BIG CITY BAGELS INC, SB-2/A, 1997-07-08

BIG CITY BAGELS INC
SB-2/A, 1997-07-08
EATING PLACES

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<PAGE>

As filed with the Securities and Exchange Commission on July 8, 1997

Registration No. 333-29297
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

BIG CITY BAGELS, INC.
(Name of small business issuer in its charter)

NEW YORK 5461 11-3137508
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)

99 WOODBURY ROAD
HICKSVILLE, NEW YORK 11801
(516) 932-5050 (PHONE)
(516) 932-5056 (TELECOPY)
(Address and telephone number of principal executive offices)

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

99 WOODBURY ROAD
HICKSVILLE, NEW YORK 11801
(Address of principal place of business or intended principal place of business)

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

MARK WEINREB, CHAIRMAN OF THE BOARD
BIG CITY BAGELS, INC.
99 WOODBURY ROAD
HICKSVILLE, NEW YORK 11801
(516) 932-5050 (PHONE)
(516) 932-5056 (TELECOPY)
(Name, address and telephone number of agent for service)

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

COPIES TO:
DAVID ALAN MILLER, ESQ.
PETER M. ZIEMBA, ESQ.
GRAUBARD MOLLEN & MILLER
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 818-8800 (PHONE)
(212) 818-8881 (TELECOPY)

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

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this registration statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]_______

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]_______

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box: [X]

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

<PAGE>

CALCULATION OF REGISTRATION FEE

====================================================================================================================
PROPOSED PROPOSED
AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(4) PER SECURITY OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock issuable upon exercise of
Class A Warrants.............................. 2,406,250 $2.50(1) $6,015,625.00 $1,822.92
- --------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Class B Warrants.............................. 250,000 $2.50(2) $ 625,000.00 $ 189.39
- --------------------------------------------------------------------------------------------------------------------
Class A Warrants issuable upon exercise
of outstanding Class A Warrants and
Class B Warrants and Class A Warrants
reserved for issuance......................... 2,406,250 $0 $0 $0(3)
- --------------------------------------------------------------------------------------------------------------------
TOTAL................................................................. $6,640,625.00 $2,012.31
Amount Previously Paid....................................................................... $1,927.08
Amount Paid Herewith......................................................................... $ 85.23

====================================================================================================================
</TABLE>

(1) Represents the exercise price of the Class A Warrants.

(2) Represents the exercise price of the Class B Warrants.

(3) The new Class A Warrants issuable upon exercise of the outstanding Class
A Warrants and Class B Warrants will be issued without any consideration
paid above the $2.50 cash exercise price of the outstanding Class A
Warrants and Class B Warrants. Accordingly, under Rule 457 no
registration fee is due.

(4) An additional 1,793,750 shares of Common Stock underlying Class A
Warrants and 250,000 shares of Common Stock underlying Class B Warrants,
and an additional 112,500 shares of Common Stock and 112,500 Class A
Warrants (and 112,500 shares of Common Stock underlying such Class A
Warrants) issuable upon exercise of an option granted to the underwriter
of the Company's initial public offering to purchase 112,500 units, each
consisting of one share of Common Stock and one Class A Warrant, have
been registered under a Registration Statement on Form SB-2 (No.
333-2154) which was declared effective by the Securities and Exchange
Commission on May 7, 1996 and which is being amended by the filing of
this Registration Statement pursuant to Rule 429. Accordingly, both
registration statements use the prospectus which constitutes a part of
this Registration Statement.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.

PRELIMINARY PROSPECTUS DATED JULY 8, 1997

SUBJECT TO COMPLETION
BIG CITY BAGELS, INC.

1,793,750 SHARES OF COMMON STOCK UNDERLYING CLASS A REDEEMABLE COMMON STOCK
PURCHASE WARRANTS

2,293,750 NEW CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS

2,293,750 SHARES OF COMMON STOCK UNDERLYING NEW CLASS A REDEEMABLE COMMON STOCK
PURCHASE WARRANTS

500,000 SHARES OF COMMON STOCK UNDERLYING CLASS B REDEEMABLE COMMON STOCK
PURCHASE WARRANTS

This Prospectus relates to 1,793,750 shares of common stock, par value
$.001 per share ("Common Stock"), of Big City Bagels, Inc. ("Big City Bagels" or
the "Company") issuable upon exercise of Class A Redeemable Common Stock
Purchase Warrants ("Class A Warrants"). Each Class A Warrant currently entitles
the registered holder thereof to purchase one share of Common Stock for $4.50
until May 6, 2000. The Company may redeem the Class A Warrants with the prior
consent of Monroe Parker Securities, Inc. ("Underwriter"), the underwriter of
the Company's initial public offering in May 1996 ("Public Offering"), at a
price of $.05 per Class A Warrant at any time after they become exercisable upon
not less than 30 days' prior written notice if the last sale price of the Common
Stock has been at least $7.00 per share on 20 consecutive trading days ending
within ten days prior to the date on which notice of redemption is given. The
Company may redeem the Class A Warrants without the consent of the Underwriter
on the same terms, provided that the last sale price of the Common Stock has
been at least $8.00 per share on 20 consecutive trading days ending within ten
days prior to the date on which notice of redemption is given.

This Prospectus also relates to 500,000 shares of Common Stock issuable
upon exercise of Class B Redeemable Common Stock Purchase Warrants ("Class B
Warrants"). Two Class B Warrants, together, currently entitle the holder thereof
to purchase one share of Common Stock for $8.00 until May 6, 2000. The Company
may redeem the Class B Warrants, with the Underwriter's prior consent, at a
price of $.05 per Class B Warrant at any time after they become exercisable upon
not less than 30 days' prior written notice if the last sale price of the Common
Stock has been at least $12.00 per share on 20 consecutive trading days ending
within ten days prior to the date on which notice of redemption is given.

Effective July 11, 1997, the Company will reduce the exercise price of
the Class A Warrants to $2.50 per share for a period of 60 days until September
8, 1997, subject to the discretion of the Company to extend for up to an
additional 30 days ("Special Exercise Period"). Accordingly, if exercised prior
to the expiration of the Special Exercise Period, each Class A Warrant will
entitle the holder to purchase one share of Common Stock for $2.50. In addition,
for each Class A Warrant exercised, the holder thereof will be issued a new
Class A Warrant to purchase one share of Common Stock ("New Class A Warrants")
upon the expiration of the Special Exercise Period. If an aggregate of at least
$2,000,000 of gross proceeds are derived from the exercise of the Class A
Warrants during the Special Exercise Period, then (i) the exercise price of the
Class A Warrants which are not exercised and the New Class A Warrants will
remain at $2.50 per share until the expiration date of such warrants and (ii)
the period of time during which the four executive officers of the Company will
not sell their shares of Common Stock without the consent of the Underwriter
will be extended from May 7, 1998 to December 31, 1998. If less than $2,000,000
of gross proceeds are derived from exercise of the Class A Warrants during the
Special Exercise Period, the exercise price of the Class A Warrants which are
not exercised and the New Class A Warrants will be $4.50 per share. The Class A
Warrants may be exercised during the Special Exercise Period upon surrender of
the certificate(s) evidencing the Class A Warrants at the offices of Continental
Stock Transfer & Trust Company ("Warrant Agent") with the exercise form on the
reverse side of the Class A Warrant Certificate completed and duly executed as
indicated thereon, accompanied by full payment of the exercise price of $2.50
per share in cash or by certified or official bank check. The Underwriter has
waived its 4% warrant solicitation fee with respect to any Class A Warrants
exercised during the Special Exercise Period. See "Description of Securities --
Class A Warrants."

During the Special Exercise Period, the Company also will reduce the
exercise price of the Class B Warrants to $2.50 per share and will not require
two Class B Warrants to be exercised in tandem to receive one share of Common
Stock. Accordingly, if exercised prior to the Termination Date, each Class B
Warrant will entitle the holder to purchase one share of Common Stock for $2.50.
In addition, for each Class B Warrant exercised, the holder thereof will be
issued a New Class A Warrant to purchase one share of Common Stock upon the
expiration of the Special Exercise Period. After the Termination Date, two Class
B Warrants, together, will entitle the holder thereof to purchase one share of
Common Stock at the original exercise price of $8.00. The Class B Warrants may
be exercised during the Special Exercise Period upon surrender of the
certificate(s) evidencing the Class B Warrants at the offices of the Company
with the exercise form on the reverse side of the Class B Warrant Certificate
completed and duly executed as indicated thereon, accompanied by fully payment
of the exercise price of $2.50 per share in cash or by certified or official
bank check. See "Description of Securities -- Class B Warrants."

This Prospectus also relates to 112,500 shares of Common Stock and
112,500 Class A Warrants comprising 112,500 units issuable upon exercise of
options ("Unit Purchase Options") sold for a nominal fee to designees of the
Underwriter in connection with the Public Offering, as well as the 112,500 New
Class A Warrants issuable upon exercise of the Class A Warrants comprising the
units and the 112,500 shares of Common Stock underlying such New Class A
Warrants. Each Unit Purchase Option entitles the holder thereof to purchase a
unit consisting of one share of Common Stock and one Class A Warrant for $4.80
until May 6, 2001. See "Description of Securities -- Unit Purchase Options."

The Common Stock and Class A Warrants are quoted on the Nasdaq SmallCap
Market under the symbols BIGC and BIGCW, respectively. On July 7, 1997, the
last sale price of the Common Stock and Class A Warrants were $3-7/8 and $4-3/4,
respectively.

<PAGE>

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

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 7
AND "DILUTION" AT PAGE 13.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO PROCEEDS TO
PUBLIC COMPANY(1)
<S> <C> <C>
Shares of Common Stock Underlying Class A Warrants
(excluding the New Class A Warrants)......................... $2.50 $4,484,375.00
Shares of Common Stock Underlying Class B Warrants............. $2.50 $1,250,000.00
Total................................................................................. $5,734,375.00
</TABLE>

(1) Before deducting expenses payable by the Company, estimated at $130,000.

The date of this Prospectus is , 1997.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including notes thereto) appearing elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
Certain statements contained in the Prospectus Summary and elsewhere in this
Prospectus regarding matters that are not historical facts, such as statements
regarding growth trends in the bagel industry and the Company's growth strategy
and expansion plans, are forward-looking statements (as such term is defined in
the Securities Act). Since such forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed herein under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as those discussed elsewhere in
this Prospectus.

Unless otherwise indicated, the information in this Prospectus does not
give effect to the exercise of the Unit Purchase Options and does not include
335,000 shares of Common Stock reserved for issuance upon the exercise of
options granted or to be granted under the Company's 1996 Performance Equity
Plan (the "1996 Plan"). See "Management -- 1996 Performance Equity Plan."

THE COMPANY

Big City Bagels operates and franchises upscale bagel bakery cafes
under the Company's registered trademark "Big City Bagels'r'." These stores sell
a wide variety of oversized, fresh baked bagels, including unique specialty
bagels, and cream cheese spreads, muffins and other bakery products for take-out
and eat-in consumption. Big City Bagels stores also sell salads, sandwiches,
specialty coffees and other beverages. The Company owns six stores, which are
located in California, Arizona and Utah. The Company also sells Big City Bagels
franchises. Currently, there are nine franchises open and operating in
California, Idaho and Minnesota. As of the date of this Prospectus, the Company
has sold franchises to open an additional 32 stores, which are in various stages
of development. The Company also sells its products wholesale to commercial
accounts and food service operators.

The Company seeks to ensure a high quality, consistent product by
controlling the preparation and distribution of its bagel dough. This control is
maintained by establishing regional commissaries in which bagel dough and other
products are prepared and then delivered to surrounding Company-owned stores and
franchises. The Company's bagels are then baked daily in accordance with the
Company's quality control guidelines using a traditional technique which
requires the bagels to be boiled and then baked. The Company currently owns and
operates a commissary located in Costa Mesa, California, which services most
existing Big City Bagels stores. The Company also has assisted one of its
franchisees, who entered into an area development agreement with the Company to
open 12 stores in the Minneapolis/St. Paul, Minnesota area, in establishing a
commissary owned and operated by such franchisee in Minneapolis to service these
stores. This commissary is required to adhere to the Company's strict quality
control guidelines.

The Company's objective is to become a leading national bagel store
chain. The Company intends to achieve this objective by: (i) expanding its
franchise operations; (ii) increasing the number of Company-owned stores by
opening additional stores and acquiring existing bagel stores or chains; and
(iii) increasing revenues from sales to commercial and wholesale accounts. With
respect to its franchise operations, the Company believes that its consistent
product quality, visually-appealing, upscale store design and well-organized
business operations will enable the Company to attract experienced, multi-unit
franchisees to operate its stores. In order to attract potential franchisees,
the Company plans to open Company-owned flagship stores in strategic geographic
locations around the country. Such franchises would be serviced by regional
commissaries, which the Company plans to use as additional stores are opened.
The Company also intends to expand by acquiring existing bagel stores or chains
and possibly other retail enterprises that the Company believes will enhance its
operations. In determining whether to make an acquisition, the Company will
consider, among other things, the size, location and existing operations of the
acquisition candidate, as well as such candidate's potential to maximize growth
and increase revenues. Although

<PAGE>

the Company regularly evaluates possible acquisition opportunities, as of the
date of this Prospectus, the Company is not a party to any agreements or
commitments with respect to any acquisition.

The Company was incorporated in New York on December 14, 1992. Its
principal executive offices are located at 99 Woodbury Road, Hicksville, New
York 11801 and its telephone number is (516) 932-5050.

THE OFFERING

<TABLE>

<S> <C>
Securities Offered.............. 1,793,750 shares of Common Stock issuable upon
exercise of Class A Warrants at a price of $2.50 per
share during the Special Exercise Period and
thereafter at a price of either $2.50 per share or
$4.50 per share, depending on the amount of gross
proceeds derived from the exercise of the Class A
Warrants during the Special Exercise Period. For
each Class A Warrant exercised, the holder thereof
will be issued a New Class A Warrant to purchase
one share of Common Stock. If an aggregate of at
least $2,000,000 of gross proceeds are derived from
the exercise of the Class A Warrants during the
Special Exercise Period, then (i) the exercise price
of the Class A Warrants which are not exercised
and the New Class A Warrants will remain at $2.50
per share until the expiration date of such warrants
and (ii) the period of time during which the four
executive officers of the Company will not sell their
shares of Common Stock without the consent of the
Underwriter will be extended from May 7, 1998 to
December 31, 1998. If less than $2,000,000 of
gross proceeds are derived from exercise of the
Class A Warrants during the Special Exercise
Period, the exercise of the Class A Warrants which
are not exercised and the New Class A Warrants
will be $4.50 per share.

2,293,750 shares of Common Stock issuable upon exercise
of the New Class A Warrants at a price of either $2.50
per share or $4.50 per share, depending upon whether
the amount of gross proceeds derived from the exercise
of the Class A Warrants during the Special Exercise
Period aggregates at least $2,000,000.

500,000 shares of Common Stock issuable upon exercise
of Class B Warrants at a price of $2.50 per share
during the Special Exercise Period and, thereafter,
250,000 shares of Common Stock issuable upon exercise
of Class B Warrants at a price of $8.00 per share. For
each Class B Warrant exercised, the holder thereof will
be issued a New Class A Warrant to purchase one share
of Common Stock.

112,500 shares of Common Stock and 112,500 Class A
Warrants comprising the units issuable upon exercise of
the Unit Purchase Options for $4.80 per unit, as well as
the 112,500 New Class A Warrants issuable upon exercise
of the Class A Warrants comprising the units.

See "Description of Securities"
</TABLE>

<PAGE>

<TABLE>

<S> <C> <C>
Nasdaq SmallCap Symbols........... Common Stock: BIGC
Class A Warrants: BIGCW
Common Stock Outstanding
Prior to the Offering.......... 4,932,021 shares
Common Stock to be Outstanding
After the Offering.............. 7,225,771 shares(1)

Use of Proceeds................... Assuming all of the outstanding Class A Warrants and Class B
Warrants are exercised at a per share price of $2.50,
the Company will receive up to an aggregate of
$5,604,375 in net proceeds. All proceeds received by
the Company, if any, will be used for working capital
and general corporate purposes, and for possible
acquisitions of businesses complementary to the
Company's operations. See "Use of Proceeds."

Risk Factors.......................The securities offered hereby are speculative and
involve a high degree of risk and immediate substantial
dilution and should not be purchased by investors who
cannot afford the loss of their entire investment. See
"Risk Factors" at page 7 and "Dilution" at page 13.
</TABLE>

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

(1) Assumes the exercise of all of the outstanding Class A Warrants and Class B
Warrants. Does not include 2,293,750 shares of Common Stock issuable upon
exercise of the New Class A Warrants.

<PAGE>

SUMMARY FINANCIAL INFORMATION

The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------------- --------------------------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................. $1,550,255 $2,414,976 $ 564,924 $ 667,691
Total costs and expenses....................... 2,377,104 4,952,427 1,197,567 1,470,297
Net (loss)..................................... (826,849) (2,537,451) (632,643) (802,606)
Net (loss) per common share.................... (.28) (.61) (.21) (.16)
Weighted average common shares
outstanding.................................. 3,000,000 4,174,061 3,000,000 4,929,175
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(1)
------ -----------
<S> <C> <C>
Total assets........................................................ $3,006,697 $8,611,072
Working capital..................................................... 394,200 5,998,575
Total liabilities................................................... 1,114,939 1,114,939
Accumulated deficit................................................. (2,431,610) (2,431,610)
Total stockholders' equity.......................................... 1,891,758 7,496,133
</TABLE>

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

(1) Gives effect to and assumes the exercise of all of the outstanding Class A
Warrants and Class B Warrants at an exercise price of $2.50 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

<PAGE>

RISK FACTORS

The securities offered hereby are speculative and involve a high degree
of risk. Accordingly, in analyzing an investment in these securities,
prospective investors should carefully consider, along with other matters
referred to herein, the following risk factors.

Limited Revenues and Significant and Continuing Losses. Since inception
in December 1992, the Company has generated limited revenues and has incurred
significant losses, including net losses of $826,849 and $2,537,451,
respectively, for the years ended December 31, 1995 and 1996. The increase in
net losses from 1995 to 1996 was primarily due to the amortization expense
relating to the $1,000,000 bridge financing ("Bridge Financing") consummated by
the Company in January 1996, and increases in employee salaries, interest,
advertising, professional fees, insurance, travel, storage and distribution
expenses. In addition, the Company incurred a net loss of $802,606 for the three
months ended March 31, 1997, compared to a net loss of $632,643 for the three
months ended March 31, 1996. The increase in net losses during the three months
ended March 31, 1997 compared to the three months ended March 31, 1996 was
primarily due to increases in officers and operating salaries, rent,
advertising, insurance, professional fees, delivery and depreciation expenses.
Losses are expected to continue at least through 1997. Inasmuch as the Company
will continue to have a high level of operating expenses and will be required to
make significant up-front expenditures in connection with its proposed expansion
(including salaries of executive, marketing and other personnel), the Company
anticipates that losses will continue until such time, if ever, as the Company
is able to generate sufficient revenues to finance its operations and the costs
of continuing expansion. There can be no assurance that the Company will be able
to generate significant revenues or achieve profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.

Possible Need for Additional Financing. The Company is dependent on the
proceeds of this Offering to finance its plans for expansion and to continue its
operations beyond this fiscal year. The Company anticipates, based on currently
proposed plans and assumptions relating to its operations and proposed
expansion, that the proceeds of this Offering, together with projected cash flow
from operations, will be sufficient to satisfy its anticipated cash requirements
through the end of 1998. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate or the proceeds of this Offering or
cash flow prove to be insufficient to fund the Company's plans for expansion
(due to unanticipated expenses, delays, problems, difficulties or otherwise),
the Company may need to seek additional financing. There can be no assurance
that additional financing will be available to the Company on commercially
reasonable terms, or at all. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Dependence on Franchisees. The Company realizes a substantial portion
of its revenues from sales of bagel dough to franchisees, initial franchise and
area development fees and continuing royalty payments from its franchisees. The
Company is therefore substantially dependent upon its ability to attract, retain
and contract with suitable franchisees and the ability of franchisees to
successfully open and operate their franchises. Should the Company experience
difficulty in attracting suitable franchisees, or the franchisees encounter
business or operational difficulties, the Company's revenues will be materially
adversely affected. Such reduction in revenues also may negatively impact the
Company's ability to sell new franchises. Consequently, the Company's financial
prospects are directly related to the success of its franchisees in promoting
the Big City Bagels concept and the success of each store, over which the
Company has no direct control. There can be no assurance that the Company will
be able to successfully develop new franchises or that the Company's franchisees
will be able to successfully develop and operate stores. See "Business --
Franchising."

Uncertainty of Expansion. Currently, 15 Big City Bagels stores are open
and operating. In addition, the Company has sold franchises for an additional 32
stores. The opening and success of Big City Bagels stores depends on various
factors, including customer acceptance of the Big City Bagels store concept in
new markets, the availability of suitable sites, the negotiation of acceptable
lease terms for new locations, the receipt of necessary permits and regulatory
compliance, the ability to meet construction schedules, the financial and other
capabilities of the Company and its franchisees, the ability of the Company to
successfully manage this anticipated expansion and to hire and train personnel,
and general economic and business conditions. Not all of the foregoing factors
are within the control of the Company or its franchisees. See "Business --
Strategy."

<PAGE>

The Company's plans for expansion include acquiring existing bagel
stores or chains and possibly other retail enterprises that the Company believes
will complement its operations. No assurance can be given that the Company will
be able to evaluate successfully the advisability of any particular acquisition
or that it will successfully integrate, convert, or operate any acquired
business. These acquisitions may not be subject to approval or review by the
Company's shareholders. The Company's expansion also will require the
implementation of enhanced operational and financial systems as well as
additional management, operational and financial resources. Failure to implement
these systems and add these resources could have a material adverse effect on
the Company's results of operations and financial condition. There can be no
assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its growth. See
"Business -- Strategy."

Food Service Industry. Food service businesses often are affected by
changes in consumer tastes, national, regional and local economic conditions,
demographic trends, traffic patterns and the type, number and location of
competing businesses. Multi-unit food service chains such as the Company also
can be materially adversely affected by publicity resulting from poor food
quality, illness, injury or other health concerns or operating issues stemming
from one store or a limited number of stores. In addition, factors such as
inflation, increased food, labor and employee benefit costs, regional weather
conditions and the unavailability of experienced management and hourly employees
also may materially adversely affect the food service industry in general, and
the Company's results of operations and financial condition in particular. See
"Business."

Competition. The food service industry, in general, and the take-out
sector, in particular, are intensely competitive. The Company competes, and can
be expected to compete, against well-established food service companies with
greater product and name recognition and larger financial, marketing and
distribution capabilities than those of the Company, as well as innumerable
local food establishments that offer similar products. In addition, the Company
believes that the start-up costs associated with opening a retail food
establishment offering products similar to those offered by the Company, on a
stand-alone basis, are competitive with the start-up costs associated with
opening a Big City Bagels store and accordingly, are not an impediment to entry
of competitors into the retail bagel business. There can be no assurance that
the Company can compete successfully in this complex market. See "Business --
Competition."

Government Regulation. The Company's franchise operations are subject
to regulation by the Federal Trade Commission (the "FTC") in compliance with the
FTC's rule entitled Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures, which requires, among other
things, that the Company prepare and update periodically a comprehensive
disclosure document in connection with the sale and operation of its franchises.
The Company and its franchisees also must comply with state franchising laws and
a wide range of other state and local rules and regulations applicable to their
business. Continued compliance with this broad federal, state and local
regulatory network is essential and costly and the failure to comply with such
regulations may have an adverse effect on the Company and its franchisees.
Violations of franchising laws and/or state laws and regulations regulating
substantive aspects of doing business in a particular state could subject the
Company and its affiliates to rescission offers, monetary damages, penalties,
imprisonment and/or injunctive proceedings. In addition, under court decisions
in certain states, absolute vicarious liability may be imposed upon franchisors
based upon claims made against franchisees. Even if the Company is able to
obtain coverage for such claims, there can be no assurance that such insurance
will be sufficient to cover potential claims against the Company. See "Business
- -- Government Regulation."

Raw Material Cost Fluctuations; Dependence on Suppliers. As the Company
expands its Company-owned store operations, the Company's operating results and
financial condition may be materially adversely affected by fluctuations in the
cost of flour, its primary raw material. Such costs are determined by constantly
changing market forces over which the Company has no control. The Company has no
long-term contracts with any of its suppliers. The loss of any of its suppliers
could materially adversely affect the Company's business until alternative
arrangements were secured. Although the Company believes that arrangements
similar to those which the Company currently has with its suppliers could be
secured with other suppliers, there can be no assurance of this. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<PAGE>

Dependence on Key Personnel. The Company's operations are dependent on
the efforts of Mark Weinreb, its Chairman of the Board and Chief Executive
Officer, and Jerry Rosner, its President. Although the Company has entered into
employment agreements with each of Messrs. Weinreb and Rosner with terms
expiring on December 31, 1998, the loss of the services of these officers could
have a material adverse effect on the Company, and there is no assurance that a
suitable replacement could be found in the event of the death, disability or
resignation of either of Messrs. Weinreb or Rosner. The Company has obtained
key-person life insurance on the lives of Messrs. Weinreb and Rosner in the
amount of $2 million each.

Continuing Control by Management. Messrs. Mark Weinreb, Jerry Rosner,
Stanley Raphael and Stanley Weinreb, each of whom is also a director of the
Company, currently beneficially own, in the aggregate, approximately 58.2% of
the Company's outstanding Common Stock. Assuming all of the outstanding Class A
Warrants and Class B Warrants are exercised, these individuals will beneficially
own, in the aggregate, 39.9% of the Company's Common Stock. In addition, these
persons are parties to a shareholder agreement, pursuant to which each of them
has agreed to vote his shares for the election of each of the others as a
director of the Company as long as each such other person owns at least 100,000
shares of Common Stock. Accordingly, such shareholders, acting together, will be
in a position to effectively control the Company, including the election of all
of the directors of the Company. See "Management" and "Principal Shareholders."

Broad Discretion in Application of Proceeds by Management; Potential
Use of Portion of Net Proceeds for Unspecified Acquisitions. All of the
estimated net proceeds from the exercise of the Class A Warrants and Class B
Warrants has been allocated to working capital and general corporate purposes,
including the costs of possible acquisitions of businesses complementary to the
Company's operations. Accordingly, the Company's management will have broad
discretion as to the application of such proceeds. Although the Company has no
agreements or commitments with respect to any acquisition, should an acquisition
opportunity be identified by the Company, the Board of Directors will have the
ability to approve such acquisition without seeking the approval of the
shareholders of the Company. See "Use of Proceeds."

Immediate and Substantial Dilution. This Offering involves an immediate
and substantial dilution of $1.50 (60%) per share between the net tangible book
value per share after the Offering and the reduced warrant exercise price of
$2.50, assuming the exercise of all outstanding Class A Warrants and Class B
Warrants. If less than all of the Class A Warrants and Class B Warrants are
exercised, the dilution will be greater. See "Dilution."

No Dividends. The Company never has paid dividends on its Common Stock.
The Company intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."

Shares Eligible for Future Sale. Substantially all of the 4,932,021
currently outstanding shares of Common Stock have been or will be registered for
sale under the Securities Act or are eligible for sale under an exemption
therefrom, including the exemption provided by Rule 144 under the Securities
Act. Holders of 2,818,750 of such shares of Common Stock have agreed not to sell
any of their shares without the prior consent of the Underwriter until May 7,
1998 (November 7, 1997 in the event that the closing bid price of the Common
Stock exceeds $12.00 for 20 consecutive trading days). If an aggregate of at
least $2,000,000 of gross proceeds are derived from the exercise of the Class A
Warrants during the Special Exercise Period, the period of time during which the
four executive officers of the Company, who directly or indirectly hold
2,855,456 shares of Common Stock, will not sell their shares of Common Stock
without the consent of the Underwriter will be extended from May 7, 1998 to
December 31, 1998. The Company is unable to predict the effect that sales made
under Rule 144 or otherwise may have on the market price of the Common Stock.
However, the possibility that substantial amounts of Common Stock may be sold in
the public market may have a material adverse effect on the market prices for
the Common Stock. Additionally, as of the date of this Prospectus, the Company
has reserved an aggregate of 2,600,750 shares of Common Stock for issuance upon
exercise of the outstanding Class A Warrants, Class B Warrants, Unit Purchase
Options and other options and up to 2,406,250 shares of Common Stock will be
issuable upon exercise of New Class A Warrants that may be issued under this
Prospectus. Sale of substantially all of the shares of Common Stock underlying
such securities has been registered under the Securities Act. To the extent that
the Class A Warrants, Class B Warrants and outstanding options are exercised,
dilution of the percentage ownership of the Company's shareholders will occur,
and any sales in the public market of the Common Stock underlying the Class A
Warrants, Class B Warrants or outstanding options

<PAGE>

may materially adversely affect the prevailing market price for the Common
Stock. See "Shares Eligible for Future Sale."

Possible Volatility of Market Prices. The trading prices of the Common
Stock and Class A Warrants could be subject to wide fluctuations in response to
quarterly variations in operating results, failure to meet expectations of, or a
change in recommendations by, securities analysts, announcements of new products
by the Company or its competitors, government policy changes and other events or
factors including factors outside the Company's control. Recent history relating
to the market price of newly public companies indicates that the market price of
the Common Stock and the Class A Warrants may be highly volatile following this
Offering. See "Shares Eligible for Future Sale."

Current Prospectus and State Securities Law Qualification Required to
Exercise Warrants. The Company will be able to issue shares of its Common Stock
upon exercise of the Warrants only if there is then a current prospectus
relating to such Common Stock and only if such Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of the Warrants reside. The Company
has undertaken and intends to file and keep current a prospectus which will
permit the purchase and sale of the Common Stock underlying the Warrants at such
times as the market price exceeds the exercise price, but there can be no
assurance that the Company will be able to do so. Although the Company intends
to qualify for sale the shares of Common Stock underlying the Class A Warrants,
Class B Warrants and New Class A Warrants in most of those states in which the
securities sold in the Company's Public Offering were offered, no assurance can
be given that such qualification will occur. The Warrants may be deprived of any
value and the market for the Warrants may be limited if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if the Warrants cannot be exercised by holders because such Common
Stock is not qualified or exempt from qualification in the jurisdictions in
which the holders of the Warrants then reside. See "Description of Securities."

Potential Adverse Effect of Redemption of Warrants. The Class A
Warrants and Class B Warrants may be redeemed by the Company, with the consent
of the Underwriter, at a price of $.05 per Warrant at any time after they become
exercisable upon not less than 30 days' prior written notice if the last sale
price of the Common Stock has been at least $7.00 per share (solely with respect
to redemption of the Class A Warrants) or $12.00 per share (solely with respect
to redemption of the Class B Warrants) on 20 consecutive trading days ending
within ten days prior to the date on which notice of redemption is given. The
Company also may redeem the Class A Warrants without the consent of the
Underwriter on the same terms, provided that the last sale price of the Common
Stock has been at least $8.00 per share on 20 consecutive trading days ending
within ten days prior to the date on which notice of redemption is given.
Redemption of the Warrants could force the holders to exercise the Warrants and
pay the exercise price at a time when it may be disadvantageous for the holders
to do so, to sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities -- Class A Warrants and Class
B Warrants."

Possible Delisting of Securities from Nasdaq System. The Company's
Common Stock and Class A Warrants are listed on the Nasdaq SmallCap Market
("Nasdaq"). On November 6, 1996, the Board of Directors of The Nasdaq Stock
Market, Inc. approved changes to the maintenance requirements that companies
listed on Nasdaq (such as the Company) must meet in order to have their
securities listed on Nasdaq. The failure to meet these maintenance criteria in
the future may result in the delisting of the Company's securities from Nasdaq
and trading, if any, in the Company's securities would thereafter be conducted
on the OTC Bulletin Board. As a result of such delisting, an investor may find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's securities. In addition, if the Common Stock was
to become delisted from trading on Nasdaq and the trading price of the Common
Stock was to fall below $5.00 per share, trading in the Common Stock would also
be subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and

<PAGE>

accredited investors (generally institutions). For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. The additional burdens imposed upon broker-dealers by such
requirements may discourage them from effecting transactions in the Company's
securities, which could severely limit the liquidity of the Company's securities
and the ability of purchasers in this Offering to sell such securities in the
secondary market.

Potential Adverse Effect of Issuance of Preferred Stock Without
Shareholder Approval; Restriction on Issuance of Capital Stock. The Company's
Restated Certificate of Incorporation authorizes the issuance of 1,000,000
shares of Preferred Stock with such rights, preferences and designations as may
be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Common Stock and, in certain circumstances, depress the market price of the
securities offered hereby. In the event of issuance, the Preferred Stock could
be utilized under certain circumstances as a method of discouraging, delaying or
preventing a change in control of the Company. Although the Company has no
present intention of issuing shares of Preferred Stock, there can be no
assurance that the Company will not issue shares of Preferred Stock in the
future. The Company has agreed not to issue any of its shares of capital stock
until May 7, 1998 (November 7, 1997 in the event that prior thereto the closing
bid price of the Company's Common Stock exceeds $12.00 for 20 consecutive
trading days) without the prior written consent of the Underwriter, which
consent may not be unreasonably withheld. See "Description of the Securities --
Preferred Stock."

<PAGE>

USE OF PROCEEDS

Assuming that all of the outstanding Class A Warrants and Class B
Warrants are exercised at a per share price of $2.50, the Company will receive
up to an aggregate of $5,604,375 in net proceeds. The Company will also receive
the proceeds from any exercise of the Unit Purchase Options and the Class A
Warrants included in the units issuable upon exercise of the Unit Purchase
Options. However, there can be no assurance that all or any of the Class A
Warrants, Class B Warrants or Unit Purchase Options will be exercised, and
accordingly, there can be no assurance that the Company will receive any
proceeds from their exercise. All proceeds received by the Company, if any,
will be used for working capital and general corporate purposes, and for
possible acquisitions of businesses complementary to the Company's operations.
Currently, the Company has no agreements or commitments with respect to any such
acquisition. Management will have significant discretion regarding how and when
such proceeds will be applied.

PRICE RANGE OF SECURITIES

Prior to the Company's initial public offering, there was no
established trading market for the Company's securities. On May 7, 1996, the
Company's Common Stock and Class A Warrants commenced quotation on Nasdaq under
the symbols "BIGC" and "BIGCW," respectively. The following table sets forth the
high and low bid prices for the Common Stock and Class A Warrants as reported by
Nasdaq for the periods indicated. The prices represent inter-dealer quotations,
which do not include retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.

<TABLE>
<CAPTION>
Period Common Stock Class A Warrants
- ------------------- -------------------------- ----------------------
1996 High Low High Low
- ---- ---- --- ---- ---
<S> <C> <C> <C> <C>
Second Quarter (from May 7, 1996).............. $ 9-5/8 $7-1/2 $5 $2-1/2
Third Quarter.................................. 10-1/2 7 4-1/4 2-3/4
Fourth Quarter................................. 7-3/8 2-1/2 3-1/2 1
1997

First Quarter.................................. 5-1/8 2-5/8 4-5/8 1
Second Quarter ................................ 5-7/8 4-1/4 5 3-1/8
</TABLE>

On July 7, 1997, the last sale prices for the Common Stock and
Warrants as reported by Nasdaq were $3-7/8 and $4-3/4 respectively.

As of July 7, 1997, there were 33 and 5 holders of record of the
Company's Common Stock and Class A Warrants, respectively. The Company believes
that there are in excess of 500 beneficial holders of its Common Stock and Class
A Warrants.

<PAGE>

DILUTION

As of March 31, 1997, the net tangible book value of the outstanding
shares of the Company's Common Stock was $1,598,090, or approximately $0.32 per
share. Net tangible book value per share represents the tangible assets of the
Company less all liabilities, divided by the number of shares outstanding.
Dilution represents the difference between the price per share of Common Stock
paid by the warrantholders exercising their Class A Warrants and Class B
Warrants pursuant to this Offering and the net tangible book value per share of
Common Stock after the Offering. After giving effect to the sale of the shares
of Common Stock offered hereby (assuming the exercise of all the outstanding
Class A Warrants and Class B Warrants at a per share price of $2.50), the pro
forma net tangible book value of the Company at March 31, 1997 would have been
$7,202,465, or $1.00 per share. This represents an immediate increase in net
tangible book value of $0.68 per share to existing shareholders and an immediate
dilution of $1.50 per share to warrantholders exercising their Class A Warrants
and Class B Warrants in this Offering. If less than all of the Class A Warrants
and Class B Warrants are exercised, the dilution will be greater. The following
table illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Class A Warrant and Class B Warrant exercise price per share................................... $2.50
Net tangible book value per share before Offering........................ $0.32
Increase per share attributable to sale of Common Stock by Company upon
exercise of Class A Warrants and Class B Warrants............................. 0.68
-----
Pro forma net tangible book value per share after the Offering................................. 1.00
-----
Net tangible book value dilution per share to exercising warrantholders........................ $1.50
=====
</TABLE>

<PAGE>

CAPITALIZATION

The following table sets forth (i) the capitalization of the Company at
March 31, 1997 and (ii) the capitalization of the Company as of such date as
adjusted to give effect to the issuance of 2,293,750 shares of Common Stock
issuable upon exercise of all outstanding Class A Warrants and Class B Warrants
at a per share price of $2.50. This table should be read in conjunction with the
Financial Statements of the Company and the related Notes thereto appearing
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------
ACTUAL AS ADJUSTED
-------- -------------
<S> <C> <C>
Long-term obligations:
Long-term debt, less current portion........... $121,676 $121,676
Stockholders' equity:
Preferred Stock, $.001 par value,
1,000,000 shares authorized; no shares
outstanding.................................. -- --
Common Stock, $.001 par value,
10,000,000 shares authorized (25,000,000
at July 7, 1997); 4,932,021 shares issued
and outstanding, actual; 7,225,771 shares
issued and outstanding, as adjusted.......... 4,932 7,226
Additional paid-in capital..................... 4,348,436 9,950,517
Accumulated deficit............................ (2,431,610) (2,431,610)
Unearned portion of compensatory stock......... (30,000) (30,000)
----------- ------------
Total stockholders' equity................. 1,891,758 7,496,133
---------- ----------
Total capitalization....................... $2,013,434 $7,617,809
=========== ==========
</TABLE>

DIVIDEND POLICY

The Company has never paid any cash dividends on its Common Stock and
it is currently the intention of the Company not to pay cash dividends on its
Common Stock in the foreseeable future. Management intends to reinvest earnings,
if any, in the development and expansion of the Company's business. Any future
declaration of cash dividends will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and financial
portion of the Company, general economic conditions and other pertinent factors.

<PAGE>

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 thereto. 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

THREE MONTH PERIOD ENDED MARCH 31, 1997 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1996

Revenues for the three months ended March 31, 1997, were $667,691, an
18% increase from revenues of $564,924 for the three months ended March 31,
1996. This increase was attributable to gains in the following areas: store and
commissary product sales, royalty income and interest income. Store and
commissary product sales increased $185,940, or approximately 44%, to $606,857
for the three months ended March 31, 1997 from $420,917 for the three months
ended March 31, 1996. This increase was due to the maturing of Company-owned
retail store operations, the acquisition of two new retail stores in the latter
part of 1996, the acquisition of one new retail store in the first quarter of
1997, the growth of the wholesale business and increased commissary sales to
franchise stores. There were no franchise fee revenues for the three months
ended March 31, 1997, as compared with $120,000 of franchise fee revenues for
the three months ended March 31, 1996, because no new franchise stores opened
during this period. Revenue under franchise agreements is generally recognized
when the franchise stores are opened. The Company has unearned franchise fee
income of $329,250 at March 31, 1997, compared to $325,250 at March 31, 1996.
Unearned franchise fee income represents non-refundable franchise fees which
will be recognized as revenue as the related franchise stores are opened.
Royalty income increased by $23,137, or 114%, to $43,354 from $20,217 in 1996.
This was due to the maturing of operations of existing franchise stores and the
commencement of operations of new franchise stores that opened in 1996. Interest
income for the three months ended March 31, 1997 was $17,480, a 361% increase
from the interest income for the three months ended March 31, 1996, resulting
from the cash proceeds of the Company's initial public offering in May 1996,
which were deposited into interest bearing accounts.

During the three months ended March 31, 1997, the Company entered into
one new franchise area development agreement (three stores), none of which
stores were opened by March 31, 1997, as compared to a single store franchise
agreement and a twelve store area development agreement for the three months
ended March 31, 1996.

Cost of sales were $358,656, representing 59% of net sales for the
three months ended March 31, 1997 compared to $205,722 or 49% for the three
months ended March 31, 1996. The increase in cost of sales as a percentage of
sales was primarily attributable to an increase in sales from the commissary to
the franchisees and increased sales from the wholesale business, which generally
represent a lower gross profit percentage. The increase in cost of sales of
$152,934 was primarily due to increased store revenues resulting from the
additional stores acquired, increased wholesale business and increased sales to
franchisees.

Selling, general and administrative expenses (SG&A) were $1,098,673 for
the three months ended March 31, 1997, a 105% increase from $534,810 for the
three months ended March 31, 1996. This increase was primarily a result of: a
$198,520 increase in salaries from $220,112 for the three months ended March 31,
1996 to $418,632 for the three months ended March 31, 1997, due to the hiring of
management and administrative personnel and increases in officers' salaries; and
increases of $31,377 in rent, $34,920 in advertising, $40,161 in insurance, and
$69,676 in professional fees that were mandated by a growing business.

Amortization of debt discount on the promissory notes ("Bridge Notes")
issued in January 1996 in connection with the Company's Bridge Financing for the
three months ended March 31, 1996 was $426,483. There was no amortization of
debt discount on Bridge Notes for the three months ended March 31, 1997.

<PAGE>

Interest expense decreased by $17,584 during the three months ended
March 31, 1997 primarily due to the repayment of the $1,000,000 of Bridge Notes
in May 1996.

The net loss for the three months ended March 31, 1997 was $802,606,
compared to a net loss of $632,643 for the three months ended March 31, 1996.
The primary reasons for the current period loss were primarily due to the
increases in officers and operating salaries, rent, advertising, insurance,
professional fees, delivery, and depreciation expenses.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues for the year ended December 31, 1996 were $2,414,976, compared
to $1,550,255 for the year ended December 31, 1995, a 55.8% increase. This
increase was attributable to gains in the following areas: store and commissary
products sales, franchise fees, royalty income, and interest income. Store and
commissary products sales were $1,888,306 for the year ended December 31, 1996,
compared to $1,486,054 for the year ended December 31, 1995, a 27.1% increase.
This increase was due to the maturing of Company-owned retail operations, the
acquisition of two new retail stores in the latter part of 1996, the growth of
the wholesale business and increased commissary sales to franchise stores which
opened in 1996. Franchise fee income was $309,250 for the year ended December
31, 1996, compared to $40,000 for the year ended December 31, 1995, a 673.1%
increase. Revenue under franchise agreements generally is recognized when the
franchise stores are opened. Eleven stores opened during 1996 (one store left
the franchise system). Royalty income was $126,820 for the year ended December
31, 1996, compared to $22,147 for the year ended December 31, 1995, a 472.6%
increase. This was due to the maturing of operations of existing franchise
stores and the initial operations of new franchise stores that opened in 1996.
Interest income for the year ended December 31, 1996 was $75,634, resulting from
the cash proceeds of the initial public offering, which were deposited into
interest bearing accounts.

The Company had unearned franchise fee income of $263,750 as of
December 31, 1996, compared to $309,250 as of December 31, 1995. Unearned
franchise fee income represents non-refundable franchise fees which will be
recognized as revenue as the related franchise stores are opened. In 1996, the
Company entered into four new franchise agreements and two new area development
agreements (one twelve store agreement and one three store agreement), none of
which stores were opened by December 1996. During 1995, the Company signed three
individual franchise agreements and entered into three area development
agreements (each having three store territories). One of these three store area
development agreements was terminated in 1996.

Cost of sales were $1,029,955, representing 54.5% of net sales for the
year ended December 31, 1996, compared to $667,394 or 44.9% for the year ended
December 31, 1995. The increase in cost of sales as a percentage of sales was
primarily attributable to an increase in sales from the commissary to the
franchisees and increased sales from the wholesale business which generally
represent a lower gross profit percentage. The increase in cost of sales of
$362,561 was primarily due to increased store revenues resulting from the
additional stores acquired, increased wholesale business and increased sales to
franchisees.

Selling, general and administrative expenses (SG&A) were $3,163,820 for
the year ended December 31, 1996, an 88.1% increase from $1,681,892 for the year
ended December 31, 1995. This increase was primarily due to: a $564,177 increase
in salaries from $674,443 in 1995 to $1,238,620 in 1996, resulting from the
hiring of management and administrative level personnel and increases in
officers' salaries; and increases of $172,104 in advertising, $90,761 in
insurance, $209,123 in professional fees and $46,057 in travel expenses that
were mandated by a growing business.

Amortization of debt discount on the Bridge Notes issued in January
1996 in connection with the Bridge Financing for the year ended December 31,
1996 was $683,542. There was no such amortization for the prior year. See
"-- Liquidity and Capital Resources" and Notes to Financial Statements.

Interest expense increased by $47,292 during the year ended December
31, 1996 due to the interest on the $1,000,000 of Bridge Financing, shareholders
loans and capital lease obligations.

<PAGE>

The net loss for the year ended December 31, 1996 was $2,537,451,
compared to a net loss of $826,849 for the year ended December 31, 1995. The
primary reasons for the current year loss were due to the amortization expense
of the Bridge Financing, and increases in officers and operating salaries,
interest, advertising, professional fees, insurance, travel, storage and
distribution expenses.

LIQUIDITY AND CAPITAL RESOURCES

In May 1996, the Company completed its initial public offering, at
which time it received net proceeds of approximately $4,100,000, of which
$1,000,000 was used to repay the Bridge Notes and $375,000 of which was used to
repay a portion of shareholder loans.

Cash and United States Treasury Bills at March 31, 1997 were
$1,112,926, compared to $1,661,026 at December 31, 1996. This decrease was
attributable to the Company funding its operating losses and the Company's
acquisition of one of its franchise stores.

Accounts receivable increased to $115,783 at March 31, 1997, from
$110,063 at December 31, 1996. This increase was primarily due to increases in
commissary sales to franchisees and the Company's wholesale business.

Inventory decreased to $67,841 at March 31, 1997, from $74,272 at
December 31, 1996, due to tighter inventory controls.

Prepaid expenses and other current assets as of March 31, 1997 have not
changed significantly compared to December 31, 1996.

During the three months ended March 31, 1997, the Company borrowed
$225,000 against its investment in United States Treasury Bills, enabling the
Company to maintain its investments until maturity. This debt was repaid in
April 1997.

Shareholders' loans decreased to $63,768 at March 31, 1997 from $87,468
at December 31, 1996. This decrease was attributable to the scheduled repayment
of these loans.

The current portion of capital lease obligations decreased to $48,144
at March 31, 1997 from $51,918 at December 31, 1996 as a result of the Company
making the required payments during this period.

The noncurrent portion of capital lease obligations decreased to
$121,676 at March 31, 1997 from $132,926 at December 31, 1996 as a result of the
Company making the required payments during this period.

The combination of accounts payable and accrued expenses increased to
$310,720 at March 31, 1997 from $268,334 at December 31, 1996. This increase was
primarily due to the growth of the Company.

At March 31, 1997, the Company had $394,200 of working capital and a
current ratio of 1.40 to 1.

The Company's operating activities used net cash of $1,960,103 and
$632,009 during the year ended December 31, 1996 and the three months ended
March 31, 1997, respectively, as compared to net cash used in operations of
$280,646 and $329,004 for the year ended December 31, 1995 and the three months
ended March 31, 1996, respectively. These increases were primarily due to the
increase of the Company's net loss, which was funded from the proceeds of the
Public Offering.

The Company intends to reduce its cash expenses and improve its
liquidity by taking the following actions, as necessary:

Since April 1, 1997, the Company has not made the $12,000 aggregate per
month payments required under the terms of the Shareholder Loans. Mark
Weinreb, Stanley Weinreb and Stanley Raphael have agreed to continue to
forego monthly repayment of the Shareholder Loans until the earlier of
January 1, 1998 or such time as the Company has $750,000 of funds in
bank accounts, money market funds and United States

<PAGE>

Treasury bills ("Liquidity Date"). In addition, until December 31,
1997, each of Mark Weinreb, Stanley Weinreb and Stanley Raphael have
agreed to loan the Company, at an interest rate of 12% per annum, up to
$100,000 if the Company has less than $25,000 of funds in bank
accounts, money market funds and United States Treasury bills. See
"Certain Relationships and Related Transactions."

Commencing July 1, 1997, Mark Weinreb and Jerry Rosner have agreed to
permit the Company to accrue without interest $3,500 of each of their
respective salaries per month until the earlier of January 1, 1998 or
the Liquidity Date. See "Management -- Employment Agreements."

Although the Company has no present need to raise additional capital to
support its existing operations for the balance of this fiscal year, the Company
does believe it will need to obtain financing from outside sources to support
its operations beyond this fiscal year and to support its plans for growth.

The Company anticipates increasing revenues and thereby generating
operating cash flow in the future by implementing the following actions:

Increasing Product Sales. 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 has
centralized its wholesale business activity for its California
Company-owned stores and expects this business to grow due to an
increase in name recognition, product acceptance and additional sales
efforts.

Expanding Franchise Operations. The Company will continue to utilize
capital to increase franchise sales by advertising in national and
regional publications and business magazines. In January 1997, the
Company hired a Vice President of Franchising who is responsible for
expanding franchise operations in the middle and western United States
and for exploring non-traditional franchising relationships. The
Company expects to increase its franchise sales by opening or
acquiring additional 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 completed the acquisition of three
previously franchised stores in Scottsdale and Mesa, Arizona in
October 1996 and in Park City, Utah in February 1997. The Company
intends to acquire other bagel stores or complementary types of retail
outlets which provide entry into new markets.

<PAGE>

BUSINESS

OVERVIEW

INDUSTRY BACKGROUND

The increased demand by American consumers for healthy, appetizing and
economical food products has impacted the consumer food products industry
significantly. The Company believes that American consumers are actively seeking
inexpensive ways to reduce fat intake and improve the nutritional content of
their diets without having to sacrifice flavor. Not only do bagels have a
significantly lower fat content than foods typically purchased for breakfast
take-out such as donuts and pastries, but they are tasty, satisfying and
inexpensive. Accordingly, the Company believes that consumers perceive bagels to
be a healthy alternative and a good value.

The popularity of bagels has increased significantly throughout the
country. Industry surveys indicate that national bagel sales grew to $1.6
billion in 1995, from $429 million in 1993. It is estimated that bagel sales
reached $2.3 billion in 1996. According to the United States Department of
Commerce, it is estimated that the average American consumed approximately 14
bagels in 1993, approximately 22 bagels in 1995 and approximately 26 bagels in
1996.

The bagel industry predominantly consists of small operations of one
or a few stores and larger chains that generally have the bagel dough prepared
at each retail location or at independently-operated regional facilities. As a
result, bagel quality can vary from location to location within these chains.
The Company believes that its ability to prepare consistent quality bagels and
distribute such product nationally places the Company at an advantage over these
chains. While there are certain chains that prepare their bagels in regional
commissaries similar to the Company's, the Company believes that its oversized,
freshly baked bagels and the visually-appealing, upscale design of its stores
will enable the Company to compete successfully against such companies. See
"Business -- Competition."

STRATEGY

The Company's objective is to become a leading national bagel store
chain. The Company intends to achieve this objective by (i) expanding its
franchise operations; (ii) increasing the number of Company-owned stores by
opening additional stores and acquiring existing bagel stores or chains; and
(iii) increasing revenues from sales to commercial and wholesale accounts. With
respect to its franchise operations, the Company believes that its consistent
product quality, visually-appealing, upscale store design and well-organized
business operations will enable the Company to attract experienced, multi-unit
franchisees to operate its stores. In order to attract potential franchisees,
the Company plans to open Company-owned flagship stores in strategic geographic
locations around the country. Such franchises would be serviced by regional
commissaries, which the Company plans to use as additional stores are opened.
The Company also intends to expand by acquiring existing bagel stores or chains
and possibly other retail enterprises that the Company believes will enhance its
operations. In determining whether to make an acquisition, the Company will
consider, among other things, the size, location and existing operations of the
acquisition candidate, as well as such candidate's potential to maximize growth
and increase revenues. Although the Company regularly evaluates possible
acquisition opportunities, as of the date of this Prospectus, the Company is not
a party to any agreements or commitments with respect to any acquisition.

<PAGE>

RECENT ACQUISITIONS

In December 1996, the Company acquired one of its franchises located
in Scottsdale, Arizona for approximately $29,000 in cash and forgiveness of
debt, 54,055 shares of Common Stock and the assumption of $136,000 in capital
lease obligations. Also in December 1996, the Company acquired one of its
franchises located in Mesa, Arizona for approximately $33,000 in cash and
forgiveness of debt, 60,952 shares of Common Stock and the assumption of $45,000
in capital lease obligations. In February 1997, the Company acquired one of its
franchises located in Park City, Utah for approximately $84,000 in cash and
forgiveness of debt and 8,264 shares of Common Stock.

PRODUCTS AND DISTRIBUTION

The Company seeks to provide its customers with consistent quality
products, primarily bagels, cream cheese spreads and muffins, and excellent
service in a visually-appealing, upscale environment. The proprietary recipes
for the Company's unique products were created by Jerry Rosner, President of the
Company, drawing upon his 20-plus years of bagel-making experience. Utilizing
these recipes, the Company's bagel dough is prepared in its regional
commissaries and then delivered to surrounding Company-owned stores and
franchises. The Company's bagels are then baked in each store daily in
accordance with the Company's quality control guidelines using a traditional
technique which requires the bagels to be boiled and then baked. Cream cheese
spreads and muffins also are prepared in each store daily in accordance with the
Company's quality control guidelines from ingredients purchased from independent
suppliers. While bagel and cream cheese sales currently represent a significant
portion of retail sales, the stores also offer a variety of breakfast and lunch
bagel sandwiches, soups, freshly baked muffins and other bakery products,
gourmet coffee and espresso drinks, juices and a variety of soft drinks. In
addition, the Company offers innovative products, such as bagel pockets and
three-foot party bagels, and imaginative catering platters to service its
customers.

The Company believes that it has developed significant know-how and
technical expertise for replicating the Company's bagels in various locations
and conditions to produce a high-quality product more commonly associated with
smaller bakeries. The Company believes this system enables Big City Bagels
stores to provide its customers with consistent quality products, thereby
helping to build brand name awareness and customer loyalty. The Company
currently owns and operates a commissary located in Costa Mesa, California,
which services most existing Big City Bagels stores. The Company also has
assisted one of its franchisees, who entered into an area development agreement
with the Company to open 12 stores in the Minneapolis/St. Paul, Minnesota area,
in establishing a commissary owned and operated by such franchisee in
Minneapolis to service these stores. This commissary is required to adhere to
the Company's strict quality control guidelines. By supplying the Company- owned
stores and franchises with bagel dough, the Company is able to control the
quality of its bagel products sold in the stores.

STORE DESIGN AND LOCATIONS

Big City Bagels stores are designed to be upscale bagel bakery cafes
that are efficient as well as visually appealing. Most of the products sold in
the stores are uniquely presented in large, attractive display cases to provide
customers with the opportunity to see the products they wish to purchase. The
display cases are typically located near the store entrance and where customers
place their orders to attract customers and promote spontaneous purchases.

The Company's store design is adaptable to various site locations,
including shopping centers, free-standing units, drive-thrus and commercial
sites, which are selected on heavily-traveled thoroughfares. The Company
believes that its concept also could be applied to smaller "satellite" stores,
such as kiosks located in airports, commercial buildings and shopping malls. Big
City Bagels stores are typically highly visible and easily accessible. The
stores generally are located within a three-mile radius of at least 30,000
residents in an area with a mix of both residential and commercial properties.
The average store is approximately 1,600 to 2,200 square feet with a seating
capacity of 20 to 60 persons. Although the stores may vary in size, store layout
and design are generally consistent and typically include, among other things, a
traditional, bakery-style tin ceiling, glass display cases, a menu board and a
neon sign in the form of the Company's logo.

<PAGE>

The following table sets forth by location the number of currently
open Company-owned stores and franchises and the number of franchises that have
been sold but not yet opened:

<TABLE>
<CAPTION>
Franchises Sold Total
Location Stores Open But Not Yet Opened Stores
- -------- ----------- ------------------ ------
<S> <C> <C> <C>
Arizona............................ 2(1) 3 5(1)
California......................... 8(2) 4 12(2)
Idaho.............................. 1 1 2
Minnesota.......................... 3 9 12
Nevada............................. 0 1 1
Texas.............................. 0 12 12
Utah............................... 1(3) 0 1
Washington......................... 0 2 2
--- --- ---
Total.................... 15 32 47
</TABLE>

- -----------------------------
(1) Includes two Company-owned stores.
(2) Includes three Company-owned stores.
(3) Includes one Company-owned store.

FRANCHISING

The Company offers single unit and multi-unit franchises throughout
the United States. The Company currently is permitted to offer and sell its
franchises in over 40 states. The Company attempts to attract suitable
franchisees who are committed to the Company's high standards of product quality
and customer service. All franchisees are required to operate their stores in
accordance with the guidelines set forth in the Company's franchise and area
development agreements and the standards detailed in the Company's operations
and administration manuals. The Company conducts regular inspections of its
franchised stores to determine whether the stores meet applicable standards and
works with franchisees to improve performance.

The Company assists franchisees in site selection by reviewing market
demographics, visiting the sites and giving final approval. During the design
phase, all blueprints are reviewed and approved by the Company and discussed
with the franchisee. A franchisee is required to purchase bagel dough, muffin
mixes, cream cheese and "Big City Bagels" branded products only from the Company
or suppliers designated by the Company. A franchisee may purchase the equipment
necessary to operate a Big City Bagels store from any vendor of its choice,
provided that such vendor has been approved by the Company and meets the
Company's equipment specifications. However, all franchises are required to
purchase and use a cash register system designed to furnish the Company with
reports and to provide franchisees with optimal cash controls and ensure that
they have access to information that the Company believes will assist
franchisees in operating their business.

Prior to opening a new store, the Company offers to all of its
franchisees an extensive training program run by the Company, which includes
classroom training in administrative record keeping, marketing and advertising
and inventory control, and training in baking, food preparation and store
operations. The Company also provides on-site personnel immediately prior to and
during each store's opening. After a store opens, the Company monitors
operational results, visits stores for on-site consultation and provides advice
based on the experience of other franchisees. Management of the Company reviews
franchise store sales monthly and provides operational assistance as necessary.

The Company provides extensive field support services to its
franchisees in an effort to help franchisees maximize business and financial
management, achieve local market area penetration, maintain quality control and
customer service excellence, stay abreast of new product developments, provide
advertising services and to allow the franchisees the opportunity to share new
business ideas with the Company.

The Company's current franchise agreements require payments to the
Company of a $30,000 initial franchise fee per store and a monthly 4% royalty on
gross sales (exclusive of sales taxes). In addition, franchisees

<PAGE>

are required to spend 2% of gross sales on local advertising and at least $5,000
to advertise and promote grand openings. Franchise agreements provide each
franchisee with the exclusive right to open the franchise within a defined
geographic area. Each franchise agreement is for a term of ten years, with the
right to renew for an additional ten years at no additional fee. The franchise
agreement also requires a franchisee to find a suitable store location within
180 days of signing the agreement. The Company estimates that a franchisee's
cost to open a Big City Bagels store, including the initial franchise fee, cost
of construction, leasing of space and other start-up expenses, is approximately
between $285,000 and $330,000. A period of approximately six to eight months
generally elapses between the signing of a franchise agreement and the opening
of a store.

The Company also offers franchisees the opportunity to enter into area
development agreements, which provide that a franchisee may open a specific
number of stores within a specific area of exclusivity. The area of exclusivity
is negotiated prior to the signing of the area development agreement and varies
by agreement as to size of the area, the number of stores required and the
schedule for store development and opening. Upon signing the area development
agreement, fees are paid to the Company in the following manner: a $30,000
franchise fee is paid for the first store, as well as a $12,750 area development
fee for each additional store to be developed. A reduced franchise fee of
$25,500 per store is payable when the franchise agreement for each additional
location is executed, with a credit given for the previous $12,750 area
development fee paid.

COMPETITION

The food service industry, in general, and the bagel industry, in
particular, are intensely competitive with respect to food quality, concept,
location, service and price. As a bagel retailer and franchisor, the Company
competes in a number of different markets with a number of different
competitors, including well-established food service companies with greater
product and name recognition and larger financial, marketing and distribution
capabilities than those of the Company, as well as innumerable local food
establishments that offer similar products. In addition, the Company believes
that the start-up costs associated with opening a retail food establishment
offering products similar to those offered by the Company, on a stand-alone
basis, are competitive with the start-up costs associated with opening a Big
City Bagels store and, accordingly, are not an impediment to entry of
competitors into the retail bagel business.

The Company faces competition in the bagel industry from independent
stores, larger chain stores and franchisors such as Bruegger's Corp.,
Einstein/Noah Bagel Corporation, Manhattan Bagel Company, Inc. Chesapeake Bagel
Bakery, Big Apple Bagels and New York Bagel Enterprises. The Company's bagel
stores also compete with take-out restaurants, fast food restaurants,
delicatessens and prepared food stores, as well as with supermarket bakeries and
convenience stores.

As a franchisor, the Company competes for qualified franchisees with a
wide variety of investment opportunities both in the restaurant business and in
other industries. In this respect, the Company believes that its consistent
product quality, visually-appealing, upscale store design and well-organized
business operations help the Company to compete favorably, especially against
bagel franchisors, although it should be noted that the Company is a relatively
minor newcomer in the industry and its competitors are well-established, have
greater name recognition and financial resources and command a greater share of
the market than the Company.

ADVERTISING

The Company currently advertises and plans to continue advertising its
franchises in its retail stores, newspapers and business opportunity magazines.
The Company and its franchisees also advertise in local newspapers and through
direct mailings. Franchisees are required to spend 2% of gross sales on local
advertising and to contribute 1% of monthly gross sales to a national
advertising cooperative. However, as of the date of this Prospectus, a national
fund has not been established.

TRADEMARKS AND SERVICE MARKS

The Company's trademark "Big City Bagels'r'," its service mark "A
Bigger Bagel for Less Dough!'r'" and its distinctive logo are registered with
the United States Patent and Trademark Office pursuant to federal law. The
Company's franchise agreements provide all of its franchisees with the
nonexclusive right to use the Company's

<PAGE>

registered trademark and service mark. The Company considers its marks to be
material to its business in that the Company seeks to develop a strong
association between such marks and the Company's high quality food and stores in
the minds of consumers. The Company has been advised that an entity has
registered the name Big City Bagels in Benelux and the Company may not be able
to use its name in Belgium, Luxembourg and the Netherlands. This entity
currently has applications pending throughout Europe to register the Big City
Bagels trademark and if approved, the Company may not be able to use its
trademark in Europe.

GOVERNMENT REGULATION

The Company and its franchisees are required to comply with federal,
state and local government regulations applicable to consumer food service
businesses generally, including those relating to the preparation and sale of
food, minimum wage requirements, overtime, working and safety conditions and
citizenship requirements, as well as regulations relating to zoning,
construction, health, business licensing and employment. The Company believes
that it is in material compliance with these provisions. Continued compliance
with this broad federal, state and local regulatory network is essential and
costly, and the failure to comply with such regulations may have an adverse
effect on the Company and its franchisees.

The Company's operations are subject to regulation by the FTC in
compliance with the FTC's rule entitled Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures, which requires, among
other things, that the Company prepare and update periodically a comprehensive
disclosure document, known as the Uniform Franchise Offering Circular ("UFOC"),
in connection with the sale and operation of its franchises. In addition, some
states require a franchisor to register its franchise with the state before it
may offer the franchise. The Company believes that its UFOC, together with any
applicable state versions or supplements, complies with both the FTC guidelines
and all applicable state laws regulating franchising in those states in which it
has offered franchises. The Company has revised its offering circular and is
substantially in compliance with the UFOC guidelines which became effective on
January 1, 1995. The UFOC document has been written in plain English and certain
of the current disclosure items have been expanded and/or eliminated. The
revisions have not had an effect upon the Company's operations.

In addition to the rules governing the offer and sale of franchises,
the Company also is subject to a number of state laws that regulate substantive
aspects of the franchisor-franchisee relationship, including, but not limited
to, those concerning termination and non-renewal. These laws govern the
termination and/or non-renewal of the franchise agreement and, by and large,
require the franchisor to have good cause, reasonable cause or just cause in
order to terminate or not renew the franchise agreement. In addition, some of
these laws provide for longer cure periods than which currently exist in the
Company's franchise agreement.

Each store is subject to regulation by federal agencies and to
licensing and regulation by state and local health, sanitation, safety, fire and
other departments. Difficulties or failures in obtaining the required licenses
or approvals could delay or prevent the opening of a new store. The Company
believes that it is in substantial compliance with the applicable laws and
regulations governing its operations.

While the Company intends to comply with all federal and state laws
and regulations, there can be no assurance that it will continue to meet the
requirements of such laws and regulations, which, in turn, could result in a
withdrawal of approval to franchise in one or more jurisdictions. Any such loss
of approval would have a material adverse effect upon the Company's ability to
successfully market its franchises. Violations of franchising laws and/or state
laws and regulations regulating substantive aspects of doing business in a
particular state could subject the Company and its affiliates to rescission
offers, monetary damages, penalties, imprisonment and/or injunctive proceedings.
The state laws and regulations concerning termination and non-renewal of
franchisees are not expected to have a material impact on the Company's
operations. In addition, under court decisions in certain states, absolute
vicarious liability may be imposed upon franchisors based upon claims made
against franchisees. Even if the Company is able to obtain coverage for such
claims, there can be no assurance that such insurance will be sufficient to
cover potential claims against the Company. Further, there can be no assurance
that existing or future franchise regulations will not have an adverse effect on
the Company's ability to expand its franchise program.

<PAGE>

PROPERTIES

<TABLE>
<CAPTION>
Approximate Approximate
Square Annual
Location Use Footage Lease Expiration Lease Payments
- --------- --- -------- ----------------- -------------
<S> <C> <C> <C> <C>
Hicksville, NY Principal executive 1,500 Month-to-month $19,800
office

Costa Mesa, CA Offices 2,400 December 1997 $32,640

Costa Mesa, CA Commissary/Company 4,400 November 1998; $53,250
store renewable for two
successive five-year
terms

Costa Mesa, CA Storage space 900 July 1997; $7,800
renewable for two
successive one-year
terms

Costa Mesa, CA Company store 1,750 March 1998; $54,700
renewable for two
successive five-year
terms

Laguna Niguel, CA Company store 1,600 March 1999; $44,800
renewable for one
additional five-year
term

Scottsdale, AZ Company store 1,960 December 2005; $31,400
renewable for one
additional five-year
term

Mesa, AZ Company store 2,200 January 2006; $27,600
renewable for two
successive five-year
terms

Park City, UT Company store 2,335 October 2005; $57,800
renewable for two
successive five-year
terms
</TABLE>

The Company believes that its facilities are adequate for its present
purposes. The Company believes that as it grows, it will require additional
facilities, and that such facilities will be readily available.

EMPLOYEES

As of June 30, 1997, the Company had 39 full-time employees. 15 of the
39 full-time employees are salaried, while the other 24 are paid on an hourly
basis. In addition, the Company has approximately 60 part-time employees, who
are paid on an hourly basis. None of the Company's employees is represented by a
collective bargaining agreement nor has the Company experienced any work
stoppage. The Company believes its relationship with its employees is
satisfactory.

<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the
Company's executive officers and directors. Except as otherwise set forth
herein, executive officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>

Name Age Position
---- --- ---------
<S> <C> <C>
Mark Weinreb............................ 44 Chairman of the Board and Chief Executive Officer
Jerry Rosner............................. 37 President, Chief Operating Officer and Director
Stanley Weinreb.......................... 69 Vice President and Director
Stanley Raphael.......................... 61 Secretary and Director
Stephen J. Drescher...................... 34 Director
</TABLE>

Mark Weinreb has been the Chairman of the Board and Chief Executive
Officer of the Company since its inception in December 1992. From 1975 to 1989,
Mr. Weinreb was employed by Bio Health Laboratories, Inc. ("Bio Health"), a
medical testing laboratory, and from 1985 to 1989, he was an owner and vice
president of Bio Health, which was sold in 1989. During his tenure at Bio
Health, Mr. Weinreb was responsible for day-to-day operations, including
overseeing the technical aspects of the laboratory, negotiating property and
equipment leases and handling financing proposals, mergers and acquisitions.
From 1989 to 1992, Mr. Weinreb managed his private investments. Mark Weinreb is
the son of Stanley Weinreb.

Jerry Rosner has been President, Chief Operating Officer and a
director of the Company since inception. From 1983 to August 1995, Mr. Rosner
was President and co-owner of Bagel Boss East, Inc. ("Bagel Boss"), a company
which owned and operated a bagel store in Bay Shore, New York. At Bagel Boss,
Mr. Rosner was responsible for all aspects of operations, including production,
recipe development, equipment purchases, lease negotiations, labor relations and
wholesale operations. Mr. Rosner has over 20 years of experience in the bagel
industry.

Stanley Weinreb has been Vice President and a director of the Company
since inception. From 1952 to 1989, he was President and owner of Bio Health, a
company which he founded. During his tenure at Bio Health, Mr. Weinreb was the
medical director of the laboratory and was responsible for quality control,
obtaining state and federal licenses and regulatory compliance. Stanley Weinreb
is the father of Mark Weinreb.

Stanley Raphael has been Secretary and a director of the Company since
inception. Since 1984, he has served as President and a director of Trade
Consultants, Inc., a management consulting company. Prior to 1984, Mr. Raphael
was an international trader of oils, chemicals and petrochemicals. He currently
is a director of Edge Petroleum Corp.

Stephen J. Drescher has been a director of the Company since October
1996. From September 1993 to January 1996, Mr. Drescher served as the President
and Chief Executive Officer of Questron Technology, Inc. (formerly Judicate
Inc.), a company that provided mediation and arbitration services, and now
provides specialized distribution of fasteners and electronic hardware to
electronic equipment manufacturers. Since June 1995, Mr. Drescher has served as
the Director of Corporate Finance at Monroe Parker Securities, Inc., the
Underwriter of the Company's Public Offering. Pursuant to the Underwriting
Agreement between the Company and the Underwriter, until May 1999, the Company
is required to nominate a person selected by the Underwriter and reasonably
acceptable to the Company for election to serve as a member of the Company's
Board of Directors. Mr. Drescher is the designee of the Underwriter. Mr.
Drescher also has been a licensed attorney since 1989. He currently is a
director of Dualstar Technologies Corporation, Sonics & Materials, Inc. and
Thermacell Technologies Inc.

<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Company's Chief
Executive Officer and each of the other most highly paid executive officers
whose compensation exceeded $100,000 in the year ended December 31, 1996:

<TABLE>
<CAPTION>
=================================================================================================
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------

ANNUAL COMPENSATION
-------------------------------------------
OTHER ANNUAL
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mark Weinreb 1996 149,000 -- --
Chairman of the Board and Chief 1995 17,138 -- --
Executive Officer
Jerry Rosner 1996 149,000 -- --
President 1995 17,138 -- --
=================================================================================================
</TABLE>

The executive officers of the Company named above routinely receive
other benefits from the Company, the amounts of which are customary in the
industry. The Company has concluded, after reasonable inquiry, that the
aggregate amounts of such benefits during the year ended December 31, 1996 did
not exceed the lesser of $50,000 or 10% of the compensation set forth above as
to any named individual.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of Mark
Weinreb, its Chairman of the Board and Chief Executive Officer and Jerry Rosner,
its President and Chief Operating Officer, providing for initial terms expiring
on December 31, 1998, and base annual salaries of $125,000 until completion of
the Company's Public Offering (which was completed in May 1996) and $165,000
thereafter, plus annual 10% increases. Commencing July 1, 1997, Mark Weinreb and
Jerry Rosner have agreed to permit the Company to accrue without interest $3,500
of each of their respective salaries per month through December 31, 1997. The
accrued amounts will not be paid until the earlier of January 1, 1998 or the
Liquidity Date. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." These agreements
also provide that the Company will continue to pay the base salary to the
employee or legal representative in the event of the employee's termination due
to disability or death for a six-month period following termination. The
agreements contain provisions prohibiting the employee from competing with the
Company during the term of employment and for a period of two years thereafter.

1996 PERFORMANCE EQUITY PLAN

In March 1996, the Company adopted the 1996 Performance Equity Plan
(the "1996 Plan"). The 1996 Plan authorizes the granting of awards of up to
350,000 shares of Common Stock to the Company's key employees, officers,
directors and consultants. Awards consist of stock options (both nonqualified
options and options intended to qualify as "Incentive" stock options under
Section 422 of the Internal Revenue Code of 1986, as amended), restricted stock
awards, deferred stock awards, stock appreciation rights and other stock-based
awards, as described in the 1996 Plan.

On March 31st of each calendar year during the term of the 1996 Plan,
assuming there are enough shares then available for grant under the 1996 Plan,
each person who is then a director of the Company will be awarded stock options
to purchase 10,000 shares of Common Stock at the fair market value thereof (as
determined in accordance with the 1996 Plan), all of which options are
immediately exercisable as of the date of grant and have a term of ten years.
These are the only awards which may be granted to a director of the Company
under the 1996 Plan. The 1996 Plan is administered by the Board of Directors
which determines the persons (other than directors) to whom awards will be
granted, the number of awards to be granted and the specific terms of each
grant, including the exercisability thereof, subject to the provisions of the
1996 Plan.

<PAGE>

In connection with qualified stock options, the exercise price of each
option may not be less than 100% of the fair market value of the Common Stock on
the date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of the outstanding stock of the Company). The aggregate
fair market value of shares for which qualified stock options are exercisable
for the first time by such employee during any calendar year may not exceed
$100,000. Nonqualified stock options granted under the 1996 Plan also are
required to have exercise prices not less than the fair market value of the
Common Stock on the date of grant.

The 1996 Plan also contains certain change in control provisions which
could cause options and other awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in the
event any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, including a "group" as defined in Section 13(d), but excluding
certain shareholders of the Company, acquires beneficial ownership of more than
25% of the Company's outstanding shares of Common Stock.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus ("Before Offering"), and as adjusted to reflect the exercise of the
outstanding Class A Warrants and Class B Warrants ("After Offering"), by (i)
each shareholder or group known by the Company to be the beneficial owner of
five percent or more of the outstanding Common Stock; (ii) each director and
executive officer individually; and (iii) all directors and executive officers
as a group. Except as otherwise indicated in the footnotes below, the Company
believes that each of the beneficial owners of the Common Stock listed in the
table, based on information furnished by such owner, has sole investment and
voting power with respect to such shares.

<TABLE>
<CAPTION>
Percentage
Number of Shares -----------
Beneficially Before After
Name and Address(1) Owned Offering Offering
- ------------------ ---------------- -------- ---------

<S> <C> <C> <C>
Management Group(2)................................... 2,895,456 58.2% 39.9%
Mark Weinreb.......................................... 869,538(3)(4) 17.6% 12.0%
Jerry Rosner.......................................... 800,154(3)(4) 16.2% 11.1%
Stanley Weinreb....................................... 615,851(3)(4) 12.5% 8.5%
Stanley Raphael....................................... 609,913(3)(4)(5) 12.3% 8.4%
Stephen J. Drescher................................... 32,500(4)(6) * *
All executive officers and directors 2,927,956(6)(7) 58.5% 40.1%
as a group (five persons)...........................
</TABLE>
- ---------------------
* Less than 1%

(1) The address of each of the persons listed, other than Mr. Rosner and Mr.
Drescher, is c/o Big City Bagels, Inc., 99 Woodbury Road, Hicksville, New
York 11801. Mr. Rosner's address is c/o Big City Bagels, Inc., 151 Kalmus
Drive, C-100, Costa Mesa, California 92626. Mr. Drescher's address is c/o
Monroe Parker Securities, Inc., 2500 Westchester Avenue, Purchase, New York
10577.

(2) The Management Group consists of Messrs. Mark Weinreb, Jerry Rosner,
Stanley Weinreb and Stanley Raphael, each of whom is a party to, and has
agreed to vote their shares in accordance with, the Founders' Shareholder
Agreement described below. Each of the members of this group shares voting
power with respect to the shares of Common Stock held by each of the
members. The number of shares set forth in the table includes the shares
held by each member.

(3) Does not include shares held by other members of the Management Group (see
Note 2) with respect to which each member shares voting power with the
other members of such group.

(4) Includes 10,000 shares of Common Stock issuable upon exercise of currently
exercisable options.

(5) Includes 5,938 shares of Common Stock owned by Trade Consultants, Inc.
Pension Fund, of which Mr. Raphael is the trustee.

(6) Includes 11,250 shares of Common Stock and 11,250 shares of Common Stock
underlying Class A Warrants issuable upon exercise of a purchase option
issued to Mr. Drescher as a designee of Monroe Parker Securities, Inc., the
underwriter of Company's Public Offering.

(7) Includes an aggregate of 50,000 shares of Common Stock issuable to the
directors of the Company upon exercise of currently exercisable options.

<PAGE>

FOUNDERS' SHAREHOLDER AGREEMENT

Messrs. Mark Weinreb, Jerry Rosner, Stanley Weinreb and Stanley
Raphael are parties to the Founders' Shareholder Agreement and the shares of
Common Stock beneficially owned by them are subject to the terms of the
Founders' Shareholder Agreement. Pursuant to the Founders' Shareholder
Agreement, each of these members has agreed to vote his shares for the election
of each of the other members of the group as a director of the Company as long
as each such other member owns at least 100,000 shares of Common Stock. In
addition, the members have granted a right of first refusal to the others with
respect to any sales of Common Stock held by them other than pursuant to a
registration statement under the Securities Act or pursuant to Rule 144
promulgated thereunder.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since the Company's inception, its operations have been partially
funded from time to time by loans to the Company made directly by Messrs. Mark
Weinreb, Stanley Weinreb and Stanley Raphael, or indirectly through corporations
controlled by Messrs. Mark Weinreb and Stanley Weinreb, certain amounts of which
have been repaid (the "Shareholder Loans"). At December 31, 1995, the principal
amount of the Shareholder Loans, which bear interest at 10% per annum,
aggregated $462,468, of which an aggregate of $375,000 was paid during the year
ended December 31, 1996, and the balance is payable in equal monthly
installments of $12,000, which commenced in January 1997. At March 31, 1997,
$89,361 of the Shareholder Loans were outstanding (including $25,593 of interest
due and owing thereon). Since April 1, 1997, the Company has not made the
$12,000 aggregate per month payments required under the terms of the Shareholder
Loans. Mark Weinreb, Stanley Weinreb and Stanley Raphael have agreed to continue
to forego monthly repayment of the Shareholder Loans until the earlier of
January 1, 1998 or the Liquidity Date. In addition, until December 31, 1997,
each of Mark Weinreb, Stanley Weinreb and Stanley Raphael have agreed to loan
the Company, at an interest rate of 12% per annum, up to $100,000 in $10,000
increments, within three business days, if the Company has less than $25,000 of
funds in bank accounts, money market funds and United States Treasury bills.
Accordingly, under these agreements, if the Company's funds drop below $25,000,
the Company would receive $30,000 within three business days. Such loans would
be payable on the earlier of June 30, 1998 or the Liquidity Date. If the
principal amount of such loans exceed $50,000 per person, then the Company will
secure such loans with a pledge of its equipment reflected in the fixed assets
on its balance sheet. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

Pumpernickel Partners, L.P. ("Pumpernickel Partners") was a Delaware
limited partnership formed in August 1993 that owned and operated two Big City
Bagels franchises in Costa Mesa and Laguna Niguel, California. Messrs. Mark
Weinreb, Stanley Weinreb and Stanley Raphael each owned 22.5%, and Jerry Rosner
owned 10%, of the general partner, Bagel Partners, Inc. ("Bagel Partners"),
which owned a 5% interest in Pumpernickel Partners. The remaining 22.5% interest
of Bagel Partners was owned by an individual responsible for the day-to-day
operations of the two stores operated by Pumpernickel Partners. Messrs. Mark
Weinreb, Stanley Weinreb and Stanley Raphael also owned a 6.9%, 6.9% and 3.45%
limited partnership interest in Pumpernickel Partners, respectively. Immediately
prior to the closing of the Company's Public Offering, all of the limited
partners of Pumpernickel Partners contributed to the Company their limited
partnership interests in Pumpernickel Partners, and all of the shareholders of
Bagel Partners contributed to the Company all of the capital stock of Bagel
Partners in exchange for an aggregate of 181,250 shares of Common Stock of the
Company. As a result of their interests in Bagel Partners and Pumpernickel
Partners, Messrs. Mark Weinreb, Jerry Rosner, Stanley Weinreb and Stanley
Raphael received 13,913, 904, 13,913 and 7,975 shares of Common Stock,
respectively.

Monroe Parker Securities, Inc. acted as the Underwriter in connection
with the Company's Public Offering, in which the Company raised approximately
$5,175,000 of gross proceeds. In connection with the Public Offering, the
Company paid to the Underwriter 10% commissions and a 3% nonaccountable expense
allowance. The Company also agreed to sell to designees of the Underwriter, for
a nominal fee, Unit Purchase Options to purchase up to an aggregate of 112,500
Units, each Unit consisting of one share of Common Stock and one Class A
Warrant. The Unit Purchase Options are exercisable at $4.80 per Unit from May
1997 to May 2001. As a designee of the Underwriter, Stephen Drescher, the
Director of Corporate Finance of the Underwriter and now a director of the
Company, received 11,250 Unit Purchase Options. Pursuant to the Underwriting
Agreement, the Company also engaged the Underwriter as its financial
consultant until May 1998 for a monthly fee of $1,000. In addition, under the
Underwriting Agreement

<PAGE>

the Underwriter is entitled to a 4% warrant solicitation fee, but it has waived
such fee with respect to the exercise of any Class A Warrants during the Special
Exercise Period.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company is 26,000,000 shares,
consisting of 25,000,000 (which reflects an increase from 10,000,000 effective
July 7, 1997) shares of Common Stock, $.001 par value per share, and 1,000,000
shares of preferred stock, $.001 par value per share (the "Preferred Stock"). As
of the date of this Prospectus, 4,932,021 shares of Common Stock are outstanding
and held of record by 33 shareholders. Upon exercise of the Class A Warrants and
Class B Warrants, there will be 6,975,771 shares of Common Stock outstanding. No
shares of Preferred Stock are currently outstanding.

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote for
each share held of record on all matters to be voted on by shareholders.
Provided a quorum is present, the election of directors requires a plurality
vote of those shares of Common Stock represented at any shareholders' meeting.
The Restated Certificate of Incorporation does not provide for cumulative voting
for the election of directors. The holders of shares of Common Stock are
entitled to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock, as such, have no redemption, preemptive or other
subscription rights, and there are no conversion provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and the shares
of Common Stock issuable upon exercise of the Class A Warrants and Class B
Warrants, when issued and paid for as set forth in this Prospectus, will be
fully paid and nonassessable.

PREFERRED STOCK

The Company's authorized shares of Preferred Stock may be issued in
one or more series, and the Board of Directors is authorized, without further
action by the shareholders, to designate the rights, preferences, limitations
and restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate
preferences in liquidation and the number of shares constituting any series. The
Company believes that the availability of Preferred Stock issuable in series
will provide increased flexibility for structuring possible future financings
and acquisitions, if any, and in meeting other corporate needs. It is not
possible to state the actual effect of the authorization and issuance of any
series of Preferred Stock upon the rights of holders of Common Stock until the
Board of Directors determines the specific terms, rights and preferences of a
series of Preferred Stock. However, such effects might include, among other
things, restricting dividends on the Common Stock, diluting the voting power of
the Common Stock, or impairing the liquidation rights of such shares without
further action by holders of the Common Stock. In addition, under various
circumstances, the issuance of Preferred Stock may have the effect of
facilitating, as well as impeding or discouraging, a merger, tender offer, proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. Issuance of Preferred Stock
could also adversely affect the market price of the Common Stock. The Company
has no present plan to issue any shares of Preferred Stock.

CLASS A WARRANTS

Each Class A Warrant currently entitles the registered holder
thereof to purchase one share of Common Stock for $4.50 until May 6, 2000.
Effective July 11, 1997, the Company will reduce the exercise price of the Class
A Warrants to $2.50 per share for a period of 60 days until September 8, 1997,
subject to the discretion of the Company to extend such period for up to an
additional 30 days ("Special Exercise Period"). Accordingly, if exercised prior
to the expiration of the Special Exercise Period, each Class A Warrant will
entitle the holder to purchase one share of Common Stock for $2.50. In addition,
for each Class A Warrant exercised, the holder thereof will be issued a New
Class A Warrant to purchase one share of Common Stock upon expiration of the
Special Exercise Period. If an aggregate of at least $2,000,000 of gross
proceeds are derived from the exercise of the Class

<PAGE>

A Warrants during the Special Exercise Period, then (i) the exercise price of
the Class A Warrants which are not exercised and the New Class A Warrants will
remain at $2.50 per share until the expiration date of such warrants and (ii)
the period of time during which the four executive officers of the Company will
not sell their shares of Common Stock without the consent of the Underwriter
will be extended from May 7, 1998 to December 31, 1998. If less than $2,000,000
of gross proceeds are derived from exercise of the Class A Warrants during the
Special Exercise Period, the exercise price of the Class A Warrants which are
not exercised and the New Class A Warrants will be $4.50 per share. The Class A
Warrants may be exercised during the Special Exercise Period upon surrender of
the certificate(s) evidencing the Class A Warrants at the offices of the Warrant
Agent with the exercise form on the reverse side of the Class A Warrant
Certificate completed and duly executed as indicated thereon, accompanied by
full payment of the exercise price of $2.50 per share in cash or by certified or
official bank check.

Unless extended by the Company at its discretion, the opportunity for
Class A Warrantholders to exercise their Class A Warrants for $2.50 per share
will expire at 5:00 p.m., Eastern Daylight Savings Time, on September 8, 1997.
If an aggregate of at least $2,000,000 of gross proceeds are derived from the
exercise of the Class A Warrants during the Special Exercise Period, then the
Class A Warrants not exercised by that time (as well as the New Class A
Warrants) may be exercised thereafter at an exercise price of $2.50 per share
until 5:00 p.m., Eastern Daylight Savings Time, on May 6, 2000 unless extended
by the Company at its discretion. In the event a holder of Class A Warrants
fails to exercise the Class A Warrants prior to their expiration, the Class A
Warrants will expire and the holder thereof will have no further rights with
respect to the Class A Warrants. No fractional shares of Common Stock will be
issued in connection with the exercise of Class A Warrants. Upon exercise, the
Company will pay the holder the value of any such fractional shares in cash,
based upon the market value of the Common Stock at such time.

The Company may redeem the Class A Warrants with the Underwriter's
prior consent, at a price of $.05 per Class A Warrant at any time after they
become exercisable upon not less than 30 days' prior written notice if the last
sale price of the Common Stock has been at least $7.00 per share on 20
consecutive trading days ending within ten days prior to the date on which
notice of redemption is given. The Company may redeem the Class A Warrants
without the consent of the Underwriter on the same terms, provided that the last
sale price of the Common Stock has been at least $8.00 per share on 20
consecutive trading days ending within ten days prior to the date on which
notice of redemption is given.

No Class A Warrants may be exercised unless at the time of exercise
there is a current prospectus covering the shares of Common Stock issuable upon
exercise of such Class A Warrants under an effective registration statement
filed with the Commission and such shares have been qualified for sale or are
exempt from qualification under the securities laws of the state of residence of
the holder of such Class A Warrants. Although the Company intends to have all
shares so qualified for sale and to maintain a current prospectus relating
thereto until the expiration of the Class A Warrants, there can be no assurance
that it will be able to do so.

A holder of Class A Warrants does not have any rights, privileges or
liabilities as a shareholder of the Company prior to exercise of the Class A
Warrants. The Company is required to keep available a sufficient number of
authorized shares of Common Stock to permit exercise of the Class A Warrants.

The exercise price of the Class A Warrants and the number of shares
issuable upon exercise of the Class A Warrants is subject to adjustment to
protect against dilution in the event of stock dividends, stock splits,
combinations, subdivisions and reclassifications. No assurance can be given that
the market price of the Common Stock will exceed the exercise price of the Class
A Warrants at any time during the exercise period.

CLASS B WARRANTS

Two Class B Warrants, together, currently entitle the holder thereof
to purchase one share of Common Stock for $8.00 until May 12, 2000. During the
Special Exercise Period, the Company will reduce the exercise price of the Class
B Warrants to $2.50 per share and will not require two Class B Warrants to be
exercised in tandem to receive one share of Common Stock. Accordingly, if
exercised prior to the expiration of the Special Exercise Period, each Class B
Warrant will entitle the holder to purchase one share of Common Stock for $2.50.
In addition, for each Class B Warrant exercised, the holder thereof will be
issued a New Class A Warrant to purchase one share of Common Stock upon the
expiration of the Special Exercise Period. After the expiration of the Special
Exercise Period, two Class B

<PAGE>

Warrants, together, will entitle the holder thereof to purchase one share of
Common Stock at the original exercise price of $8.00. The Class B Warrants may
be exercised during the Special Exercise Period upon surrender of the
certificate(s) evidencing the Class B Warrants at the offices of the Company
with the exercise form on the reverse side of the Class B Warrant Certificate
completed and duly executed as indicated thereon, accompanied by full payment of
the exercise price of $2.50 per share in cash or by certified or official bank
check.

Unless extended by the Company at its discretion, the opportunity for
Class B Warrant holders to exercise their Class B Warrants for $2.50 per share
will expire at 5:00 p.m., Eastern Daylight Savings Time, on September 8, 1997.
Class B Warrants not exercised by that time may be exercised thereafter at the
original exercise price of $8.00 per share until 5:00 p.m., Eastern Daylight
Savings Time, on May 12, 2000. In the event a holder of Class B Warrants fails
to exercise the Class B Warrants prior to their expiration, the Class B Warrants
will expire and the holder thereof will have no further rights with respect to
the Class B Warrants. No fractional shares of Common Stock will be issued in
connection with the exercise of Class B Warrants. Upon exercise, the Company
will pay the holder the value of any such fractional shares in cash, based upon
the market value of the Common Stock at such time.

The Company may redeem the Class B Warrants, with the Underwriter's
prior consent, at a price of $.05 per Class B Warrant at any time after they
become exercisable upon not less than 30 days' prior written notice if the last
sale price of the Common Stock has been at least $12.00 per share on 20
consecutive trading days ending within ten days prior to the date on which
notice of redemption is given.

No Class B Warrants may be exercised unless at the time of exercise
there is a current prospectus covering the shares of Common Stock issuable upon
exercise of such Class B Warrants under an effective registration statement
filed with the Commission and such shares have been qualified for sale or are
exempt from qualification under the securities laws of the state of residence of
the holder of such Class B Warrants. Although the Company intends to have all
shares so qualified for sale and to maintain a current prospectus relating
thereto until the expiration of the Class B Warrants, there can be no assurance
that it will be able to do so.

A holder of Class B Warrants does not have any rights, privileges or
liabilities as a shareholder of the Company prior to exercise of the Class B
Warrants. The Company is required to keep available a sufficient number of
authorized shares of Common Stock to permit exercise of the Class B Warrants.

The exercise price of the Class B Warrants and the number of shares
issuable upon exercise of the Class B Warrants is subject to adjustment to
protect against dilution in the event of stock dividends, stock splits,
combinations, subdivisions and reclassifications. No assurance can be given that
the market price of the Common Stock will exceed the exercise price of the Class
B Warrants at any time during the exercise period.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion sets forth certain of the federal income tax
consequences, under current law, of the exercise of the Class A Warrants and
Class B Warrants (together, "Warrants") and purchase and ownership of the Common
Stock. The Company has not requested and does not intend to request a ruling
from the Internal Revenue Service or a formal tax opinion from its counsel on
any tax aspect of this Offering. This tax discussion is intended only as a
descriptive summary and does not purport to be a complete analysis or listing of
all potential federal income tax effects of the exercise of the Warrants and
purchase and ownership of the Common Stock. Holders of the Warrants who intend
to exercise their Warrants should consult their own tax advisors with respect to
the tax consequences to them of the exercise of the Warrants and purchase and
ownership of the Common Stock, and the applicability and effect of federal,
state, local, foreign and other tax laws.

No gain or loss will be recognized by a holder of a Warrant on the
holder's purchase of Common Stock for cash upon exercise of the Warrant. A
Warrantholder who exercises a Warrant during the Special Exercise Period must
allocate the $2.50 purchase price per share of Common Stock between the two
elements received upon exercise, the one share of Common Stock and the one New
Class A Warrant to purchase one share of Common Stock in accordance with their
relative fair market values at the time of exercise. Since a trading market for
the Common Stock and Class A Warrants exists and is expected to continue during
the Special Exercise Period, their relative fair market values will be
determinable based upon their respective trading prices at the time of the
exercise of a Warrant.

<PAGE>

The adjusted tax basis of the Common Stock so acquired will be equal
to the tax basis of the Warrant exercised plus the exercise price allocated to
the Common Stock. The adjusted tax basis of the New Class A Warrant will be
equal to the portion of the $2.50 exercise price allocated to the New Class A
Warrant. The holding period of the Common Stock and the New Class A Warrant
acquired upon the exercise of the Warrant will begin on the date the Warrant is
exercised.

The sale of a share of Common Stock or the sale of a New Class A
Warrant will result in the recognition of gain or loss to the holder in an
amount equal to the difference between the amount realized (generally the cash
and fair market value of other property received) and the holder's adjusted tax
basis therein. Such a sale of Common Stock will result in capital gain or loss,
provided the Common Stock is a capital asset in the hands of the holder. The
sale of a New Class A Warrant (other than a sale to the Company) will likewise
result in capital gains or loss, provided the New Class A Warrant is a capital
asset in the hands of the holder and the Common Stock underlying the New Class A
Warrant would be a capital asset to the holder if acquired by the holder. Such
capital gain or loss will be long-term capital gain or loss if the Common Stock
or New Class A Warrant being sold has been held for more than one year at the
time of such sale or exchange.

Based upon the Company's obligation to redeem the Warrants on a pro
rata basis if the requirements for redemption are met and the Company chooses to
redeem the Warrants, the redemption of a Warrant by the Company would be treated
as a sale or exchange of a capital asset and, any gain or loss recognized on the
transaction would be a capital gain or loss. Such gain or loss will be long-term
capital gain or loss if the holding period of the Warrant exceeds one year at
the time of redemption.

If a Warrant is not exercised and allowed to expire, the Warrant will
be deemed to have been sold or exchanged for no consideration on the expiration
date. Any loss to the holder of a Warrant will be a capital loss if the Warrant
was held as a capital asset and if the Common Stock underlying the Warrant would
have been a capital asset had such Warrant been exercised. Any capital loss will
be tong-term if the holding period of the Warrant exceeds one year at the time
it expires.

No gain or loss will be recognized by the Company upon the
acquisition, exercise or expiration of any Warrants.

UNIT PURCHASE OPTIONS

The Unit Purchase Options entitle the holders thereof to purchase
until May 6, 2001 an aggregate of 112,500 units at an exercise price of $4.80
per unit, each unit consisting of one share of Common Stock and one Class A
Warrant. The Class A Warrants included in the units are identical to the Class
A Warrants issued in the Company's Public Offering and, accordingly, the
exercise price thereof will be reduced to $2.50 per share (and a New Class A
Warrant will be issued for each Class A Warrant exercised) during the Special
Exercise Period and thereafter depending upon whether the Company derives
$2,000,000 in gross proceeds from exercise of the Class A Warrants during the
Special Exercise Period. The Unit Purchase Options grant to the holders thereof
certain "piggy-back" and demand rights for periods of seven and five years,
respectively, from May 7, 1996 with respect to the registration under the
Securities Act of the securities issuable directly or indirectly upon exercise
of the Unit Price Options.

LIMITATION OF LIABILITY OF DIRECTORS

As permitted by the BCL, the Company's Restated Certificate of
Incorporation eliminates the personal liability of a director to the Company and
its shareholders for monetary damages for breach of a director's fiduciary duty
except in certain instances. Accordingly, except in such circumstances, the
Company's directors will not be liable to the Company or its shareholders for
breach of such duty.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Restated Certificate of Incorporation of the Company provides that
the Company shall indemnify, to the fullest extent permitted by New York law,
any person whom it may indemnify thereunder, including directors and officers of
the Company. Such indemnification (other than as ordered by a court) shall be
made by the Company only upon a determination that indemnification is proper in
the circumstances because the individual met the applicable standard of conduct.
Advances for such indemnification may be made pending such determination.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

<PAGE>

TRANSFER AGENT, WARRANT AGENT AND REGISTRAR.

The transfer agent, warrant agent and registrar for the Common Stock
and Class A Warrants is Continental Stock Transfer & Trust Company, New York.
The Company itself serves as warrant agent for the Class B Warrants.

SHARES ELIGIBLE FOR FUTURE SALE

Substantially all of the 4,932,021 currently outstanding shares of
Common Stock have been or will be registered for sale under the Securities Act
or are eligible for sale under an exemption therefrom, including the exemption
provided by Rule 144 under the Securities Act. Holders of 2,818,750 of such
shares of Common Stock have agreed not to sell any of their shares without the
prior consent of the Underwriter until May 7, 1998 (November 7, 1997 in the
event that the closing bid price of the Common Stock exceeds $12.00 for 20
consecutive trading days). If an aggregate of at least $2,000,000 of gross
proceeds are derived from the exercise of the Class A Warrants during the
Special Exercise Period, the period of time during which the four executive
officers of the Company, who directly or indirectly hold 2,855,456 shares of
Common Stock, will not sell their shares of Common Stock without the consent of
the Underwriter will be extended from May 7, 1998 to December 31, 1998. The
Company is unable to predict the effect that sales made under Rule 144 or
otherwise may have on the market price of the Common Stock. However, the
possibility that substantial amounts of Common Stock may be sold in the public
market may have a material adverse effect on the market prices for the Common
Stock. Additionally, as of the date of this Prospectus, the Company has reserved
an aggregate of 2,600,750 shares of Common Stock for issuance upon exercise of
the outstanding Class A Warrants, Class B Warrants, Unit Purchase Options and
other options and up to 2,406,250 shares of Common Stock will be issuable upon
exercise of New Class A Warrants that may be issued under this Prospectus. Sale
of substantially all of the shares of Common Stock underlying such securities
has been registered under the Securities Act. To the extent that the Class A
Warrants, Class B Warrants and outstanding options are exercised, dilution of
the percentage ownership of the Company's shareholders will occur, and any sales
in the public market of the Common Stock underlying the Class A Warrants, Class
B Warrants or outstanding options may materially adversely affect the prevailing
market price for the Common Stock.

LEGAL MATTERS

The legality of the securities offered hereby has been passed upon for
the Company by Graubard Mollen & Miller, New York, New York.

EXPERTS

The financial statements of the Company as of December 31, 1995 and
1996 and for the years then ended have been included herein and in the
Registration Statement of which this Prospectus is a part, in reliance upon the
report of Richard A. Eisner & Company, LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Commission. Reports, proxy statements and
other information filed by the Company can be inspected and copied at the
principal office of the Commission, Public Reference Room, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois, 60651-2511 and at Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies can be obtained from the Commission at prescribed
rates by writing to the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such Web site is
http://www.sec.gov. The Common Stock and Class A Warrants of the Company are
quoted on the Nasdaq SmallCap

<PAGE>

Market (Symbols: BIGC; BIGCW) and such reports, proxy statements and other
information concerning the Company also can be inspected at the offices of the
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a registration statement
(the "Registration Statement") under the Securities Act with respect to sales of
the shares of Common Stock, Class A Warrants and Class B Warrants offered
hereby. This Prospectus omits certain information contained in the Registration
Statement. For further information, reference is made to the Registration
Statement, the exhibits and financial statements filed as a part thereof, which
may be examined without charge at the office of the Commission, and photocopies
of which, or any portion thereof, may be obtained upon payment of the prescribed
fee.

Statements contained in this Prospectus as to the contents of any
agreement or other document referred to are not complete, and where such
agreement or other document is an exhibit to the Registration Statement, each
statement is deemed to be qualified and amplified in all respects by the
provisions of the exhibit.

<PAGE>

BIG CITY BAGELS, INC.

- I N D E X -

PAGE
NUMBER
------

REPORT OF INDEPENDENT AUDITORS F-2

BALANCE SHEETS AS OF DECEMBER 31,
1996 AND MARCH 31, 1997 (UNAUDITED) F-3

STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED) AND MARCH 31, 1996
(UNAUDITED) F-4

STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (CAPITAL DEFICIENCY) FOR THE
YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1997 (UNAUDITED) F-5

STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1996
AND DECEMBER 31, 1995 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 (UNAUDITED) AND
MARCH 31, 1996 (UNAUDITED) F-6

NOTES TO FINANCIAL STATEMENTS F-7

F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Big City Bagels, Inc.
Hicksville, New York

We have audited the accompanying balance sheet of Big City Bagels, Inc.
as at December 31, 1996 and the related statements of operations, changes in
stockholders' equity (capital deficiency) and cash flows for the years ended
December 31, 1996 and December 31, 1995. 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 enumerated above present
fairly, in all material respects, the financial position of Big City Bagels,
Inc. at December 31, 1996 and the results of its operations and its cash flows
for the years ended December 31, 1996 and December 31, 1995 in conformity with
generally accepted accounting principles.

Richard A. Eisner & Company, LLP

New York, New York
February 26, 1997

F-2

<PAGE>

BIG CITY BAGELS, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, March 31,
A S S E T S 1996 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . $ 654,856 $ 127,213
Investments in United States Treasury bills 1,006,170 985,713
Accounts receivable . . . . . . . . . . . . 110,063 115,783
Inventory . . . . . . . . . . . . . . . . . 74,272 67,841
Prepaid expenses and other current assets . 77,131 74,532
------------ -----------
Total current assets . . . . . . . . 1,922,492 1,371,082
Fixed assets, net of accumulated
depreciation. . . . . . . . . . . . . . . . 1,239,478 1,290,966
Intangible assets, net of accumulated
amortization. . . . . . . . . . . . . . . . 300,699 293,668
Security deposits. . . . . . . . . . . . . . . 39,570 50,981
------------ -----------
T O T A L. . . . . . . . . . . . . . $ 3,502,239 $ 3,006,697
============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Stockholder loans . . . . . . . . . . . . . $ 87,468 $ 63,768
Note payable. . . . . . . . . . . . . . . . 225,000
Capital lease obligations . . . . . . . . . 51,918 48,144
Unearned franchise fee income. . . . . . . 263,750 329,250
Accounts payable. . . . . . . . . . . . . . 208,011 240,986
Accrued expenses. . . . . . . . . . . . . . 60,323 69,734
------------ -----------
Total current liabilities. . . . . . 671,470 976,882

Deferred rent payable. . . . . . . . . . . . . 19,243 16,381
Capital lease obligations, noncurrent. . . . . 132,926 121,676
------------ -----------
Total liabilities. . . . . . . . . . 823,639 1,114,939
------------ -----------

Commitments

Stockholders' equity:
Preferred stock; $.001 par value;
1,000,000 shares authorized; no
shares outstanding
Common stock; $.001 par value; 10,000,000
shares authorized; 4,932,021 and
4,923,757 shares issued and outstanding
at March 31, 1997 and December 31,
1996, respectively. . . . . . . . . . . . 4,924 4,932
Additional paid-in capital. . . . . . . . . 4,340,180 4,348,436
Accumulated deficit . . . . . . . . . . . . (1,629,004) (2,431,610)
Unearned portion of compensatory stock. . . (37,500) (30,000)
------------ -----------
Total stockholders' equity . . . . . 2,678,600 1,891,758
------------ -----------

T O T A L. . . . . . . . . . . . . . $ 3,502,239 $ 3,006,697
============ ===========
</TABLE>

The accompanying notes to financial statements
are an integral part hereof.

F-3

<PAGE>

BIG CITY BAGELS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
----------------------------- ----------------------------
1996 1995 1997 1996
----------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product sales by company
owned stores . . . . . . . $ 1,483,493 $1,313,297 $ 456,574 $ 334,295

Product sales to franchisees
and others . . . . . . . . 404,813 172,757 150,283 86,622

Franchise fees . . . . . . . 309,250 40,000 120,000

Royalty income . . . . . . . 126,820 22,147 43,354 20,217

Interest income. . . . . . . 75,634 17,480 3,790

Other income . . . . . . . . 14,966 2,054
------------ ----------- ---------- ----------

Total revenues. . . . 2,414,976 1,550,255 667,691 564,924
------------ ----------- ---------- ----------

Costs and expenses:
Cost of sales. . . . . . . . 1,029,955 667,394 358,656 205,722

Selling, general and
administrative expenses. . 3,163,820 1,681,892 1,098,673 534,810

Amortization of debt
discount . . . . . . . . . 683,542 426,483

Interest expense . . . . . . 75,110 27,818 12,968 30,552
------------ ----------- ---------- ----------

Total costs and
expenses. . . . . . 4,952,427 2,377,104 1,470,297 1,197,567
------------ ----------- ---------- ----------

NET (LOSS). . . . . . . . . . . $(2,537,451) $ (826,849) $ (802,606) $ (632,643)
============ =========== =========== ===========

Net (loss) per common share . . $(.61) $(.28) $(0.16) $(0.21)
====== ====== ======= =======

Weighted-average common shares
outstanding. . . . . . . . . 4,174,061 3,000,000 4,929,175 3,000,000
============ =========== =========== ===========
</TABLE>

The accompanying notes to financial statements
are an integral part hereof.

F-4

<PAGE>

BIG CITY BAGELS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-in Partners' Accumulated Treasury
Shares Amount Capital Capital Deficit Stock
-------- ------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995. . . . . . . . . 2,593,250 $2,819 $ 978,181 $ 408,515 $ (629,820) $(24,000)

Purchase of treasury stock . . . . . . . . (56,375) (6,000)

Reissuance of treasury stock . . . . . . . 281,875 (6,000) 30,000

Net (loss) . . . . . . . . . . . . . . . . (153,059) (673,790)
---------- ------ --------- ---------- ----------- --------
Balance - December 31, 1995. . . . . . . . 2,818,750 2,819 972,181 255,456 (1,303,610) - 0 -

Issuance of Bridge units and warrants. . . 500,000 500 683,042

Exchange of partnership interests for
common stock. . . . . . . . . . . . . . 181,250 181 500,565 (211,199)

Termination of S corporation status. . . . (2,167,800) 2,167,800

Shares issued through public offering. . . 1,293,750 1,294 4,137,315

Shares issued as compensation. . . . . . . 15,000 15 59,985

Options issued as compensation . . . . . . 40,000

Issuance of common stock for acquisition
of franchise stores . . . . . . . . . . 115,007 115 114,892

Amortization of compensatory stock . . . .

Net (loss) . . . . . . . . . . . . . . . . (44,257) (2,493,194)
---------- ------ --------- --------- ----------- --------

Balance - December 31, 1996. . . . . . . . 4,923,757 4,924 4,340,180 - 0 - (1,629,004) - 0 -

Issuance of common stock for
acquisition of franchise store. . . . . 8,264 8 8,256

Amortization of compensatory stock . . . .

Net (loss) (unaudited) . . . . . . . . . . (802,606)
---------- ------ --------- ---------- ----------- --------

BALANCE - MARCH 31, 1997 (UNAUDITED) . . . 4,932,021 $4,932 $4,348,436 $ - 0 - $(2,431,610) $ - 0 -
========== ======= ========== ========== ============ ========
</TABLE>

<TABLE>
<CAPTION>
Unearned Portion of
Compensatory Stock
------------------
Shares Amount Total
-------- ------- -----------
<S> <C> <C> <C>
Balance - January 1, 1995. . . . . . . . . $ 735,695

Purchase of treasury stock . . . . . . . . (6,000)

Reissuance of treasury stock . . . . . . . 24,000

Net (loss) . . . . . . . . . . . . . . . . (826,849)
-----------
Balance - December 31, 1995. . . . . . . . (73,154)

Issuance of Bridge units and warrants. . . 683,542

Exchange of partnership interests for
common stock. . . . . . . . . . . . . . 289,547

Termination of S corporation status. . . . - 0 -

Shares issued through public offering. . . 4,138,609

Shares issued as compensation. . . . . . . 15,000 $(60,000) - 0 -

Options issued as compensation . . . . . . 40,000

Issuance of common stock for acquisition
of franchise stores . . . . . . . . . . 115,007

Amortization of compensatory stock . . . . 22,500 22,500

Net (loss) . . . . . . . . . . . . . . . . (2,537,451)
------- --------- -----------
Balance - December 31, 1996. . . . . . . . 15,000 (37,500) 2,678,600

Issuance of common stock for
acquisition of franchise store. . . . . 8,264

Amortization of compensatory stock . . . . 7,500 7,500

Net (loss) (unaudited) . . . . . . . . . . (802,606)
------- --------- -----------
BALANCE - MARCH 31, 1997 (UNAUDITED) . . . 15,000 $(30,000) $ 1,891,758
======= ========= ===========
</TABLE>

The accompanying notes to financial statements
are an integral part hereof.

F-5

<PAGE>

BIG CITY BAGELS, INC.

STATEMENTS OF CASH FLOWS

Year Ended Three Months Ended
December 31, March 31,
--------------------------- ---------------------------
1996 1995 1997 1996
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . .. $(2,537,451) $ (826,849) $ (802,606) $ (632,643)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 155,166 115,862 60,633 33,488
Amortization of debt discount . . . . . . . . . . . . . . 683,542 426,483
Issuance of common stock for compensation . . . . . . . . 22,500 7,500
Issuance of compensatory stock options . . . . . . . . . 40,000
(Increase) decrease in:
Interest receivable on United States Treasury bills . . (21,135) 14,337
Accounts receivable . . . . . . . . . . . . . . . . . . (102,970) (5,607) (14,516) (64,461)
Inventory . . . . . . . . . . . . . . . . . . . . . . . (26,339) (753) 6,431 (81)
Prepaid expenses and other current assets . . . . . . . (67,559) (238) 2,599 (8,750)
Security deposits . . . . . . . . . . . . . . . . . . . (7,623) (1,922) (11,411)
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . . (70,379) 170,855 32,975 (126,529)
Accrued expenses . . . . . . . . . . . . . . . . . . . 24,663 18,788 9,411 27,489
Unearned franchise fee income . . . . . . . . . . . . . (45,500) 244,250 65,500 16,000
Deferred rent payable . . . . . . . . . . . . . . . . . (7,018) 4,968 (2,862)
------------ ------------ ------------ ------------
Net cash (used in) operating activities . . . . . . . (1,960,103) (280,646) (632,009) (329,004)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Acquisition of franchises . . . . . . . . . . . . . . . . . . (50,000) (75,000)
Purchases of fixed assets . . . . . . . . . . . . . . . . . . (81,864) (54,181) (13,030) (30,351)
Purchase of United States Treasury bills . . . . . . . . . . (1,231,842) (243,880)
Sales of United States Treasury bills . . . . . . . . . . . . 246,807 250,000
------------ ------------ ------------ ------------
Net cash (used in) investing activities . . . . . . . (1,116,899) (54,181) (81,910) (30,351)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from public offering . . . . . . . . . . . . . . . . 4,163,609
Proceeds from (repayment of) stockholder loans . . . . . . . (375,000) 253,468 (23,700) (235)
Proceeds from notes payable . . . . . . . . . . . . . . . . . 101,648 225,000
Repayment of notes payable . . . . . . . . . . . . . . . . . (94,742) (2,892) (15,024) (73,252)
Purchase of treasury stock . . . . . . . . . . . . . . . . . (6,000)
Deferred registration costs . . . . . . . . . . . . . . . . . (25,000) (150,756)
Proceeds from Bridge loan and rights to receive bridge units 1,000,000 1,000,000
Repayment of Bridge loan . . . . . . . . . . . . . . . . . (1,000,000)
Promissory note receivable . . . . . . . . . . . . . . . . . (15,000)
------------ ------------ ------------ ------------
Net cash provided by financing activities . . . . . 3,693,867 321,224 186,276 760,757
------------ ------------ ------------ ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . 616,865 (13,603) (527,643) 401,402

Cash and cash equivalents - beginning of period . . . . . . . . 37,991 51,594 654,856 37,991
----------- ----------- ----------- -----------

CASH AND CASH EQUIVALENTS - END OF PERIOD . . . . . . . . . . . $ 654,856 $ 37,991 $ 127,213 $ 439,393
=========== =========== =========== ===========

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,006 $ 2,795 $ 12,633 $ 33,563
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,925 3,578 1,900 1,925
Supplemental schedule of noncash activities:
Franchise costs acquired by the issuance of 181,250 shares
of common stock for the partnership interest of
Pumpernickel Partners, L.P. and the capital stock of
Bagel Partners, Inc. . . . . . . . . . . . . . . . . . . . 289,547
Compensatory issuance of common stock . . . . . . . . . . . . 60,000
The Company acquired all of the assets of two franchises
in October 1996 and one franchise in February 1997
for the following:
Forgiveness of outstanding accounts receivable . . . . . $ 12,487 $ 8,796
Issuance of 115,007 shares of common stock . . . . . . . 115,007
Issuance of 8,264 shares of common stock . . . . . . . . 8,264
Assumption of capital lease obligations . . . . . . . . . 180,830
------------ ------------
308,324 17,060
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . 50,000 75,000
------------ ------------
Total amount attributed to fixed assets . . . . $ 358,324 $ 92,060
============ ===========
</TABLE>

The accompanying notes to financial statements
are an integral part hereof.

F-6

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three
months ended March 31, 1997 and March 31, 1996 is unaudited)

(NOTE A) - The Company and Basis of Presentation:

The Company operates and franchises retail bagel stores and sells its
products wholesale to commercial accounts and food service operators. In May
1996, the Company effected a 28,187.5 for 1 stock split of its common stock in
the form of a stock dividend payable to shareholders of record on April 1, 1996.
The accompanying financial statements reflect the stock split retroactively.

The accompanying financial statements for the periods through May 13,
1996 include the combined accounts of the Company and two affiliated companies
which were under common control. On May 13, 1996, the Company acquired the two
affiliated entities for 181,250 shares of its common stock. The transaction was
accounted for as a purchase of the interests of the unaffiliated owners of the
acquired entities resulting in an excess of the fair value of shares issued over
the fair value of the unaffiliated parties interests of $289,547, which amount
was assigned to franchise costs. The shares issued to affiliated parties were
valued at the book amount of their interests. All significant intercompany
balances and transactions were eliminated in combination.

In order to assist the Company in satisfying working capital
requirements, three stockholders of the Company have agreed to defer repayment
of the stockholder loans (see Note F) and to loan up to $300,000 to the Company,
as needed. The new loans will bear interest at 12% per annum and are payable on
the earlier of June 30, 1998 or such time as the Company has $750,000 of funds
in bank accounts, money market funds and United States Treasury Bills (the
"Liquidity Date"). Additionally, two officers of the Company have agreed to
defer a portion of their salaries (see Note G[2]).

(NOTE B) - Summary of Significant Accounting Policies:

[1] Inventory:

Inventory is stated at the lower of cost (first-in, first-out) or
market.

[2] Depreciation:

Fixed assets are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets.

(continued)

F-7

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three
months ended March 31, 1997 and March 31, 1996 is unaudited)

(NOTE B) - Summary of Significant Accounting Policies: (continued)

[3] Franchise fees:

Franchise fees include fees earned from area development
agreements and franchise agreements.

Under an area development agreement, a developer purchases the
right to develop a specified area for future franchises. Area development fees
are recognized as revenue on a pro rata basis as each store in the area is
opened.

Generally, franchise agreements provide for a franchise fee of
$30,000 for a franchisee's first store and $25,500 for subsequent stores. A
deposit is required at the signing of the franchise agreement and the balance is
payable when the franchisee obtains a lease commitment for the site. The
Company's initial obligations under the franchise agreement are to provide
operational guidelines and manuals, to assist in and approve the proposed site
selection and to provide training to the franchisee. Revenues are recognized
when substantially all material obligations have been provided, historically
upon opening of the respective store.

[4] Royalty income:

Franchise agreements provide for royalties of 4% of gross sales,
which are recognized as income when earned.

[5] Cash and cash equivalents:

The Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.

[6] Long-lived assets:

In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", the Company records impairment losses on long-lived
assets used in operations, including intangible assets, when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No such losses have been recorded.

(continued)

F-8

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three
months ended March 31, 1997 and March 31, 1996 is unaudited)

(NOTE B) - Summary of Significant Accounting Policies: (continued)

[7] 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.

[8] Stock-based compensation:

During 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). The provisions of SFAS No. 123 allow companies to either expense the
estimated fair value of stock options or to continue to follow the intrinsic
value method set forth in Accounting Principles Bulletin Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") but disclose the pro
forma effects on net income (loss) had the fair value of the options been
expensed. The Company has elected to continue to apply APB No. 25 in accounting
for its employee stock option incentive plans (see Note J).

[9] Net loss per share:

Net loss per share is calculated using the weighted-average
number of shares of common stock outstanding during each period retroactively
adjusted for the 28,187.5 to 1 split and the shares issued for affiliated
entities described in Note A. Common stock issuable upon the exercise of stock
options and warrants is not included in the calculation as the effect would be
antidilutive.

[10] Unaudited financial statements:

In the opinion of management, the unaudited financial statements
include all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the Company's financial position at March 31, 1997 and
results of operations and cash flows for the three-month periods ended March 31,
1997 and March 31, 1996. The financial statements as of March 31, 1997 and for
the three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.

(continued)

F-9

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three
months ended March 31, 1997 and March 31, 1996 is unaudited)

(NOTE B) - Summary of Significant Accounting Policies: (continued)

[11] New accounting pronouncement:

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". SFAS
128 establishes new standards for computing and presenting earnings per share.
SFAS 128 is effective for periods ending after December 15, 1997. The Company
has not yet quantified what effect, if any, the adoption of SFAS 128, will have
on its net (loss) per share of common stock.

(NOTE C) - Fixed Assets:

Fixed assets consist of the following:

December 31, March 31,
1996 1997 Life
---------- ---------- -------------
Furniture and fixtures. . . . $ 297,518 $ 304,281 7 to 15 years
Machinery and equipment . . . 660,905 755,447 5 to 15 years
Leasehold improvements. . . . 577,651 581,436 Life of leases
---------- ----------

T o t a l . . . . . 1,536,074 1,641,164

Less accumulated depreciation 296,596 350,198
---------- ----------

B a l a n c e . . . $1,239,478 $1,290,966
========== ==========

(NOTE D) - Intangible Assets:

Intangible assets at cost, are amortized using the straight-line method
and consist of the following:

December 31, March 31,
1996 1997 Life
----------- -------- --------
Franchise costs . . . . . . . $289,547 $289,547 15 years
Organization cost . . . . . . 48,099 48,099 5 years
Trademark costs . . . . . . . 3,000 3,000 15 years
-------- ---------

T o t a l . . . . . 340,646 340,646

Less accumulated amortization 39,947 46,978

B a l a n c e . . . $300,699 $293,668
========= ========

(continued)

F-10

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three
months ended March 31, 1997 and March 31, 1996 is unaudited)

(NOTE E) - Capital Lease Obligations:

Capital lease obligations consist of the following:

December 31, March 31,
1996 1997
----------- --------
Equipment leases collateralized by
certain equipment, bearing interest at
rates from 11% to 22% and requiring
aggregate monthly payments of $7,435
through April 2001 . . . . . . . . . . $184,844 $169,820

Less current portion. . . . . . . . . . . 51,918 48,144
-------- --------
Long-term portion . . . . . . . . . . . . $132,926 $121,676
======== ========

Future maturities at March 31, 1997 are as follows:

Year Ending
December 31, Amount
----------- --------
1997 . . . . . . . . . . $ 36,894
1998 . . . . . . . . . . 47,754
1999 . . . . . . . . . . 55,816
2000 . . . . . . . . . . 25,592
2001 . . . . . . . . . . 3,764
--------

T o t a l . . . . $169,820
========

(NOTE F) - Stockholder Loans:

Stockholder loans are payable in monthly installments aggregating
$12,000 including interest at 10% commencing January 1, 1997. Effective April 1,
1997 the stockholders of the Company have agreed to defer their principal and
interest payments until the earlier of January 1, 1998 or the Liquidity Date.

(continued)

F-11

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 is unaudited)

(NOTE G) - Commitments:

[1] Operating leases:

The Company leases its commissary space and store locations under
various operating leases which expire between December 1997 and January 2006.
Future minimum rental payments as of March 31, 1997 are approximately as
follows:

Year Ending
December 31, Amount
------------ ----------
1997. . . . . . . . . . . . . $ 237,993
1998. . . . . . . . . . . . . 280,517
1999. . . . . . . . . . . . . 155,420
2000. . . . . . . . . . . . . 130,542
2001. . . . . . . . . . . . . 131,382
Thereafter. . . . . . . . . . 534,893
----------
T o t a l . . . . . . $1,470,747
==========

Rent expense for the years ended December 31, 1996 and December
31, 1995 was $198,142 and $170,526, respectively. Rent expense for the three
months ended March 31, 1997 and March 31, 1996 was $77,370 and $45,993,
respectively. Rent expense under the Company's lease for its commissary and one
store, which provides for scheduled rent increases, is recognized on a
straight-line basis over the term of the lease.

[2] Employment agreements:

The Company has entered into three year employment agreements,
effective as of January 1, 1996 with two officers providing for aggregate annual
salaries of $330,000 with annual increments of 10%. Commencing July 1, 1997, the
officers have agreed to defer an aggregate of $7,000 per month of their salaries
through the earlier of January 1, 1998 or The Liquidity Date.

The Company has also entered into agreements with two employees,
one of which provides for an annual salary of $105,000 through December 31, 1998
and the other of which provides for an annual salary of $100,000 through May 15,
1997.

(continued)

F-12

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 is unaudited)

(NOTE H) - Income Taxes:

The Company has a deferred tax asset of approximately $500,000 and
$1,000,000 at December 31, 1996 and March 31, 1997, respectively, which is
attributable principally to net operating loss carryforward. The deferred tax
asset is fully reserved because the realization of such benefit could not be
established. Prior to May 7, 1996, Big City qualified as an S corporation for
federal and state income tax purposes and an affiliated entity (Note A) was
taxed as a partnership. Accordingly, all losses incurred by the companies prior
to May 7, 1996 were reportable by the stockholders and partners and are not
available as carryforwards to the Company.

(NOTE I) - Franchises:

During 1996 the Company entered into franchise agreements for nineteen
stores, none of which were opened as of December 31, 1996. During 1995 the
Company entered into franchise agreements for twelve stores, of which nine were
opened in 1996. At December 31, 1996 and March 31, 1997 there were eight
franchised stores and six Company owned stores in operation. Deferred franchise
fees represent fees received in advance of store openings.

Effective October 1996, the Company repurchased two previously sold
franchise stores for an aggregate of $50,000 cash, 115,007 shares of the
Company's common stock valued at $115,007 and the assumption of capital lease
obligations aggregating $181,000. Assets acquired consisted of machinery and
equipment and leasehold improvements. The results of operations include the
activities of these stores from the acquisition date.

The following unaudited pro forma data gives effect to the above
acquisitions as though they had occurred upon the opening of the franchise
stores (March and April 1996).

Year Ended
December 31,
1996
------------

Total revenues. . . . . . . . . . $ 2,627,180

Net loss. . . . . . . . . . . . . (2,749,763)

Net loss per common share . . . . $(.65)

(continued)

F-13

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 is unaudited)

(NOTE I) - Franchises: (continued)

The unaudited pro forma information is not necessarily indicative of
results of operations that would have occurred had the acquisitions been made
upon the opening of the stores, or of future results of operations of the
Company.

Effective February 1997, the Company repurchased one previously sold
franchise store for $75,000 in cash and 8,264 shares of the Company's common
stock valued at $8,264. Assets acquired consisted of machinery and equipment.
The results of operations include the activity of this store from the
acquisition date.

(NOTE J) - Common Stock:

[1] Stock options:

The Company applies APB No. 25 in accounting for its stock option
incentive plan and, accordingly, recognizes compensation expense for the
difference between the fair value of the underlying common stock and the grant
price of the option at the date of grant. The effect of applying SFAS No. 123 on
1996 pro forma net loss and the pro forma net loss for the three months ended
March 31, 1997 is not necessarily representative of the effects on reported net
loss for future years due to, among other things, (1) the vesting period of the
stock options and the (2) fair value of additional stock options in future
years. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under the
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net loss in 1996 and for the three months ended March 31, 1997 would
have been approximately $2,582,000 or $0.62 per share and $983,000 or $0.20 per
share, respectively. The weighted-average fair value of the options granted
during 1996 is estimated at $2.65 per share on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield 0%, volatility of 70%, risk-free interest rate of 6.18% and expected life
of six years. The weighted-average fair value of the options granted during the
three months ended March 31, 1997 is estimated at $3.69 per share on the date of
the grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of 70%, risk-free interest rate of
6.90% and expected life of six years.

(continued)

F-14

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 is unaudited)

(NOTE J) - Common Stock: (continued)

[1] Stock options: (continued)

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, which
generally vest over four years, 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. In March 1996,
the Company granted a restricted stock award of 15,000 shares of common stock
vesting in March 1998, to an employee. At March 31, 1997 and December 31, 1996
the Company has reserved 335,000 shares of common stock for issuance under the
Plan.

Additional information with respect to the Plan's activity is
summarized as follows:

Year Ended Three Months Ended
December 31, 1996 March 31, 1997
----------------- -------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options outstanding at
beginning of period. . . 32,000 $3.93
Options granted . . . . . . 32,000 $3.93 50,000 $5.375
------- -------
Options outstanding at
end of period. . . . . . 32,000 $3.93 82,000 $4.81
======= =======
Options exercisable at
end of period. . . . . . 2,000 $8.50 52,000 $5.50
====== =======

(continued)

F-15

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 is unaudited)

(NOTE J) - Common Stock: (continued)

[1] Stock options: (continued)

The following tables summarize information about stock options
outstanding and exercisable:

(i) At December 31, 1996

</TABLE>
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Weighted- Options Exercisable
Average ----------------------------
Remaining Weighted- Weighted-
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Price Outstanding (in Years) Price Exercisable Price
-------------- ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$3.25 to $4.00 30,000 10.2 $3.63

$8.50 2,000 9.5 8.50 2,000 $8.50
------- ------
32,000 10.1 $3.93 2,000 $8.50
======= ======
</TABLE>

At December 31, 1996, options for 303,000 shares of common stock
were available for future grant under the Plan.

(ii) At March 31, 1997

Options Outstanding
-------------------------------------------
Weighted- Options Exercisable
Average ----------------------------
Remaining Weighted- Weighted-
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Price Outstanding (in Years) Price Exercisable Price
-------------- ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$3.25 to $4.00 30,000 9.9 $3.63

$5.375 50,000 10.0 $5.375 50,000 $5.375
-------
$8.50 2,000 9.3 $8.50 2,000 $8.50
------- -------
82,000 52,000 $5.50
======= =======

</TABLE>

At March 31, 1997, options for 253,000 shares of common stock
were available for future grant under the Plan.

(continued)

F-16

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 is unaudited)

(NOTE J) - Common Stock: (continued)

[2] Warrants and unit purchase options:

As at March 31, 1997 and December 31, 1996, the Company has the
following warrants and unit purchase options outstanding:

Shares Reserved Exercise Expiration
for Issuance Price Date
--------------- -------- ---------
Class A warrants (i) (ii)
(iv). . . . . . . . . . 1,793,750 $4.50 May 7, 2000
Class B warrants (ii) (iv) 250,000 8.00 May 7, 2000
Unit purchase option (iii) 225,000 (iii) May 7, 2001

(i) Consists of 1,293,750 warrants included in the units issued in
connection with the initial public offering and 500,000
warrants included in the bridge units (Note K).

(ii) Redeemable at $.05 per warrant providing the market value of
the Company common stock reaches certain levels.

(iii) The underwriters were issued a purchase option for
112,500 units, each unit consisting of one share of
common stock and one warrant. The unit purchase option
is exercisable at a price of $4.80 per unit. The warrant
included in the unit is exercisable for one share of
common stock at a price of $4.50 per share. Both the
unit purchase option and the underlying warrants expire
May 7, 2001.

(iv) The Company is contemplating an offering whereby the
exercise price of the Class A warrants and Class B
warrants will be reduced to $2.50 per share for a period
of 60 days (plus up to 30 additional days at the
Company's discretion) (the "Special Exercise Period")
upon the effective date of the offering. During the
Special Exercise Period, each Class A warrant entitles
the holder thereof to purchase, at a price of $2.50, one
share of common stock and one new Class A warrant which
expires on May 7, 2000 ("New Class A Warrant"). New
Class A Warrants become exercisable upon the expiration
of the Special Exercise Period. If the offering derives
at least $2,000,000 of gross proceeds from the exercise
of the Class A warrants, then the exercise price of the
Class A warrants and the New Class A Warrants will be
$2.50 per share until the expiration date of such
warrants. If the offering derives less than $2,000,000

(continued)

F-17

<PAGE>

BIG CITY BAGELS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information with respect to March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 is unaudited)

(NOTE J) - Common Stock: (continued)

[2] Warrants and unit purchase options: (continued)

(iv) (continued)

of gross proceeds from the exercise of the Class A warrants,
then the exercise price of the Class A warrants and the New
Class A Warrants will be $4.50 per share until the expiration
of such warrants. Additionally, during the Special Exercise
Period, one Class B warrant will entitle the holder thereof to
purchase, at a price of $2.50, one share of common stock and
one New Class A Warrant. Upon expiration of the Special
Exercise Period the Class B warrants revert to their original
form (see Note K).

(NOTE K) - 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 and (ii) the right to
receive upon the completion of the public 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 Class A warrant. Two Class B warrants, together, entitle the holder to
purchase one share of common stock for $8.00 through May 7, 2000. The units and
warrants were valued at $684,000 and were accounted for as a debt discount which
was fully amortized as of the consummation of the public offering. The
promissory notes were repaid with the proceeds of the public offering.

(NOTE L) - Subsequent Event:

On July 7, 1997 the Company increased the number of shares of common
stock authorized to 25,000,000.

F-18

<PAGE>

===================================== =====================================

NO DEALER, SALESPERSON OR ANY OTHER 1,793,750 SHARES OF COMMON STOCK
PERSON HAS BEEN AUTHORIZED TO GIVE ANY UNDERLYING CLASS A REDEEMABLE
INFORMATION OR TO MAKE ANY COMMON STOCK PURCHASE WARRANTS
REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN 2,293,750 NEW CLASS A REDEEMABLE
THIS PROSPECTUS AND, IF GIVEN OR MADE, COMMON STOCK PURCHASE WARRANTS
SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN 2,293,750 SHARES OF COMMON STOCK
AUTHORIZED BY THE COMPANY OR BY THE UNDERLYING NEW CLASS A REDEEMABLE
UNDERWRITER. THIS PROSPECTUS DOES NOT COMMON STOCK PURCHASE WARRANTS
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY 500,000 SHARES OF COMMON STOCK
SECURITY OTHER THAN THE SECURITIES UNDERLYING CLASS B REDEEMABLE
OFFERED BY THIS PROSPECTUS, OR AN OFFER COMMON STOCK PURCHASE WARRANTS
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IS
UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.

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

TABLE OF CONTENTS

BIG CITY BAGELS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
Use of Proceeds.........................12
Price Range of Securities...............12
Dilution................................13
Capitalization..........................14
Dividend Policy.........................14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............15 ----------
Business................................19 PROSPECTUS
Management..............................25 ----------
Principal Shareholders..................28
Certain Relationships and Related
Transactions.........................29
Description of Securities . ............29
Shares Eligible for Future Sale.........34
Legal Matters...........................34
Experts.................................34
Available Information...................34
Index to Financial Statements..........F-1
</TABLE>

, 1997

===================================== =====================================

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Sections 721 through 726, inclusive, of the New York Business
Corporation Law ("BCL") authorizes New York corporations to indemnify their
officers and directors under certain circumstances against expenses and
liabilities incurred in legal proceedings involving such persons because of
their being or having been officers or directors and to purchase and maintain
insurance for indemnification of such officers and directors.

Section 402(b) of the BCL permits a corporation, by so providing in its
certificate of incorporation, to eliminate or limit directors' personal
liability to the corporation or its shareholders for damages arising out of
certain alleged breaches of their duties as directors. The BCL, however,
provides that no such limitation of liability may affect a director's liability
with respect to any of the following: (i) acts or omissions made in bad faith or
which involved intentional misconduct or a knowing violation of law; (ii) the
declaration of dividends or other distributions or repurchase or redemption of
shares in violation of the BCL; (iii) the distribution of assets after
dissolution or making of loans to directors in violation of the BCL; or (iv) any
transaction from which the director derived a financial profit or other
advantage to which he was not legally entitled.

The Company's Restated Certificate of Incorporation provides that the
personal liability of the directors of the Company is eliminated to the fullest
extent permitted by Section 402(b) of the BCL. In addition, the By-Laws of the
Company provide in substance that, to the fullest extent permitted by New York
law, each director and officer shall be indemnified by the Company against
reasonable expenses, including attorney's fees, and any liabilities which he or
she may incur in connection with any action to which he or she may be made a
party by reason of his or her being or having been a director or officer of the
Company. The indemnification provided by the Company's ByLaws is not deemed
exclusive of or in any way to limit any other rights which any person seeking
indemnification may be entitled.

ITEM 25. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.

The Company estimates that expenses payable by it in connection with
the Offering described in this Registration Statement (other than the
underwriting discount and commissions and reasonable expense allowance) will be
as follows:

<TABLE>

<S> <C>
SEC registration fee.................................................... $ 2,012.31
Nasdaq filing fee....................................................... 2,226.48
Printing expenses....................................................... 20,000.00
Accounting fees and expenses............................................ 20,000.00
Legal fees and expenses (other than Blue Sky)........................... 30,000.00
Blue sky fees and expenses (including legal and filing fees)............ 30,000.00
Nasdaq filing fees...................................................... 7,500.00
Miscellaneous........................................................... 18,261.21
-----------
Total.......................................................... $130,000.00
===========
</TABLE>

<PAGE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

The following securities were issued by the Company within the past
three years and were not registered under the Securities Act.

CONSIDERATION
RECEIVED AND IF OPTION,
DESCRIPTION OF WARRANT OR
UNDERWRITING OR CONVERTIBLE
OTHER DISCOUNTS TO EXEMPTION SECURITY,
MARKET PRICE FROM TERMS OF
NUMBER AFFORDED TO REGISTRATION EXERCISE OR
DATE OF SALE TITLE OF SECURITY SOLD PURCHASERS CLAIMED CONVERSION
- ------------ ----------------- ---- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
9/94 and 8/95 Common Stock 281,875 $24,000 4(2) N/A
- -------------------------------------------------------------------------------------------------------------------------
1/96 - 12/96 options to 32,000 options granted - no 4(2) exercisable for
purchase Common consideration ten years from
Stock granted to received by date of grant at
employees Company until exercise prices
exercise ranging from
$3.25 to $8.50
- -------------------------------------------------------------------------------------------------------------------------
3/31/96 Common Stock 15,000 restricted stock 4(2) N/A
issued to employee
- -------------------------------------------------------------------------------------------------------------------------
5/13/96 Common Stock 181,250 assets of two 4(2) N/A
franchises
- -------------------------------------------------------------------------------------------------------------------------
12/19/96 Common Stock 54,055 assets of franchise 4(2) N/A
- -------------------------------------------------------------------------------------------------------------------------
12/31/96 Common Stock 60,952 assets of franchise 4(2) N/A
- -------------------------------------------------------------------------------------------------------------------------
2/1/97 Common Stock 8,264 assets of franchise 4(2) N/A
- -------------------------------------------------------------------------------------------------------------------------

</TABLE>

II-2

<PAGE>

ITEM 27. EXHIBITS

(a) The following exhibits are filed as part of this Registration
Statement:

Incorporated
by Reference No. in
Exhibit No. Description from Document Document
- ----------- ----------- ------------- --------
<S> <C> <C> <C>
2.1 Form of Agreement and Plan of Contribution among the A 2.1
Company and the partners of Pumpernickel Partners, L.P.

3.1 Restated Certificate of Incorporation A 3.1

3.1.2 Amendment to Restated Certificate of Incorporation #

3.2 Restated By-laws A 3.2

4.1 Form of Common Stock Certificate A 4.1

4.2 Form of Class A Warrant Certificate A 4.2

4.3 Form of Class A Warrant Agreement between Continental Stock A 4.3
Transfer & Trust Company and the Company

4.3.1 Form of Amendment to Form of Class A Warrant Agreement #
between Continental Stock Transfer & Trust Company and the
Company

4.4 Form of Class B Warrant A 4.4

4.4.1 Form of Amendment to Class B Warrant #

5.1 Opinion of Graubard Mollen & Miller *

10.1 Form of Financial Consulting Agreement between the Company A 10.1
and the Underwriter

10.2 Employment Agreement between the Company and Mark A 10.2
Weinreb

10.2.1 Amendment to Employment Agreement between the Company #
and Mark Weinreb

10.3 Employment Agreement between the Company and Jerry Rosner A 10.3

10.3.1 Amendment to Employment Agreement between the Company #
and Jerry Rosner

10.4 1996 Performance Equity Plan A 10.4

10.5 Master Distribution Agreement, dated January 1, 1996, between A 10.5
the Company and Sysco Food Services of Los Angeles, Inc.

10.6 Form of Franchise Agreement A 10.6

10.7 Form of Area Development Agreement A 10.7

10.8 Form of Founders' Shareholder Agreement A 10.8

</TABLE>

II-3

<PAGE>

Incorporated
by Reference No. in
Exhibit No. Description from Document Document
- ----------- ----------- ------------- --------
<S> <C> <C> <C>
10.9.1 Consolidation Agreement and Promissory Note, dated April 30, A 10.9.1
1996, between the Company and Mark Weinreb

10.9.1(a) Agreement to Loan Funds and Amendment to Consolidation #
Agreement and Promissory Note, dated April 30, 1996, between
the Company and Mark Weinreb

10.9.2 Consolidation Agreement and Promissory Note, dated April 30, A 10.9.2
1996, between the Company and Stanley Weinreb

10.9.2(a) Agreement to Loan Funds and Amendment to Consolidation #
Agreement and Promissory Note, dated April 30, 1996, between
the Company and Stanley Weinreb

10.9.3 Consolidation Agreement and Promissory Note, dated April 30, A 10.9.3
1996, between the Company and Stanley Raphael

10.9.3(a) Agreement to Loan Funds and Amendment to Consolidation #
Agreement and Promissory Note, dated April 30, 1996, between
the Company and Stanley Raphael

23.1 Consent of Richard A. Eisner & Company, LLP *

23.2 Consent of Graubard Mollen & Miller (included in Exhibit 5.1) *

24.1 Power of Attorney (included in signature page to Registration #
Statement)

99.1 Notice to Holders of Class A Warrants #
</TABLE>

- -------------------
* Filed herewith.

# Previously filed.

A The Company's Registration Statement on Form SB-2 (No. 333-2154) declared
effective by the Commission on May 7, 1996.

II-4

<PAGE>

ITEM 28. UNDERTAKINGS.

The undersigned Company hereby undertakes to:

1. For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1), or (4), or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Commission declared it effective.

2. For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.

The undersigned Company hereby undertakes to:

1. File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:

(a) include any prospectus required by Section 10(a)(3) of the
Securities Act;

(b) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective Registration
Statement;

2. For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-5

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and authorized this amendment to its
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Hicksville, State of New York, on July 7, 1997.

BIG CITY BAGELS, INC.

By: /s/ Mark Weinreb
-----------------------
Mark Weinreb, Chairman of the Board
and Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.

<TABLE>

<S> <C> <C>
Chairman of the Board, Chief
Executive Officer and Chief
/s/ Mark Weinreb Financial Officer (and principal
- ---------------------------- accounting officer) July 7, 1997
Mark Weinreb

* President and Director July 7, 1997
- ----------------------------
Jerry Rosner

* Vice President and Director July 7, 1997
- ----------------------------
Stanley Weinreb

* Secretary and Director July 7, 1997
- ----------------------------
Stanley Raphael

Director
- ----------------------------
Stephen J. Drescher

*By /s/ Mark Weinreb
-------------------------
Mark Weinreb as Attorney-in-Fact
</TABLE>

II-6

<PAGE>

EXHIBIT INDEX

Exhibit No. Description
- ---------- ------------
<S> <C>
5.1 Opinion of Graubard Mollen & Miller

23.1 Consent of Richard A. Eisner & Company, LLP

23.2 Consent of Graubard Mollen & Miller (included in Exhibit 5.1)

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STATEMENT OF DIFFERENCES
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The registered trademark symbol shall be expressed as .... 'r'

II-7

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Exhibit 5.1

Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097

July 7, 1997

Big City Bagels, Inc.
99 Woodbury Road
Hicksville, New York 11801

Gentlemen:

Reference is made to the Registration Statement on Form SB-2
("Registration Statement") filed by Big City Bagels, Inc. ("Company") under the
Securities Act of 1933, as amended ("Securities Act") with respect to: (i) up to
an aggregate of 2,406,250 shares of common stock, par value $.001 per share
("Common Stock") issuable upon exercise of Class A Redeemable Common Stock
Purchase Warrants ("Class A Warrants"); (ii) 250,000 shares of Common Stock
issuable by the Company upon exercise of outstanding Class B Redeemable Common
Stock Purchase Warrants ("Class B Warrants"); and (iii) up to 2,406,250 Class A
Warrants issuable upon exercise of outstanding Class A Warrants and Class B
Warrants and Class A Warrants reserved for issuance.

We have examined such documents and considered such legal
matters as we have deemed necessary and relevant as the basis for the opinion
set forth below. With respect to such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as reproduced or certified copies, and the authenticity of the originals of
those latter documents. As to questions of fact material to this opinion, we
have, to the extent deemed appropriate, relied upon certain representations of
certain officers of the Company. Based upon the foregoing, it is our opinion
that:

(i) The shares of Common Stock to be issued upon exercise of
the Class A Warrants, when issued in accordance with the terms of the Class A
Warrants and in the manner provided in the Registration Statement, will be
legally issued, fully paid and non-assessable.

(ii) The shares of Common Stock to be issued upon exercise of
the Class B Warrants, when issued in accordance with the terms of the Class B
Warrants and in the manner provided in the Registration Statement, will be
legally issued, fully paid and non-assessable.

(iii) The Class A Warrants to be issued upon exercise of the
Class A Warrants and the Class B Warrants, when issued in accordance with the
terms of the Class A Warrants and the Class B Warrants and in the manner
provided in the Registration Statement, will be legally issued, fully paid and
non-assessable.

In giving this opinion, we have assumed that all certificates
for the Company's shares of Common Stock and Class A Warrants will, prior to
their issuance, be duly executed on behalf of the Company by the Company's
transfer and/or warrant agent and registered by the Company's registrar, if
necessary, and will conform, except as to denominations, to specimens which we
have examined.

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Big City Bagels, Inc.
July 7, 1997
Page 2

We hereby consent to the use of this opinion as an exhibit to
the Registration Statement, to the use of our name as your counsel, and to all
references made to us in the Registration Statement and in the Prospectus
forming a part thereof. In giving this consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations promulgated thereunder.

Very truly yours,

GRAUBARD MOLLEN & MILLER

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Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated February 26, 1997 relating to
the financial statements of Big City Bagels, Inc., which is contained in that
Prospectus.

We also consent to the reference to us under the caption "Experts" in
the Prospectus.

Richard A. Eisner & Company, LLP

New York, New York
July 7, 1997