U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the quarterly period ended September 30,1997
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________to__________
Commission File number 0-28058
BIG CITY BAGELS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-3137508
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
99 Woodbury Road, Hicksville, NY 11801
(Address of Principal Executive Offices)
(516) 932-5050
(Issuer's Telephone Number Including Area Code)
-------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since
Last Report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At November 13, 1997, Issuer had
outstanding 6,343,466 shares of Common stock, par value $.001 per share.
Page 1 of 15 Pages
Exhibit Index - Page 14
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BIG CITY BAGELS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,1997 December 31,1996
------------------------ -------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,827,170 $ 654,856
United States Treasury Bills 0 1,006,170
Accounts Receivable 175,969 110,063
Inventory 59,751 74,272
Prepaid Expenses and Other Current Assets 67,988 77,131
------------------------ -------------------------
Total Current Assets $ 2,130,878 $ 1,922,492
Fixed Assets, Net of Accumulated Depreciation 1,192,659 1,239,478
Intangible Assets, Net of Accumulated Amortization 289,604 300,699
Security Deposits 53,029 39,570
------------------------ -------------------------
TOTAL $ 3,666,170 $ 3,502,239
======================== =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Stockholders' Loans $ 21,813 $ 87,468
Capital Lease Obligations 49,764 51,918
Unearned Franchise Fee Income 278,500 263,750
Accounts Payable 219,260 208,011
Accrued Expenses 47,080 60,323
------------------------ -------------------------
Total Current Liabilities $ 616,417 $ 671,470
Deferred Rent Payable 10,657 19,243
Capital Lease Obligations, noncurrent 97,817 132,926
------------------------ -------------------------
Total Liabilities $ 724,891 $ 823,639
------------------------ -------------------------
Stockholders' Equity
Preferred Stock $.001 par value; 1,000,000 shares
authorized; no shares outstanding
Common Stock $.001 par value; 25,000,000 shares authorized;
5,768,871 and 4,923,757 shares issued and outstanding at
September 30,1997 and December 31,1996, respectively 5,769 4,924
Additional Paid-In Capital 6,579,000 4,340,180
Accumulated Deficit (3,628,490) (1,629,004)
Unearned Portion of Compensatory Stock (15,000) (37,500)
------------------------ -------------------------
Total Stockholders' Equity 2,941,279 2,678,600
------------------------ -------------------------
TOTAL $ 3,666,170 $ 3,502,239
======================== =========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
BIG CITY BAGELS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Product Sales by Company-Owned $ 1,279,682 $ 1,033,914 $ 398,267 $ 352,864
Stores
Product Sales to Franchisees and Others 506,901 303,350 172,775 105,062
Franchise Fees 151,000 271,000 91,000 85,500
Royalty Income 124,679 89,031 37,036 36,886
Interest Income 37,804 50,340 6,815 31,378
------------------ ------------------- ----------------- -----------------
Total Revenues 2,100,066 1,747,635 705,893 611,690
------------------ ------------------- ----------------- -----------------
COSTS AND EXPENSES:
Cost of Sales 1,052,944 713,390 351,234 251,511
Selling, General and Administrative 3,013,432 2,098,392 865,915 849,534
Amortization of Debt Discount 0 683,542 0 0
on Bridge Loan
Interest Expense 33,176 64,566 8,592 6,196
------------------ ------------------- ----------------- -----------------
Total Costs and Expenses 4,099,552 3,559,890 1,225,741 1,107,241
------------------ ------------------- ----------------- -----------------
NET (LOSS) $(1,999,486) $(1,812,255) $(519,848) $ (495,551)
================== =================== ================= =================
Net (Loss) Per Common Share $ (0.39) $ (0.46) $ (0.10) $ (0.10)
================== =================== ================= =================
Weighted Average Common Shares
Outstanding 5,065,823 3,933,079 5,331,848 4,808,750
================== =================== ================= =================
</TABLE>
- -----------
* Reclassified to conform to current period presentation.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
BIG CITY BAGELS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Unearned Portion of
Paid-In Accumulated Compensatory Stock
Shares Amount Capital Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 4,923,757 $ 4,924 $ 4,340,180 $ (1,629,004) 15,000 $ (37,500) $ 2,678,600
Issuance of Common Stock for
Acquisition of Franchise Store 8,264 8 8,256 8,264
Common Stock Issued 724,350 724 1,690,677 1,691,401
Upon Exercise of Warrants
Common Stock Issued
Upon Exercise of the
Unit Purchase Option 112,500 113 539,887 540,000
Amortization of Compensatory Stock 22,500 22,500
Net Loss (1,999,486) (1,999,486)
----------- -------- ------------- -------------- --------- -------- ------------
BALANCE, September 30, 1997 5,768,871 $ 5,769 $ 6,579,000 $ (3,628,490) 15,000 $ (15,000) $ 2,941,279
=========== ======== ============= ============== ========= ======== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
BIG CITY BAGELS, INC.
CASH FLOWS STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,999,486) $(1,812,255)
-------------------- ------------------
Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities:
Depreciation and Amortization 182,645 121,786
Amortization of Debt Discount on Bridge Loans 0 683,542
Issuance of Common Stock for Compensation 22,500 0
(Increase) Decrease in:
Accounts Receivable (65,906) (74,867)
Inventory 14,521 (9,803)
Notes Receivable 0 (40,000)
Interest Receivable on U.S. Treasury Bills 21,135 0
Prepaid Expenses and Other Current Assets 9,143 (32,292)
Increase (Decrease) in:
Unearned Franchise Fee Income 14,750 (67,250)
Deferred Rent Payable (8,586) (5,264)
Accounts Payable 11,249 (103,933)
Accrued Expenses (13,243) (27,252)
-------------------- ------------------
Total Adjustments 188,208 444,667
-------------------- ------------------
Net Cash Used in Operating Activities (1,811,278) (1,367,588)
-------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Franchise Store (75,000) 0
Purchases of Fixed and Intangible Assets (32,244) (61,929)
Increase in Security Deposits (13,459) (1,365)
Purchase of United States Treasury Bills (243,880) (978,800)
Sales of United States Treasury Bills 1,219,691 0
-------------------- ------------------
Net Cash Provided (Used) in Investing Activities 855,108 (1,042,094)
-------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Public Offering 0 4,163,609
Net Proceeds from Exercise of Warrants 1,691,402 0
Proceeds from Exercise of Unit Purchase Option 540,000 0
Repayment of Bridge Loan 0 (1,000,000)
Proceeds from Bridge Loan 0 1,000,000
Repayment of Stockholder Loans (65,655) (347,121)
Repayment of Notes Payable (37,263) (82,617)
-------------------- ------------------
Net Cash Provided by Financing Activities 2,128,484 3,733,871
-------------------- ------------------
NET INCREASE IN CASH 1,172,314 1,324,189
Cash, Beginning of Period 654,856 37,991
==================== ==================
Cash, End of Period $1,827,170 $1,362,180
==================== ==================
</TABLE>
(Continued on next page)
5
<PAGE>
BIG CITY BAGELS, INC.
CASH FLOWS STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information:
1997 1996
---- ----
<S> <C> <C>
Cash Paid During the Year for:
Interest $ 32,510 $ 89,519
Income Taxes 3,500 1,925
In February 1997, the Company acquired all of the assets of a franchisee for the
following:
Forgiveness of Outstanding Accounts Receivable $ 8,796
Issuance of 8,264 Shares of Common Stock 8,264
----------
17,060
Cash Paid 75,000
----------
Total Amount Attributed to Fixed Assets $ 92,060
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
BIG CITY BAGELS, INC.
NOTES TO FINANCIAL STATEMENTS
(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.
The information herein is unaudited. However, in the opinion
of management, such information reflects all adjustments
(consisting only of normal recurring accruals) necessary to
make the financial statements not misleading. Additionally, it
should be noted that the accompanying financial statements do
not purport to contain complete disclosures in conformity with
generally accepted accounting principles.
The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of the results of
operations for the full year ending December 31, 1997. These
statements should be read in conjunction with the Company's
financial statements for the year ended December 31, 1996
appearing in the Company's Annual Report on Form 10-KSB.
(NOTE B) - Bridge Financing:
In January 1996, the Company completed a bridge financing,
pursuant to which it issued (i) an aggregate of $1,000,000
principal amount of promissory notes, which bear interest at
the rate of 8% per annum ("Bridge Notes") and (ii) the right
to receive upon the completion of the company's initial public
offering ("Offering") an aggregate of 500,000 bridge units and
500,000 Class B Redeemable Common Stock Purchase Warrants
("Class B Warrants"). Each bridge unit consisted of one share
of common stock and one Class A Redeemable Common Stock
Purchase Warrant ("Class A Warrant"). As originally issued,
each Class A Warrant entitled the holder to purchase one share
of Common Stock for $4.50 during the three-year period
commencing one year after the Offering. As originally issued,
two Class B Warrants, together, entitled the holder to
purchase one share of common stock for $8.00 during the
three-year period commencing one year after the completion of
the Offering. The bridge units and Class B Warrants have been
valued at $684,000 and have been accounted for as a debt
discount increasing the effective interest rate on the notes
to 169%. The Bridge Notes were repaid with the proceeds of the
Offering. See (Note D).
(NOTE C) - Common Stock Options:
Pursuant to the Company's 1996 Performance Equity Plan ("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. On March 31, 1997, the directors of the
Company were granted options to purchase an aggregate of
50,000 shares of Common Stock at an exercise price of $5.375
per share.
7
<PAGE>
(NOTE D) - Exercise of Common Stock Warrants
Effective July 11, 1997, the Company reduced the exercise
price of its Class A Warrants and its Class B Warrants during
a special exercise period which expired on October 8, 1997.
The Class A Warrants, which were originally exercisable at
$4.50 per share, were exercisable at $2.50 per share. In
addition, if the Class A Warrants were exercised prior to the
expiration of the special exercise period, the holder thereof
also was issued a new Class A Warrant upon the expiration of
the special exercise period. If an aggregate of at least
$2,000,000 of gross proceeds was derived from the exercise of
the Class A Warrants during this special exercise period, then
the exercise price of the Class A Warrants which are not
exercised and the new Class A Warrants would be $2.50 per
share until their expiration on May 6, 2000. If less than
$2,000,000 of gross proceeds was derived from the exercise of
the Class A Warrants during this special exercise period, then
the exercise price of the Class A Warrants which were not
exercised and the new Class A Warrants will be $4.50 after the
expiration of the special exercise period.
During the special exercise period, an aggregate of 798,945
Class A Warrants were exercised, from which the Company
derived gross proceeds of $1,997,362.50. Although $2,000,000
of gross proceeds was not received by the Company during the
special exercise period, the Company determined on October
14,1997 to permanently reduce the exercise price of the Class
A Warrants to $2.50 per share, which price will remain in
effect until the Class A Warrants expire on May 6, 2000. This
exercise price reduction also applies to the additional Class
A Warrants issued to holders of Class A Warrants that were
exercised during the special exercise period.
In addition, during this special exercise period, the company
modified the exercise provisions of the Class B Warrants so
that each Class B Warrant entitled the holder to purchase one
share of Common Stock for $2.50 per share and, if so
exercised, the holder would be issued a new Class A Warrant
upon the expiration of the special exercise period. No Class B
Warrants were exercised during the special exercise period.
On November 5,1997, the Company further modified the exercise
provisions of the Class B Warrants ( for a limited period
expiring on November 14,1997) so that each Class B Warrant
entitled the holder to purchase one share of Common Stock for
$1.00 per share and, if so exercised, the holder would be
issued a new Class A Warrant. By November 12,1997, all 500,000
Class B Warrants were exercised, from which the Company has
received gross proceeds of $500,000.
(NOTE E) - Exercise of the Underwriter's Unit Purchase Options
In July 1997, options ("Unit Purchase Options") entitling the
holders thereof to purchase 112,500 units ("Units"), each Unit
consisting of one share of Common Stock and one Class A
Warrant, for $4.80 per Unit, were exercised in full and the
Company received gross proceeds of $540,000. All of the
actions described in (Note D) and (Note E) were effected
pursuant to a public offering registered under the Securities
Act of 1933.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction
with the Company's financial statements and the notes 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.
Forward-Looking Statements
When used in the Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "management expects" or "the Company expects," "will continue," "is
anticipated," "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on any such forward-looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company has no obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
Results of Operations
Revenues for the three and nine months ended September 30, 1997, were
$705,893 and $2,100,066, respectively, a 15% and 20% increase from revenues of
$611,690 and $1,747,635 for the three and nine months ended September 30, 1996.
This increase was attributable to gains in store and commissary product sales
and royalty income. Store and commissary product sales increased by $113,116 and
$449,319, respectively, a 25% and 34% increase, to $571,042 and $1,786,583 for
the three and nine months ended September 30, 1997 from $457,926 and $1,337,264
for the three and nine months ended September 30, 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. Franchise fee revenues for the
three and nine months ended September 30, 1997 were $91,000 and $151,000,
respectively, as compared with $85,500 and $271,000 of franchise fee revenues
for the three and nine months ended September 30, 1996, due to the fact that
more stores opened during the nine months ended September 30, 1996. Included in
the $91,000 of franchise revenue for the three months ended September 30, 1997
is an $81,000 franchise fee related to an area development agreement that was
terminated. Revenue under franchise agreements generally is recognized when the
franchise stores are opened. The Company has unearned franchise fee income of
$278,500 at September 30, 1997, compared to $242,000 at September 30, 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 $150 and $35,648, or .4% and 40%, to $37,036 and
$124,679 for the three and nine months ended September 30, 1997, from $36,886
and $89,031 for the three and nine months ended September 30, 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 1997. Interest income for
the three and nine months ended September 30, 1997 was $6,815 and $37,804,
respectively, a 78% and 25% decrease from the interest income for the three and
nine months ended September 30, 1996. Interest income resulted from the cash
proceeds of the Company's initial public offering in May 1996, which were
deposited into interest bearing accounts.
During the nine months ended September 30, 1997, the Company entered
into two franchise agreements and two new franchise area development agreements
(one three-store agreement and one seven-store
9
<PAGE>
agreement), and a location license agreement (one seven-store agreement) none of
which stores were opened by September 30, 1997, as compared with three franchise
agreements and two area development agreements (one twelve-store agreement,
which was terminated in September 1997, and one three-store agreement) for the
nine months ended September 30, 1996.
Cost of sales were $351,234 and $1,052,944, representing 62% and 59% of
net sales for the three and nine months ended September 30, 1997, compared to
$251,511 and $713,390, or 55% and 53%, of net sales for the three and nine
months ended September 30, 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 $99,723 and $339,554, respectively, 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 $865,915 and
$3,013,432, respectively, for the three and nine months ended September 30,
1997, a 2% and 44% increase from $849,534 and $2,098,392 for the three and nine
months ended September 30, 1996. The increase was primarily due to the hiring of
management and administrative personnel; which resulted in increases in salaries
of $336,791, from $549,194 for the nine months ended September 30, 1996 to
$885,985 for the nine months ended September 30, 1997, and increases of $109,548
in rent; $30,302 in advertising; $55,897 in insurance; and $73,163 in
professional fees, for the nine months ended September 30, 1997, 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 $1,000,000 private
financing ("Bridge Financing") for the nine months ended September 30, 1996 was
$683,542. There was no amortization of debt discount on Bridge Notes for the
nine months ended September 30, 1997.
Interest expense increased by $2,396 and decreased by $31,390,
respectively, during the three and nine months ended September 30, 1997. The
increase in the three months was primarily due to equipment financing and the
decrease for the nine months was primarily due to the repayment of the
$1,000,000 of Bridge Notes in May 1996.
The net losses for the three and nine months ended September 30, 1997
were $519,848 and $1,999,486 respectively, compared to net losses of $495,551
and $1,812,255 for the three and nine months ended September 30, 1996. The
reasons for the current period loss were primarily due to the increases in
operating salaries, rent, advertising, insurance, professional fees, delivery,
and depreciation 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 September 30, 1997 were
$1,827,170 compared to $1,661,026 at December 31, 1996. This increase was
attributable to the exercise of the Unit Purchase Options and the Class A
Warrants, described in (Note D) and (Note E) and offset by cash used in the
Company's operations.
Accounts receivable increased to $175,969 at September 30, 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 $59,751 at September 30, 1997, from $74,272 at
December 31, 1996, due to tighter inventory controls.
Prepaid expenses and other current assets as of September 30, 1997 have
not changed significantly compared to December 31, 1996.
10
<PAGE>
Shareholders' loans decreased to $21,813 at September 30, 1997 from
$87,468 at December 31, 1996. This decrease was attributable to the scheduled
repayment of these loans.
The current and noncurrent portion of capital lease obligations
decreased to $147,581 at September 30, 1997 from $184,844 at December 31, 1996
as a result of the Company making the required payments during this period.
Accounts payable and accrued expenses as of September 30, 1997 have not
changed significantly compared to December 31, 1996.
At September 30, 1997, the Company had $1,514,461 of working capital
and a current ratio of 3.5 to 1.
The Company's operating activities used net cash of $1,811,278 during
the nine months ended September 30, 1997, as compared to net cash used in
operations of $1,367,588 for the corresponding period of the prior year. The
$443,690 increase was primarily due to the increase of the Company's net loss,
which was funded from the proceeds of the initial public offering.
As described in (Note D) and (Note E) of the financial statements,
during the period commencing on July 11,1997 through November 12, 1997, the
Company has derived gross proceeds of $3,037,362.50 from the exercise of the
Company's Class A Warrants, Class B Warrants and Unit Purchase Options.
The Company believes that its working capital is sufficient to fund its
existing operations through 1998. The Company is evaluating several potential
acquisitions and is currently negotiating terms. No definitive agreements
relating to acquisitions have been executed. The Company anticipates that it
will pursue external financing to fund cash requirements for acquisitions.
The Company anticipates increasing revenues and thereby generating
operating cash flow in the future by implementing the following actions:
o Increasing Product Sales. The Company intends to open new Company-owned
retail stores and expects increased sales from its commissary to new
franchise stores. The Company has increased its wholesale business and
expects this business to grow due to an increase in name recognition,
product acceptance and additional sales efforts. In addition, the
Company has plans to develop stores with a stronger deli and bread
concept offering new core sandwich menu items as well as expanding its
variety of Bagel Pockets.
o Expanding Franchise Operations. The Company will continue to utilize
capital to increase franchise sales by advertising in national and
regional publications and business magazines. 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. The Company is working to develop a new "look" to it's
stores with an expanded deli and bread concept. Along with a new
advertising campaign, the Company believes it will have more to offer
prospective franchisees than other available bagel/deli concepts.
o Making Acquisitions. The Company intends to acquire other bagel stores
or complementary types of retail outlets which provide entry into new
markets.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
11
<PAGE>
On July 29, 1997, in the Superior Court of Los Angeles County, a
lawsuit was commenced by Michael Schweid, et al, against Victor Saab and George
Saab, et al, former franchisees of the Company, and the Company, seeking an
unspecified amount of damages for property damage and business interruptions
resulting from a fire which partially destroyed a shopping mall in which the
former franchisees' store was located. Victor Saab was subsequently convicted of
arson and insurance fraud. The Company believes the lawsuit against the Company
is without merit. The Company's insurance carrier has assumed defense of this
matter and has moved to dismiss the lawsuit.
On September 24, 1997, in the Arizona Superior Court, County of
Maricopo, a lawsuit was commenced by Earl and Linda Fraley (dba "Xtremely
Xpresso"), owners of a store in a shopping mall in which a Big City Bagels'
store, formerly franchised and subsequently company-owned, was located, against
the owners of the mall, the former franchisee and the Company, seeking an
unspecified amount of damages. Plaintiff's claim is based upon a provision in
their lease which they assert prohibits the owner from leasing space to other
tenants who sell substantial amounts of coffee products, and therefore,
prohibited the owner from leasing space for the Big City Bagels store. As a
result of events that caused the Company to be unable to economically operate
the store, it was closed on October 23, 1997. The Company believes it has no
liability in this matter and that it is the obligation of the owner to indemnify
the Company for these claims. The Company also believes that the owner has
breached its obligations to the Company under its lease.
ITEM 2 - Changes in Securities and Use of Proceeds
(a) Pursuant to an offering registered under the Securities Act of
1993, the Company has modified the terms of its Class A
Redeemable Common Stock Purchase Warrants and Class B
Redeemable Common Stock Purchase Warrants (all of which latter
warrants were subsequently exercised on November 12, 1997) as
described in (Note D) to the financial statements.
(b) Not applicable
(c) None
(d) Not applicable
ITEM 5. Other Information
Mesa, Arizona Store
On October 23, 1997, the Company closed its Mesa, Arizona retail store
because of events that resulted in the Company being unable to economically
operate the store.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (9/30/97)
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Big City Bagels, Inc.
(Registrant)
Dated: November 14, 1997 By: /s/ Mark Weinreb
----------------------------------------------
Mark Weinreb, Chairman, and Chief
Executive Officer and Chief Financial
Officer (and principal accounting officer)
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
27 Financial Data Schedule (9/30/97) 15
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
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