U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the quarterly period ended June 30, 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 July 31, 1997, Issuer had
outstanding 5,341,321 shares of Common stock, par value $.001 per share.
Page 1 of 24 Pages
Exhibit Index - Page 15
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIG CITY BAGELS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,1997 December 31,1996
ASSETS --------------- ------------------
<S> <C> <C>
Current Assets:
Cash $ 359,193 $ 654,856
United States Treasury Bills 0 1,006,170
Accounts Receivable 201,057 110,063
Inventory 50,341 74,272
Prepaid Expenses and Other Current Assets 60,254 77,131
-------------------- -------------------------
Total Current Assets $ 670,845 $ 1,922,492
Fixed Assets, Net of Accumulated Depreciation 1,237,714 1,239,478
Intangible Assets, Net of Accumulated Amortization 286,636 300,699
Deferred Registration Costs 65,286 0
Security Deposits 50,365 39,570
-------------------- -------------------------
TOTAL $ 2,310,846 $ 3,502,239
==================== =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Stockholders' Loans 63,768 87,468
Capital Lease Obligations 50,508 51,918
Unearned Franchise Fee Income 335,625 263,750
Accounts Payable 333,087 208,011
Accrued Expenses 182,735 60,323
-------------------- -------------------------
Total Current Liabilities $ 965,723 $ 671,470
Deferred Rent Payable 13,519 19,243
Capital Lease Obligations, noncurrent 109,378 132,926
-------------------- -------------------------
Total Liabilities $ 1,088,620 $ 823,639
-------------------- -------------------------
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 June 30, 1997 and December 31, 1996, respectively 4,932 4,924
Additional Paid-In Capital 4,348,436 4,340,180
Accumulated Deficit (3,108,642) (1,629,004)
Unearned Portion of Compensatory Stock (22,500) (37,500)
-------------------- -------------------------
Total Stockholders' Equity 1,222,226 2,678,600
-------------------- -------------------------
TOTAL $ 2,310,846 $ 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>
Six Months Ended Three Months Ended
June 30, 1997 June 30, 1996* June 30, 1997 June 30, 1996*
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Product Sales by Company-Owned $881,415 $681,048 $424,841 $346,753
Stores
Product Sales to Franchisees and Others 334,126 198,290 183,843 111,668
Franchise Fees 60,000 185,500 60,000 65,500
Royalty Income 87,643 52,145 44,289 31,928
Interest Income 30,989 18,962 13,509 15,172
----------- ----------- -------- --------
Total Revenues 1,394,173 1,135,945 726,482 571,021
--------- --------- ------- -------
COSTS AND EXPENSES:
Cost of Sales 701,710 461,879 343,054 256,157
Selling, General and Administrative 2,147,517 1,248,858 1,048,844 714,048
Amortization of Debt Discount 0 683,542 0 257,059
on Bridge Loan
Interest Expense 24,584 58,370 11,616 27,818
----------- ----------- ----------- -----------
Total Costs and Expenses 2,873,811 2,452,649 1,403,514 1,255,082
--------- --------- --------- ---------
NET (LOSS) $(1,479,638) $(1,316,704) $(677,032) $(684,061)
============ ============ ========== ==========
Net (Loss) Per Common Share $(0.30) $(0.38) $(0.14) $(0.17)
======= ======= ======= =======
Weighted Average Common Shares
Outstanding 4,930,606 3,490,433 4,932,021 3,980,865
========= ========= ========= =========
- -----------
<FN>
* Reclassified to conform to current period presentation.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
BIG CITY BAGELS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Portion of
Common Stock Additional Compensatory Stock
Paid-In Accumulated
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
Amortization of Compensatory Stock 15,000 15,000
Net Loss (1,479,638) (1,479,638)
----------- --------- ---------- ------------------ -------- ---------- -------------
BALANCE, June 30, 1997 4,932,021 $ 4,932 $ 4,348,436 $ (3,108,642) 15,000 $(22,500) $ 1,222,226
=========== ========= ========== ================== ======== ========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
BIG CITY BAGELS, INC.
CASH FLOWS STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,479,638) $(1,316,704)
-------------------- ------------------
Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities:
Depreciation and Amortization 121,787 75,606
Amortization of Debt Discount on Bridge Loans 0 683,542
Issuance of Common Stock for Compensation 15,000 0
(Increase) Decrease in:
Accounts Receivable (99,790) (61,269)
Inventory 23,931 (6,956)
Notes Receivable 0 (20,000)
Interest Receivable on U.S. Treasury Bills 21,135 0
Prepaid Expenses and Other Current Assets 16,877 (37,384)
Increase (Decrease) in:
Unearned Franchise Fee Income 71,875 (1,750)
Deferred Rent Payable (5,724) (1,754)
Accounts Payable 125,076 (87,918)
Accrued Expenses 122,412 (4,738)
-------------------- ------------------
Total Adjustments 412,579 537,379
-------------------- ------------------
Net Cash Used in Operating Activities (1,067,059) (779,325)
-------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Franchise Store (75,000) 0
Purchases of Fixed Assets (13,472) (50,529)
Increase in Security Deposits (10,795) (2,500)
Purchase of United States Treasury Bills (243,880) 0
Sales of United States Treasury Bills 1,228,487 0
-------------------- ------------------
Net Cash Provided (Used) in Investing Activities 885,340 (53,029)
-------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Public Offering 0 4,163,609
Deferred Registration Costs (65,286) 0
Repayment of Bridge Loan 0 (1,000,000)
Proceeds from Bridge Loan 0 1,000,000
Repayment of Stockholder Loans (23,700) (347,121)
Repayment of Notes Payable (24,958) (77,803)
-------------------- ------------------
Net Cash (Used) Provided by Financing Activities (113,944) 3,738,685
-------------------- ------------------
NET INCREASE (DECREASE) IN CASH (295,663) 2,906,331
Cash, Beginning of Period $654,856 $37,991
==================== ==================
Cash, End of Period $359,193 $2,944,322
==================== ==================
</TABLE>
(Continued on next page)
5
<PAGE>
BIG CITY BAGELS, INC.
CASH FLOWS STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information:
1997 1996
---- ----
<S> <C> <C>
Cash Paid During the Year for:
Interest $ 22,350 $ 87,649
Income Taxes 1,900 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 six months ended June 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"). Each Class A Warrant
entitles the holder to purchase one share of Common Stock for
$4.50 during the three-year period commencing one year after
the Offering. Two Class B Warrants, together, will entitle the
holder to purchase one share of common stock for $8.00 during
the three-year period commencing one year after the completion
of the Offering. The bridge units and Class B Warrants contain
registration rights and the Company registered such securities
simultaneously with the Offering. The 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 also (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)- Common Stock Warrants
Effective July 11, 1997, the Company reduced the exercise
price of its Class A Warrants and its Class B Warrants. The
Class A Warrants, which were previously exercisable at $4.50
per share, will be exercisable at $2.50 per share for a period
of 60 days, until September 8, 1997, subject to the discretion
of the Company to extend this special exercise period for up
to an additional 30 days. If the Class A Warrants are
exercised prior to the expiration of the special exercise
period, the holder thereof also will be 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 are
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 will be $2.50 per share until their expiration on May
6, 2000. If less than $2,000,000 of gross proceeds are 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
will be $4.50 after the expiration of the special exercise
period.
During the special exercise period, each Class B Warrant will
entitle the holder to purchase one share of Common Stock for
$2.50 per share and, if so exercised, the holder will be
issued a new Class A Warrant upon the expiration of the
special exercise period. After the expiration of the special
exercise period, two Class B Warrants, together, will entitle
the holder to purchase one share of Common Stock at the
original exercise price of $8.00.
(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.
(NOTE F)- Shareholders' Commitments
Since April 1, 1997, the Company has not made the $12,000
aggregate per month payments required under the terms of loans
made to the Company by Mark Weinreb, Stanley Weinreb and
Stanley Raphael ("Shareholder Loans"). Mark Weinreb, Stanley
Weinreb and Stanley Raphael have agreed 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
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.
In addition, 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.
As of August 5, 1997, the Company's funds have exceeded the
$750,000 threshold described above, thereby obligating the
Company to resume its contractual obligations to repay the
Shareholder Loans and officers' salaries.
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 six months ended June 30, 1997, were
$726,482 and $1,394,173, respectively, a 27% and 23% increase from revenues of
$571,021 and $1,135,945 for the three and six months ended June 30, 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 by $150,263 and $336,203, respectively, a 33% and 38% increase,
to $608,684 and $1,215,541 for the three and six months ended June 30, 1997 from
$458,421 and $879,338 for the three and six months ended June 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 six months ended June 30, 1997 were $60,000 and
$60,000, respectively, as compared with $65,500 and $185,500 of franchise fee
revenues for the three and six months ended June 30, 1996, due to the fact that
more stores opened during the three and six months ended June 30, 1996. Revenue
under franchise agreements generally is recognized when the franchise stores are
opened. The Company has unearned franchise fee income of $335,625 at June 30,
1997, compared to $307,500 at June 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 $12,361 and
$35,498, or 39% and 68%, to $44,289 and $87,643 for the three and six months
ended June 30, 1997, from $31,928 and $52,145 for the three and six months ended
June 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
1996. Interest income for the three and six months ended June 30, 1997 was
$13,509 and $30,089, respectively, a 11% decrease and 63% increase from the
interest income for the three and six months ended June 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 six months ended June 30, 1997, the Company entered into two
franchise agreements and one new franchise area development agreement (three
stores), none of which stores were opened by June 30,
9
<PAGE>
1997, as compared with three franchise agreements and two area development
agreements (one twelve-store agreement and one three-store agreement) for the
six months ended June 30, 1996.
Cost of sales were $343,054 and $701,710, representing 56% and 58% of
net sales for the three and six months ended June 30, 1997, compared to $256,157
and $461,879, or 56% and 53%, of net sales for the three and six months ended
June 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
$86,897 and $239,831, 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 $1,048,844 and
$2,147,517, respectively, for the three and six months ended June 30, 1997, a
47% and 72% increase from $714,048 and $1,248,858 for the three and six months
ended June 30, 1996. This increase was primarily a result of: increases in
salaries of $142,204 and $327,474 from $182,467 and $325,079 for the three and
six months ended June 30, 1996 to $324,671 and $652,553 for the three months
ended June 30, 1997, due to the hiring of management and administrative
personnel; and increases of $39,679 and $71,056 in rent; $44,505 and $79,425 in
advertising; $19,222 and $59,752 in insurance; and $5,629 and $75,305 in
professional fees, for the three and six months ended June 30, 1997,
respectively, 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 three and six months ended June 30, 1996
was $257,059 and $683,542, respectively. There was no amortization of debt
discount on Bridge Notes for the three and six months ended June 30, 1997.
Interest expense decreased by $16,202 and $33,786, respectively, during
the three and six months ended June 30, 1997, primarily due to the repayment of
the $1,000,000 of Bridge Notes in May 1996.
The net losses for the three and six months ended June 30, 1997 were
$677,032 and $1,479,638, respectively, compared to net losses of $684,061 and
$1,316,704 for the three and six months ended June 30, 1996. The 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.
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 June 30, 1997 were $359,193,
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 $201,057 at June 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 $50,341 at June 30, 1997, from $74,272 at
December 31, 1996, due to tighter inventory controls.
Prepaid expenses and other current assets as of June 30, 1997 have not
changed significantly compared to December 31, 1996.
10
<PAGE>
Shareholders' loans decreased to $63,768 at June 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 $159,886 at June 30, 1997 from $184,844 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
$515,822 at June 30, 1997 from $268,334 at December 31, 1996. This increase was
primarily due to the growth of the Company.
At June 30, 1997, the Company had a working capital deficit of
approximately $295,000.
The Company's operating activities used net cash of $1,067,059 during
the six months ended June 30, 1997, as compared to net cash used in operations
of $779,325 for the corresponding period of the prior year. The $287,734
increase was primarily due to the increase of the Company's net loss, which was
funded from the proceeds of the initial public offering.
Effective July 11, 1997, the Company reduced the exercise price of its
Class A Warrants and its Class B Warrants. The Class A Warrants, which were
previously exercisable at $4.50 per share, will be exercisable at $2.50 per
share for a period of 60 days, until September 8, 1997, subject to the
discretion of the Company to extend this special exercise period for up to an
additional 30 days. If the Class A Warrants are exercised prior to the
expiration of the special exercise period, the holder thereof also will be
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 are 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 will be $2.50 per share until their expiration on May 6, 2000. If
less than $2,000,000 of gross proceeds are 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 will
be $4.50 after the expiration of the special exercise period.
During the special exercise period, each Class B Warrant will entitle
the holder to purchase one share of Common Stock for $2.50 per share and, if so
exercised, the holder will be issued a new Class A Warrant upon the expiration
of the special exercise period. After the expiration of the special exercise
period, two Class B Warrants, together, will entitle the holder to purchase one
share of Common Stock at the original exercise price of $8.00.
Through July 31, 1997, 296,800 Class A Warrants have been exercised at
the reduced exercise price, from which the Company has received gross proceeds
of $742,000.
In July 1997, Unit Purchase Options entitling the holders thereof to
purchase 112,500 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.
As described in (Note F), during the quarter ended June 30, 1997, the
Company took certain steps to reduce its cash flow requirements. 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
11
<PAGE>
Stanley Raphael 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 Treasury Bills ("Liquidity Date"). In addition, until December 31, 1997,
each of Mark Weinreb, Stanley Weinreb and Stanley Raphael 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.
Mark Weinreb and Jerry Rosner agreed to permit the Company to accrue
without interest, commencing July 1, 1997, $3,500 of each of their respective
salaries per month until the earlier of January 1, 1998 or the Liquidity Date.
As of August 5, 1997, the Company's funds have exceeded the $750,000
threshold described above, thereby obligating the Company to resume its
contractual obligations to repay Shareholder Loans and officers' salaries.
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 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.
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.
o Making Acquisitions. The Company has 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.
12
<PAGE>
PART II. - OTHER INFORMATION
Item 2 - Changes in Securities
(c) Recent Sales of Unregistered Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
On July 1, 1997, the Company held its annual meeting of shareholders,
at which the Company's shareholders considered the election of directors and the
approval of an amendment to the Company's Certificate of Incorporation.
Shareholders voted to elect Mark Weinreb, Jerry Rosner, Stanley Weinreb, Stanley
Raphael and Stephen J. Drescher to serve as directors for the ensuing year and
until their successors are elected and qualified. 4,511,552 shares were voted
for and 9,200 shares were withheld in Mark Weinreb's election and 4,512,552
shares were voted for and 8,200 shares were withheld in each of Jerry Rosner's,
Stanley Weinreb's, Stanley Raphael's and Stephen Drescher's election. The
shareholders also voted on the approval of an amendment to the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
authorized for issuance thereunder from 10,000,000 shares to 25,000,000 shares.
4,485,002 shares were voted for the amendment to the Certificate of
Incorporation, 31,700 shares were voted against the amendment to the Certificate
of Incorporation and 4,050 shares abstained from voting on the amendment to the
Certificate of Incorporation. No broker non-votes were cast in connection with
the amendment to the Certificate of Incorporation.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3.1.2 Amendment to Certificate of Incorporation (Incorporated by reference
to Exhibit 3.1.2 of Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (No. 333- 29297))
10.10 Stock Option Agreement, dated March 31, 1997, between the Company
and Mark Weinreb
10.10.1 Schedule of omitted documents in the form of Exhibit 10.10, including
material detail in which such documents differ from Exhibit 10.10
27 Financial Data Schedule (6/30/97)
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Big City Bagels, Inc.
(Registrant)
Dated: August 13, 1997 By: /s/ Mark Weinreb
------------------
Mark Weinreb, Chairman, and Chief
Executive Officer and Chief Financial
Officer (and principal accounting officer)
14
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
10.10 Stock Option Agreement, dated March 31, 1997, 16
between the Company and Mark Weinreb
10.10.1 Schedule of omitted documents in the form of 23
Exhibit 10.10, including material detail in which
such documents differ from Exhibit 10.10
27 Financial Data Schedule (6/30/97) 24
15
<PAGE>
EXHIBIT 10.10
STOCK OPTION AGREEMENT
AGREEMENT, made as of the 31st day of March, 1997, between BIG
CITY BAGELS, INC., a New York corporation ("Company"), and MARK WEINREB
("Director" or "Holder").
WHEREAS, pursuant to the Company's 1996 Performance Equity Plan
("Plan"), on March 31st of each calendar year, each person who is then a
director of the Company is to be awarded an option (the "Option") to purchase an
aggregate of 10,000 of the authorized but unissued or treasury shares of the
common stock of the Company, $.001 par value ("Common Stock"), on the terms and
conditions set forth in this Agreement and subject to provisions of the Plan
(capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Plan); and
WHEREAS, the Director desires to acquire said Option on the
terms and conditions set forth in this Agreement:
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants Director the Option to
purchase all or any part of an aggregate of 10,000 shares of Common Stock (the
"Option Shares") on the terms and conditions set forth herein and subject to the
provisions of the Plan.
2. Nonincentive Stock Option. The Option represented hereby is a
nonqualified stock option not intended to qualify under any section of the
Internal Revenue Code of 1986, as amended.
3. Exercise Price. The exercise price of the Option shall be $5.375 per
share, subject to adjustment as hereinafter provided.
4. Exercisability. This Option is exercisable, subject to the terms and
conditions of the Plan and this Agreement, at any time from and after the date
hereof, and it shall remain exercisable until the close of business on March 30,
2007 (the "Exercise Period").
5. Withholding Tax. Not later than the date as of which an amount first
must be included in the gross income of Director for Federal income tax purposes
with respect to the Option, Director may be required to pay to the Company, or
make arrangements satisfactory to the Company regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount. The obligations of the Company under the Plan
and pursuant to this Agreement shall be conditional upon such payments or
arrangements with the Company, if such payments or arrangements are required,
and the Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to Director from the
Company.
6. Adjustments.
(a) In the event of a stock split, stock dividend, combination of shares,
or any other similar change in the Common Stock of the Company as a whole, the
Board of Directors of the Company shall make equitable, proportionate
adjustments in the number and kind of shares covered by the Option and in the
option price hereunder.
(b) In the event of any reclassification or reorganization of the
outstanding shares of Common Stock other than a change covered by subsection (a)
hereof or which solely affects the par value of such shares of Common Stock, or
in the case of any merger or consolidation of the Company with or into
16
<PAGE>
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification
or reorganization of the outstanding shares of Common Stock), the Holder shall
have the right thereafter (until the expiration of the right of exercise of this
Option) to receive upon the exercise hereof after such event, for the same
aggregate Exercise Price payable hereunder immediately prior to such event, the
kind and amount of shares of stock or other securities or property (including
cash) receivable upon such reclassification, reorganization, merger or
consolidation by a holder of the number of shares of Common Stock of the Company
obtainable upon exercise of this Option immediately prior to such event. The
provisions of this subsection (b) shall similarly apply to successive
reclassifications, reorganizations, mergers or consolidations, sales or other
transfers.
7. Method of Exercise.
7.1 Notice to the Company. The Option shall be exercised in whole or in
part by written notice in the form attached hereto as Exhibit A directed to the
Company at its principal place of business accompanied by full payment as
hereinafter provided of the exercise price for the number of Option Shares
specified in the notice.
7.2 Delivery of Option Shares. The Company shall deliver a certificate for
the Option Shares to Director as soon as practicable after payment therefor.
7.3 Payment of Purchase Price.
7.3.1 Cash Payment. Director shall make cash payments by wire transfer,
certified or bank check or personal check, in each case payable to the order of
the Company; the Company shall not be required to deliver certificates for
Option Shares until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof.
7.3.2 Cashless Payment. The Company, in its sole discretion, may allow
Director to use Common Stock of the Company owned by him to pay the purchase
price for the Option Shares (and any required withholding taxes) by delivery of
stock certificates in negotiable form which are effective to transfer good and
valid title thereto to the Company, free of any liens or encumbrances. Shares of
Common Stock used for this purpose shall be valued at the Fair Market Value, as
defined below.
7.3.3 Fair Market Value. "Fair Market Value", unless otherwise required by
any applicable provision of the Internal Revenue Code of 1986, as amended, or
any regulations issued thereunder, means, as of any given date: (i) if the
Common Stock is listed on a national securities exchange or quoted on the Nasdaq
National Market or Nasdaq SmallCap Market, the last sale price of the Common
Stock in the principal trading market for the Common Stock on the last trading
day preceding the date of exercise in accordance with Section 7.3.2, above, as
reported by the exchange or Nasdaq, as the case may be; (ii) if the Common Stock
is not listed on a national securities exchange or quoted on the Nasdaq National
Market or Nasdaq SmallCap Market, but is traded in the over-the-counter market,
the closing bid price for the Common Stock on the last trading day preceding the
date of exercise in accordance with Section 7.3.2, above, as reported by the OTC
Bulletin Board or the National Quotation Bureau, Incorporated or similar
publisher of such quotations; and (iii) if the fair market value of the Common
Stock cannot be determined pursuant to clause (i) or (ii) above, such price as
the Company shall determine, in good faith.
8. Nonassignability. The Option shall not be assignable or transferable,
without the consent of the Company, except by will or by the laws of descent and
distribution in the event of the death of Director. No transfer of the Option by
Director by will or by the laws of descent and distribution shall be effective
to bind the Company unless the Company shall have been furnished with written
notice thereof and a copy of the will and/or such other evidence as the Company
may deem necessary to establish the validity of the transfer and the acceptance
by the transferee or transferees of the terms and conditions of the Option.
17
<PAGE>
9. Company Representations. The Company hereby represents and warrants to
Director that:
(i) the Company, by appropriate and all required action, is duly authorized
to enter into this Agreement and consummate all of the transactions contemplated
hereunder; and
(ii) the Option Shares, when issued and delivered by the Company to
Director in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.
10. Director Representations. Director hereby represents and warrants to
the Company that:
(i) he is acquiring the Option and shall acquire the Option Shares for his
own account and not with a view towards the distribution thereof;
(ii) he has received a copy of the Plan as in effect as of the date of this
Agreement;
(iii) he has received a copy of all reports and documents required to be
filed by the Company with the Commission pursuant to the Exchange Act within the
last 24 months and all reports issued by the Company to its shareholders;
(iv) he understands that he must bear the economic risk of the investment
in the Option Shares, which cannot be sold by him unless they are registered
under the Securities Act of 1933 (the "1933 Act") or an exemption therefrom is
available thereunder and that the Company is under no obligation to register the
Option Shares for sale under the 1933 Act;
(v) in his position with the Company, he has had both the opportunity to
ask questions and receive answers from the officers and directors of the Company
and all persons acting on its behalf concerning the terms and conditions of the
offer made hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (iii) above;
(vi) he is aware that the Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the 1933 Act or an exemption therefrom as provided herein;
and
(vii) the certificates evidencing the Option Shares shall bear the
following legend:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not be
sold or transferred in the absence of such registration
or an exemption therefrom under said Act."
(viii) he agrees that he shall not sell, transfer by any means or otherwise
dispose of the Option Shares acquired by him except in accordance with Company's
policy, if any, regarding the sale and disposition of securities owned by
employees and/or directors of the Company.
18
<PAGE>
11. Restriction on Transfer of Option Shares.
(a) Anything in this Agreement to the contrary notwithstanding, Director
hereby agrees that he shall not sell, transfer by any means or otherwise dispose
of the Option Shares acquired by him without registration under the 1933 Act, or
in the event that they are not so registered, unless (i) an exemption from the
1933 Act registration requirements is available thereunder, and (ii) Director
has furnished the Company with notice of such proposed transfer and the
Company's legal counsel, in its reasonable opinion, shall deem such proposed
transfer to be so exempt.
(b) Anything in this Agreement to the contrary notwithstanding, Director
hereby agrees that he shall not sell, transfer by any means or otherwise dispose
of the Option Shares acquired by him except in accordance with Company's policy,
if any, regarding the sale and disposition of securities owned by employees
and/or directors of the Company.
12. Miscellaneous.
12.1 Notices. All notices, requests, deliveries, payments, demands and
other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or sent
by registered or certified mail, or by private courier to the parties at their
respective addresses set forth herein, or to such other address as either shall
have specified by notice in writing to the other. Notice shall be deemed duly
given hereunder when delivered or mailed as provided herein.
12.2 Conflicts with Plan. In the event of a conflict between the provisions
of the Plan and the provisions of this Agreement, the provisions of the Plan
shall in all respects be controlling.
12.3 Director and Stockholder Rights. Director shall not have any of the
rights of a shareholder with respect to the Option Shares until such shares have
been issued after the due exercise of the Option. Nothing contained in this
Agreement shall be deemed to confer upon Director any right to a continued
directorship position with the Company or any subsidiary thereof, nor shall it
interfere in any way with the right of the Company to terminate such
directorship in accordance with the provisions regarding such termination set
forth in the Company's Certificate of Incorporation and By-laws and/or under
applicable laws of the State of New York.
12.4 Waiver. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
12.5 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
may not be amended except by writing executed by Director and the Company.
12.6 Binding Effect; Successors. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and, to the extent not prohibited
herein, their respective heirs, successors, assigns and representatives. Nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto and as provided above, their respective heirs,
successors, assigns and representatives any rights, remedies, obligations or
liabilities.
12.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without regard to choice of
law provisions).
12.8 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written.
BIG CITY BAGELS, INC. Address: 99 Woodbury Road
Hicksville, New York 11801
By:
---------------------
Jerry Rosner
President
DIRECTOR:
- ----------------------------------
MARK WEINREB
20
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
- --------------------
DATE
Big City Bagels, Inc.
99 Woodbury Road
Hicksville, New York 11801
Attention: The Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of March
31, 1997 with Big City Bagels, Inc. (the "Company"), I hereby irrevocably elect
to exercise the right to purchase _________ shares of the Company's common
stock, par value $.001 per share ("Common Stock").
As payment for my shares, enclosed is (check and complete
applicable box[es]):
|_| a [personal check] [certified check] [bank check] payable to the order of
"Big City Bagels, Inc." in the sum of $_________;
|_| confirmation of wire transfer in the amount of $_____________; and/or
|_| with the consent of the Company, a certificate for ___________ shares of
the Company's Common Stock, free and clear of any encumbrances, duly
endorsed, having a Fair Market Value (as such term is defined in Section
7.3.3 of the Stock Option Agreement) of $---------.
I hereby represent and warrant to, and agree with, the Company
that:
(i) I am acquiring the Option and shall acquire the Option Shares for my
own account, for investment, and not with a view towards the distribution
thereof;
(ii) I have received a copy of the Plan and all reports and documents
required to be filed by the Company with the Commission pursuant to the Exchange
Act within the last 24 months and all reports issued by the Company to its
shareholders;
(iii) I understand that I must bear the economic risk of the investment in
the Option Shares, which cannot be sold by me unless they are registered under
the Securities Act of 1933 (the "1933 Act") or an exemption therefrom is
available thereunder and that the Company is under no obligation to register the
Option Shares for sale under the 1933 Act;
(iv) I agree that I will not sell, transfer by any means or otherwise
dispose of the Option Shares acquired by me hereby except in accordance with
Company's policy, if any, regarding the sale and disposition of securities owned
by employees and/or directors of the Company;
21
<PAGE>
(v) in my position with the Company, I have had both the opportunity to ask
questions and receive answers from the officers and directors of the Company and
all persons acting on its behalf concerning the terms and conditions of the
offer made hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (ii) above;
(vi) I am aware that the Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the 1933 Act or an exemption therefrom as provided herein;
and
(vii) the certificates evidencing the Option Shares shall bear the
following legend:
"The shares represented by this certificate
have been acquired for investment and have not
been registered under the Securities Act of
1933. The shares may not be sold or
transferred in the absence of such
registration or an exemption therefrom under
said Act."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
- ------------------------------ ----------------------------------------
(Signature) (Address)
- ------------------------------ ----------------------------------------
(Print Name)
----------------------------------------
(Social Security Number)
22
<PAGE>
EXHIBIT 10.10.1
Schedule of Omitted Documents in the Form of
Exhibit 10.10, including Material Detail in
Which Such Documents Differ from Exhibit 10.10
1. Directors Stock Option Agreement, dated March 31, 1997, with Jerry Rosner
2. Directors Stock Option Agreement, dated March 31, 1997, with Stanley
Weinreb
3. Directors Stock Option Agreement, dated March 31, 1997, with Stanley
Raphael
4. Directors Stock Option Agreement, dated March 31, 1997, with Stephen J.
Drescher
The form of the documents listed above does not differ in
material detail from the form of Exhibit 10.10, except with respect to the
identity of the director.
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Jun-30-1997
<CASH> 359,193
<SECURITIES> 0
<RECEIVABLES> 201,057
<ALLOWANCES> 0
<INVENTORY> 50,341
<CURRENT-ASSETS> 670,845
<PP&E> 1,641,605
<DEPRECIATION> 403,891
<TOTAL-ASSETS> 2,310,846
<CURRENT-LIABILITIES> 965,723
<BONDS> 0
<COMMON> 4,932
0
0
<OTHER-SE> 1,217,294
<TOTAL-LIABILITY-AND-EQUITY> 2,310,846
<SALES> 1,215,541
<TOTAL-REVENUES> 1,394,173
<CGS> 701,710
<TOTAL-COSTS> 2,873,811
<OTHER-EXPENSES> 2,147,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,584
<INCOME-PRETAX> (1,479,638)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,479,638)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
<PAGE>
</TABLE>
