the Company registered such securities
simultaneously with the Offering. The units and warrants have
been valued at $684,000 and have been accounted for as a debt
discount increasing the effective interest rate on the notes
to 169%. The promissory notes were repaid with the proceeds of
the Offering.
(NOTE D) - Stockholder and Partner Loans:
$375,000 of the proceeds of the Offering were used to repay
stockholder and partner loans, including accrued interest. The
balance is to be paid monthly with interest at 10% commencing
January 1997.
(NOTE E)- Common Stock:
The Company adopted its 1996 Performance Equity Plan (the
"Plan") which provides for the issuance of awards of up to
350,000 shares of common stock to employees, officers,
directors and consultants. The awards may consist of incentive
stock options, nonqualified options, restricted stock awards,
deferred stock awards, stock appreciation rights and other
awards as described in the Plan. The Company has granted
options to purchase 7,500 shares of common stock to
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<PAGE>
each of two independent consultants of the Company, at
exercise prices of $4.00 per share. The Company also has
granted a restricted stock award of 15,000 shares of common
stock, that will vest in two years, to an employee.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's financial statements and the notes hereto. The discussion of results,
causes and trends should not be construed to imply any conclusion that such
results or trends will necessarily continue in the future.
RESULTS OF OPERATIONS
Revenues for the three and six months ended June 30, 1996 were $555,849 and
$1,116,983, respectively, a 45.13% and 52.51% increase from the corresponding
periods of the previous year. This increase is attributable to the gains in the
following areas: Store and commissary sales, franchise fees, and royalty income.
Store and commissary products sales increased $89,892 and $165,349,
respectively, a 24.39% and 23.16% increase from the corresponding periods of the
previous year. This is due to the maturing of Company-owned retail operations,
the growth of the wholesale business, and the increased commissary sales to
franchise stores which opened in 1996. Franchise fees for the three and six
months ended June 30, 1996, were $65,500 and $185,500, respectively, a 555% and
1755% increase from the corresponding periods of the previous year. Revenue
under franchise agreements is generally recognized when the franchise stores are
opened. Two stores opened during the three months ended June 30, 1996 and one
store closed during such period and the franchisee was relieved of its franchise
obligations; no stores opened during the three months ended June 30, 1995. Six
stores opened during the six months ended June 30, 1996; no stores opened during
the six months ended June 30, 1995. The Company had unearned franchise fee
income of $325,250 and $307,500 at March 31, 1996 and June 30, 1996,
respectively. The Company had $130,500 and $176,000 of unearned franchise fee
income for the corresponding periods of the previous year. Unearned franchise
fee income represents non-refundable franchise fees which will be recognized as
revenue as the related franchise stores are opened. In the first six months of
1996, the Company entered into three franchise agreements and two area
development agreements (one twelve-store agreement and one three-store
agreement). The Company did not sign any individual franchise agreements, but
entered into two area development agreements (each being a three-store
agreement) for the six months ended June 30, 1995.
Royalty income for the three and six months ended June 30, 1996 was $31,928 and
$52,145, respectively, a 613.32% and 518.71% increase from the corresponding
periods of the previous year. This is due to the maturing of operations of
existing franchise stores and the opening and initial operations of four
franchise stores and six franchise stores during the three and six months ended
June 30, 1996, respectively.
Cost of sales were $211,536 and $384,988 or 46.14% and 43.78% of net sales for
the three and six months ended June 30, 1996, as compared to $141,650 and
$251,645 or 38.44% and 35.24% for the corresponding periods of the prior year.
The reasons for the increase in the cost of sales are an increase in sales to
franchisees which are at a lower gross profit percent and that the Company has
not raised the selling price of their product while their material costs have
increased. The Company expects to raise its prices by September 1996.
Selling, general and administrative expenses (SG&A) increased by $305,740 and
$457,236, respectively, a 67.50% and 52.65% increase in the three and six months
ended June 30, 1996 as compared to the corresponding periods of the previous
year. This increase was primarily due to increases in salaries, insurance,
professional fees and travel, that were mandated by a growing business.
-9-
<PAGE>
Amortization of debt discount on the Bridge Notes for the three and six months
ended June 30, 1996 were $257,059 and $683,542, respectively. There was no such
amortization for the corresponding periods in 1995.
Interest expense for the three and six months ended June 30, 1996 was $27,818
and $58,370, respectively, a 797.35% and 451.13% increase from the corresponding
periods of the previous year. This increase is primarily due to interest on the
$1,000,000 of Bridge Notes and shareholder loans. Interest income for the three
and six months ended June 30, 1996 was $15,172 and $18,962, respectively, as
compared to nominal amounts in the preceding year. This increase is primarily
due to the investments of the proceeds from the Offering.
Net losses for the three and six months ended June 30, 1996 were $684,061 and
$1,316,704, respectively, as compared to net losses of $214,640 and $398,268 for
the corresponding periods of the prior year. The primary reasons for the
increase in the current three and six month net losses are due to the
amortization of debt discount on the bridge loan and increases in officers' and
operating salaries and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 1996 were $2,944,322, as compared to
$37,991 at December 31, 1995. This increase in cash was due to the proceeds from
the Offering.
Accounts receivable increased to $80,849 at June 30, 1996 from $19,580 at
December 31, 1995, primarily due to increases in commissary sales.
Prepaid expenses and other current assets increased to $46,956 at June 30, 1996
from $9,572 at December 31, 1995. The increase was primarily due to increases in
payments made on various insurance policies.
The current portion of stockholder and partners' loans decreased to $72,000 at
June 30, 1996 from $200,000 at December 31, 1995. The decrease was attributable
to the repayment of the above-mentioned loans from the proceeds the Company
received from the Offering.
Notes payable decreased to $15,300 at June 30, 1996, from $87,712 at December
31, 1995. The Company reduced these notes from the proceeds of the Offering.
The combination of accounts payable and accrued expenses decreased to $221,394
at June 30, 1996 from $314,050 at December 31, 1995. The decrease of $92,656 was
primarily due to making payments to suppliers on a current basis as a result of
the proceeds the Company received from the Offering.
At June 30, 1996, the Company had $2,530,822 of working capital and a current
ratio of 5.11 to 1, principally due to the proceeds received from the Offering.
In May 1996, the Company completed the Offering, at which time the Company
received the net proceeds of the Offering (approximately $4,100,000).
The Company's operating activities used $779,325 of net cash in the six months
ended June 30, 1996, as compared to $152,528 used in operations for the
corresponding period of the prior year. The $626,797 increase of net cash used
by operations was primarily due to the increase of the Company's net loss. The
Company anticipates that its current working capital combined with
-10-
<PAGE>
cash generated from continuing operations will be sufficient to meet operating
requirements for a period of 12 months.
The Company does not have any specific additional capital requirements, either
short term or long term, except as discussed below and except for general
working capital purposes.
The Company anticipates increasing revenues and thereby generating operating
cash flow in the future by implementing the following actions (although there
can be no assurance that the Company will be successful):
. Increasing Product Sales and Prices. The Company intends to open new
Company-owned retail stores and expects increased sales from its
commissary in California to new franchise stores. The Company
continuously develops new products to increase sales and provide a
variety of products offered. The Company is currently servicing many
wholesale accounts and expects this business to grow due to an increase
in name recognition, product acceptance and additional sales efforts. The
Company also expects to raise prices at all the Company-owned retail
stores by September 1996.
. Expanding Franchise Operations. The Company will continue to utilize
capital to increase franchise sales by (i) advertising in national and
regional publications and business magazines, and (ii) possibly hiring
additional sales personnel. The Company hopes to increase its franchise
sales by opening Company-owned flagship stores in markets that would
generate interest for experienced multi-store developers to enter into
area development agreements.
. Making Acquisitions. The Company intends to acquire other bagel stores or
complementary types of retail outlets which provide entry into new
markets.
Although these actions will require significant costs and expenditures, the
Company anticipates, based on current plans and assumptions relating to its
operations, that the proceeds that it received from the Offering, together with
existing resources and cash generated from operations, if any, will enable the
Company to accomplish its immediate goals of increasing product sales and
expanding franchise operations, although there can be no assurance of this.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule (6/30/96).
(b) Reports on Form 8-K.
None
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Big City Bagels, Inc.
(Registrant)
Dated: August 9, 1996 By: /s/ Mark Weinreb
----------------------------------------
Mark Weinreb, Chairman, and Chief Executive
Officer and Chief Financial Officer (and
principal accounting officer)
-12-
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
27 Financial Data 14
Schedule (6/30/96)
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,944,322
<SECURITIES> 0
<RECEIVABLES> 80,849
<ALLOWANCES> 0
<INVENTORY> 54,889
<CURRENT-ASSETS> 3,147,016
<PP&E> 1,152,468
<DEPRECIATION> 229,403
<TOTAL-ASSETS> 4,419,041
<CURRENT-LIABILITIES> 616,194
<BONDS> 0
<COMMON> 4,809
0
0
<OTHER-SE> 3,724,531
<TOTAL-LIABILITY-AND-EQUITY> 4,419,041
<SALES> 879,338
<TOTAL-REVENUES> 1,116,983
<CGS> 384,988
<TOTAL-COSTS> 2,433,687
<OTHER-EXPENSES> 2,009,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,408
<INCOME-PRETAX> (1,316,704)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,316,704)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
