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 March 31, 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 May 9, 1997, Issuer had
outstanding 4,932,021 shares of Common stock, par value $.001 per share.
Page 1 of 14 Pages
Exhibit Index - Page 13
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIG CITY BAGELS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,1997 December 31,1996
--------------- ------------------
<S> <C> <C>
ASSETS
--------
Current Assets:
Cash $ 127,213 $ 654,856
United States Treasury Bills 985,713 1,006,170
Accounts Receivable 115,783 110,063
Inventory 67,841 74,272
Prepaid Expenses and Other Current Assets 74,532 77,131
----------------- -----------------
Total Current Assets $ 1,371,082 $ 1,922,492
Fixed Assets, Net of Accumulated Depreciation 1,290,966 1,239,478
Intangible Assets, Net of Accumulated Amortization 293,668 300,699
Security Deposits 50,981 39,570
----------------- -----------------
TOTAL $ 3,006,697 $ 3,502,239
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
Current Liabilities:
Loan Payable $ 225,000 $ 0
Stockholders' Loans 63,768 87,468
Capital Lease Obligations 48,144 51,918
Unearned Franchise Fee Income 329,250 263,750
Accounts Payable 240,986 208,011
Accrued Expenses 69,734 60,323
----------------- -----------------
Total Current Liabilities $ 976,882 $ 671,470
Deferred Rent Payable 16,381 19,243
Capital Lease Obligations, noncurrent 121,676 132,926
----------------- -----------------
Total Liabilities $ 1,114,939 $ 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 March 31, 1997; and
December 31, 1996, respectively 4,932 4,924
Additional Paid-In Capital 4,348,436 4,340,180
Accumulated Deficit (2,431,610) (1,629,004)
Unearned Portion of Compensatory Stock (30,000) (37,500)
----------------- ------------------
Total Stockholders' Equity 1,891,758 2,678,600
----------------- ------------------
TOTAL $ 3,006,697 $ 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>
Three Months Ended
March 31, 1997 March 31, 1996*
--------------- --------------
<S> <C> <C>
REVENUES:
Product Sales by Company-Owned $ 456,574 $ 334,295
Stores
Product Sales to Franchisees and Others 150,283 86,622
Franchise Fees 0 120,000
Royalty Income 43,354 20,217
Interest Income 17,480 3,790
---------------- ----------------
Total Revenues 667,691 564,924
---------------- ----------------
COSTS AND EXPENSES:
Cost of Sales 358,656 205,722
Selling, General and Administrative 1,098,673 534,810
Amortization of Debt Discount 0 426,483
on Bridge Loan
Interest Expense 12,968 30,552
---------------- ----------------
Total Costs and Expenses 1,470,297 1,197,567
---------------- ----------------
NET (LOSS) $ (802,606) $ (632,643)
================ ================
Net (Loss) Per Common Share $ (0.16) $ (0.21)
================ ================
Pro forma Weighted Average Common
Shares Outstanding 3,000,000
================
Weighted Average Common Shares
Outstanding 4,929,175
================
- -----------
<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 7,500 7,500
Net Loss (802,606) (802,606)
------------- ----------- ------------- ------------ -------- ----------- -------------
BALANCE, March 31, 1997 4,932,021 $ 4,932 $ 4,348,436 $(2,431,610) 15,000 $ (30,000) $ 1,891,758
============= =========== ============= ============ ======== =========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
BIG CITY BAGELS, INC.
CASH FLOWS STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (802,606) $ (632,643)
----------------------- ---------------------
Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities:
Depreciation and Amortization 60,634 33,488
Amortization of Debt Discount on Bridge Loans 0 426,483
Issuance of Common Stock for Compensation 7,500 0
(Increase) Decrease in:
Accounts Receivable (5,720) (64,461)
Inventory 6,431 (81)
Interest Receivable on U.S. Treasury Bills 5,542 0
Prepaid Expenses and Other Current Assets 2,599 (8,750)
Increase (Decrease) in:
Unearned Franchise Fee Income 65,500 16,000
Deferred Rent Payable (2,862) 0
Accounts Payable 32,975 (126,529)
Accrued Expenses 9,411 27,489
----------------------- ---------------------
Total Adjustments 182,010 303,639
----------------------- ---------------------
Net Cash Used in Operating Activities (620,596) (329,004)
----------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Franchise Store (75,000) 0
Purchases of Fixed Assets (13,032) (30,351)
Increase in Security Deposits (11,411) 0
Purchase of United States Treasury Bills (243,880) 0
Sales of United States Treasury Bills 250,000 0
----------------------- ---------------------
Net Cash Used in Investing Activities (93,323) (30,351)
----------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred Registration Costs 0 (150,756)
Proceeds from Bridge Loan 0 1,000,000
Proceeds from Loan Payable 225,000 0
Repayment of Stockholder Loans (23,700) (235)
Repayment of Notes Payable (15,024) (73,252)
Promissary Note Receivable 0 (15,000)
----------------------- ---------------------
Net Cash Provided by Financing Activities 186,276 760,757
----------------------- ---------------------
NET INCREASE (DECREASE) IN CASH (527,643) 401,402
Cash, Beginning of Period $ 654,856 $ 37,991
======================= =====================
Cash, End of Period $ 127,213 $ 439,393
======================= =====================
</TABLE>
(Continued on next page)
-5-
<PAGE>
BIG CITY BAGELS, INC.
CASH FLOWS STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information:
1997 1996
---- ----
<S> <C> <C>
Cash Paid During the Year for:
Interest $ 12,633 $ 33,563
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 three months ended March 31,
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.
(NOTE C) - Loan Payable:
In February and March 1997, the Company borrowed $225,000
against its investment in United States Treasury Bills. This
short term borrowing, used in operations, enabled the Company
to maintain its investments until maturity. This loan was
repaid in April 1997.
(NOTE D) - 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>
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 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.
-8-
<PAGE>
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 $1,000,000 private
financing ("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.
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.
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.
-9-
<PAGE>
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 $620,596 during the
three months ended March 31, 1997, as compared to net cash used in operations of
$329,004 for the corresponding period of the prior year. The $291,592 increase
was primarily due to the increase of the Company's net loss, which was funded
from the proceeds of the initial public offering.
Although the Company has no present need to raise additional capital to
support its existing operations, the Company does believe it will need to obtain
financing from outside sources to support its plans for growth. The Company is
exploring its ability to obtain financing for potential acquisitions and for the
opening of new Company-owned stores.
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 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.
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. 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.
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.
-10-
<PAGE>
PART II. - OTHER INFORMATION
Item 2 - Changes in Securities
(c) Recent Sales of Unregistered Securities
During the three months ended March 31, 1997, the Company made the
following sales of unregistered securities:
<TABLE>
<CAPTION>
Consideration
Received and
Description of If Option, Warrant
Underwriting or Other or Convertible
Discounts to Market Exemption from Security, Terms of
Price Afforded to Registration Exercise or
Date of Sale Title of Security Number Sold Purchasers Claimed Conversion
- ------------ ----------------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
3/31/97 options to 50,000 options granted - no 4(2) exercisable for ten
purchase consideration received years from date of
Common Stock by Company until grant at an exercise
granted to exercise price of $5.375 per
directors share
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (3/31/97)
(b) Reports on Form 8-K
None
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Big City Bagels, Inc.
(Registrant)
Dated:May 14, 1997 By: /s/ Mark Weinreb
---------------------------------------------
Mark Weinreb, Chairman, and Chief
Executive Officer and Chief Financial
Officer (and principal accounting officer)
-12-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
27 Financial Data Schedule (3/31/97) 14
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
<CASH> 127,213
<SECURITIES> 985,713
<RECEIVABLES> 115,783
<ALLOWANCES> 0
<INVENTORY> 67,841
<CURRENT-ASSETS> 1,371,082
<PP&E> 1,641,165
<DEPRECIATION> 350,199
<TOTAL-ASSETS> 3,006,697
<CURRENT-LIABILITIES> 976,882
<BONDS> 0
<COMMON> 4,932
0
0
<OTHER-SE> 1,886,826
<TOTAL-LIABILITY-AND-EQUITY> 3,006,697
<SALES> 606,857
<TOTAL-REVENUES> 667,691
<CGS> 358,656
<TOTAL-COSTS> 1,470,297
<OTHER-EXPENSES> 1,098,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,968
<INCOME-PRETAX> (802,606)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (802,606)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
<PAGE>
</TABLE>
