U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1998
____ 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. Employe
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) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 11, 1998, the issuer had
outstanding 6,744,768 shares of Common stock, par value $.001 per share.
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BIG CITY BAGELS, INC. AND SUBSIDIARY
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998 December 31,1997
------------------- ---------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $2,928,326 $4,118,031
Accounts receivable................................................... 187,575 104,190
Inventory............................................................. 48,807 43,868
Prepaid expenses and other current assets............................. 120,924 41,133
--------------------- ---------------------
Total current assets.............................................. 3,285,632 4,307,222
Fixed assets, net of accumulated depreciation.......................... 605,142 611,095
Intangible assets, net of accumulated amortization..................... 697,990 23,267
Security deposits and other assets..................................... 290,563 220,380
--------------------- ---------------------
TOTAL............................................................. $4,879,327 $5,161,964
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligations.............................................. $40,300 $38,862
Unearned franchise fee income.......................................... 253,500 278,500
Accounts payable....................................................... 203,702 287,138
Accrued expenses....................................................... 122,435 74,206
--------------------- ---------------------
Total current liabilities......................................... 619,937 678,706
Deferred rent payable.................................................. 4,933 7,795
Capital lease obligations, noncurrent.................................. 46,605 57,235
--------------------- ---------------------
Total liabilities................................................. 671,475 743,736
--------------------- ---------------------
Stockholders' equity:
Convertible (redeemable) preferred stock; $.001 par value;
1,000,000 shares authorized; 265,000 shares issued and
outstanding (liquidation value $3,312,500)............................. 265 265
Common stock; $.001 par value; 25,000,000 shares
authorized; 6,733,728 and 6,343,466 shares issued and
outstanding at March 31, 1998 and December 31, 1997,
respectively.......................................................... 6,734 6,344
Additional paid-in capital............................................. 10,123,463 9,677,189
Accumulated deficit.................................................... (5,922,610) (5,258,070)
Unearned portion of compensatory stock................................ 0 (7,500)
--------------------- ---------------------
Total stockholders' equity........................................ 4,207,852 4,418,228
--------------------- ---------------------
TOTAL............................................................. $4,879,327 $5,161,964
===================== =====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
--------------- --------------
<S> <C> <C>
REVENUES:
Product sales by company-owned stores $696,840 $456,574
Product sales to franchisees and others 173,730 150,283
Franchise fees 60,500 0
Royalty income 44,569 43,354
Interest income 39,687 17,480
---------------- ----------------
Total revenues 1,015,326 667,691
---------------- ----------------
COSTS AND EXPENSES:
Cost of sales 427,530 358,656
Selling, general and administrative expenses 1,248,934 1,098,673
Interest expense 3,402 12,968
---------------- ----------------
Total costs and expenses 1,679,866 1,470,297
---------------- ----------------
NET (LOSS) $(664,540) $(802,606)
================ ================
Basic and diluted net (loss) per common share $(0.10) $(0.16)
================ ================
Weighted average common shares outstanding 6,686,700 4,929,175
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Portion of
Preferred Stock Common Stock Additional Compensatory Stock
---------------- ----------------- Paid-In Accumulated -------------------
Shares Amount Shares Amount Capital Deficit Shares Amount Total
------- ------ --------- ------ ---------- ----------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 265,000 $265 6,343,466 $6,344 $9,677,189 $(5,258,070) 15,000 $(7,500) $4,418,228
Issuance of common stock
for acquisition of assets 365,321 365 444,635 445,000
Shares issued as
compensation 24,941 25 26,475 26,500
Amortization of
compensatory stock 7,500 7,500
Registration costs (24,836) (24,836)
Net loss (664,540) (664,540)
--------- ----- ---------- ------ ------------ ------------ ------- ------- -----------
BALANCE, March 31, 1998 265,000 $265 6,733,728 $6,734 $10,123,463 $(5,922,610) 15,000 $0 $4,207,852
========= ===== ========== ====== ============ ============ ======= ======= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
CASH FLOWS STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................. $(664,540) $(802,606)
--------------- --------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................... 47,217 60,634
Issuance of common stock for compensation and
professional services.................................................. 34,000 7,500
(Increase) Decrease in:
Accounts receivable.................................................. (83,385) (5,720)
Inventory............................................................ (4,939) 6,431
Interest receivable on U.S. Treasury bills........................... 0 5,542
Prepaid expenses and other current assets............................ (79,791) 2,599
Increase (Decrease) in:
Unearned franchise fee income........................................ (25,000) 65,500
Deferred rent payable................................................ (2,862) (2,862)
Accounts payable..................................................... (83,434) 32,975
Accrued expenses..................................................... 48,229 9,411
-------------- -------------
Total adjustments......................................................... (149,965) 182,010
-------------- -------------
Net cash used in operating activities..................................... (814,505) (620,596)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of franchises.............................................. 0 (75,000)
Purchases of fixed and intangible assets............................... (320,989) (13,032)
Sale of fixed assets................................................... 50,000 0
Increase in security deposits.......................................... (70,183) (11,411)
Purchase of United States Treasury bills............................... 0 (243,880)
Sales of United States Treasury bills.................................. 0 250,000
-------------- ------------
Net cash used in investing activities..................................... (341,172) (93,323)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Registration costs..................................................... (24,836) 0
Proceeds from loan payable............................................. 0 225,000
Repayment of stockholder loans......................................... 0 (23,700)
Repayment of notes payable............................................. (9,192) (15,024)
-------------- ------------
Net cash (used) provided by financing activities.......................... (34,028) 186,276
-------------- ------------
NET DECREASE IN CASH...................................................... (1,189,705) (527,643)
Cash, beginning of period................................................. $4,118,031 $654,856
============== ============
Cash, end of period....................................................... $2,928,326 $127,213
============== ============
</TABLE>
(Continued on next page)
-5-
<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
CASH FLOWS STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
Supplemental disclosure of non cash activities:
Cash paid during the year for: 1998 1997
------- ------
<S> <C> <C>
Interest............................................................... $3,402 $12,633
Income taxes........................................................... 5,650 1,900
In February 1997, the Company acquired all of the assets of a franchise 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
=============
Assets purchased by the issuance of 365,321
Shares of common stock..................................................... $445,000
Cash paid.................................................................. 386,466
--------------
Total amount attributed to fixed assets................................ $831,466
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
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,
1998 are not necessarily indicative of the results of
operations for the full year ending December 31, 1998. These
statements should be read in conjunction with the Company's
financial statements for the year ended December 31, 1997
appearing in the Company's Annual Report on Form 10- KSB.
(NOTE B) - Acquisitions and Sales:
In January 1998, BCNY, a wholly owned subsidiary of the
Company, acquired all the assets of an unaffiliated bagel
store located in New York City. The purchase price was
$700,000 for which the Company paid the seller $275,000 in
cash and $425,000 by the issuance of 346,497 shares of the
Company's common stock at fair value ($425,000).
In February 1998, BCNY acquired certain equipment and was
assigned a lease of an unaffiliated restaurant located in New
York City. The purchase price was $80,000 for which
approximately $50,000 is attributable to the equipment
purchased. The Company paid $60,000 in cash and the remaining
$20,000 was paid by the issuance of 18,824 shares of the
Company's common stock at fair value ($20,000).
In February 1998, the Company sold the franchise store
repurchased during 1997 for $50,000 in cash, representing the
carrying value of the franchise, plus $5,147 for inventory
located in the store.
(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, 1998, the directors of the
Company were granted options to purchase an aggregate of
40,000 shares of Common Stock at an exercise price of $0.9375
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, 1998, were $1,015,326, a 52%
increase from revenues of $667,691 for the three months ended March 31, 1997.
This increase was attributable to gains in the following areas: store and
commissary product sales, franchise fees, royalty income and interest income.
Store and commissary product sales increased $263,713, or approximately 43%, to
$870,570 for the three months ended March 31, 1998 from $606,857 for the three
months ended March 31, 1997. This increase was due to the maturing of
Company-owned retail store operations, the acquisition of one new retail store
in January 1998, the growth of the wholesale business and increased commissary
sales to franchise stores. There were $60,500 of franchise fee revenues for the
three months ended March 31, 1998, as compared with no franchise fee revenues
for the three months ended March 31, 1997, because two new franchise stores and
one store under a licensing agreement opened during the 1998 period. Revenue
under franchise agreements is generally recognized when the franchise stores are
opened. The Company has unearned franchise fee income of $253,500 at March 31,
1998, compared to $329,250 at March 31, 1997. Unearned franchise fee income
represents non-refundable franchise fees which will be recognized as revenue as
the related franchise stores are opened. Royalty income during both periods was
substantially unchanged. Interest income for the three months ended March 31,
1998 was $39,687, a 127% increase from the interest income for the three months
ended March 31, 1997, resulting primarily from the cash proceeds of the
Company's private placement of preferred stock in December 1997, and the
exercise of the Company's Class A Redeemable Common Stock Purchase Warrants
("Class A Warrants"), Class B Redeemable Common Stock Purchase Warrants ("Class
B Warrants") and the Unit Purchase Option, which were deposited into interest
bearing accounts. See "--Liquidity and Capital Resources."
During the three months ended March 31, 1998, the Company entered into no new
franchise agreements, as compared to one franchise area development agreement
(three stores) for the three months ended March 31, 1997. In September 1997, the
Company entered into a licensing agreement with Total Petroleum Inc., pursuant
to which following a short trial, the licensee intended to operate a minimum of
seven full service Big City Bagels stores. The first store opened in January
1998. Soon thereafter, the licensee was acquired by another company which
notified the Company (in accordance with the terms of the license agreement)
that it does not intend to open any additional stores. In January 1998, the
Company renegotiated a twelve-store area development agreement that it had
entered into in 1996 providing for the opening of stores in Minnesota. The
franchisee has opened four stores and now is not required to open additional
stores. The franchisee still operates its own commissary and may elect to open
new stores in the future. Management believes that these business decisions were
in the best interest of the Company and does not believe this reflects a trend
within its franchise system. Cost of sales were $427,530, representing 49% of
net sales for the three months ended March 31, 1998 compared to $358,656 or 59%
for the three months ended March 31, 1997. The decrease in cost of sales as a
percentage of sales was primarily attributable to an increase in the mix between
-8-
<PAGE>
sales from the Company-owned stores and sales from the commissary to
franchisees, which generally represents a higher gross profit percentage. The
increase in cost of sales of $68,874 was primarily due to increased product
sales resulting from the additional Company-owned store acquired, increased
wholesale business and increased sales from the commissary to franchisees.
Selling, general and administrative expenses (SG&A) were $1,248,934 for the
three months ended March 31, 1998, a 14% increase from $1,098,673 for the three
months ended March 31, 1997. This increase was primarily a result of: a $97,768
increase in salaries from $418,632 for the three months ended March 31, 1997 to
$516,400 for the three months ended March 31, 1998, due to the hiring of a part
time chief financial officer and increases in management, administrative
personnel and officers' salaries; and increases of $26,700 in rent and $29,505
in advertising.
Interest expense decreased by $9,566 during the three months ended March 31,
1998, substantially due to the Company retiring its debt obligations to its
shareholders.
The net loss for the three months ended March 31, 1998 was $664,540, compared to
a net loss of $802,606 for the three months ended March 31, 1997. The primary
reason for the decrease in the current period loss was due to the increased
revenues, with better margins, realized in the three months ended March 31,
1998.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 1998 were $2,928,326, compared to
$4,118,031 at December 31, 1997. This decrease was primarily attributable to
funding the Company's operating loss for the three months ended March 31, 1998
and for the purchase of two stores in New York City.
Accounts receivable increased to $187,575 at March 31, 1998, from $104,190 at
December 31, 1997. This increase was primarily due to increases in commissary
sales to franchisees and the Company's wholesale business.
Inventory increased to $48,807 at March 31, 1998, from $ 43,868 at December 31,
1997, due to the purchase of another Company-owned store.
Prepaid expenses and other current assets increased to $120,924 at March 31,
1998 from $41,133 at December 31,1997, due to the building of a new commissary
and payments made toward the rent and design work of the New York City
Company-owned store that will be opened later this year.
Fixed assets, net of accumulated depreciation, decreased to $605,142 at March
31, 1998 from $611,095 at December 31, 1997, resulting from the sale of a
Company-owned store and the normal depreciation of Company assets during the
quarter ended March 31, 1998.
Intangible assets, net of accumulated amortization, increased to $697,990 at
March 31, 1998 from $23,267 at December 31, 1997, resulting from the goodwill
realized on the acquisition of a unaffiliated bagel store in New York City.
Security deposits and other assets increased to $290,563 at March 31,1998 from
$220,380 at December 31, 1997, resulting from the acquisition of the New York
City bagel store, and the assignment of a lease to a restaurant.
The current and non-current portion of capital lease obligations decreased to
$86,905 at March 31, 1998 from $ 96,097 at December 31, 1997, as a result of the
Company making the required payments during this period.
The combination of accounts payable and accrued expenses decreased to $326,137
at March 31, 1998 from $361,344 at December 31, 1997. This decrease was
primarily due to the Company's ability to pay its bills in a more timely manner.
At March 31, 1998, the Company had $2,665,695 of working capital and a current
ratio of 5.3 to 1.
-9-
<PAGE>
The Company's operating activities used net cash of $814,505 during the three
months ended March 31, 1998, as compared to net cash used in operations of
$620,596 for the corresponding period of the prior year. This increase was
primarily due to a pay down of accounts payable, additional prepayment of
assets, a decrease of collections of accounts receivable, and a decrease in
unearned franchise fees, partially offset by a decrease in funds required to
support the Company's net loss.
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's plans to increase revenues, reduce costs and implement its
expansion strategy are as follows:
Increase Revenues
The Company recently expanded its concept to include more deli product
offerings, including new sandwich menu items, and has created a new store
design with a stronger deli emphasis. The Company believes that this
expanded concept will increase retail sales by generating more lunch and
afternoon business, both from increased in-store traffic and through
catering and office delivery to commercial accounts. The Company's revenues
would increase as a result of increases in: (i) retail sales in Company-
owned stores, (ii) royalty payments from franchises with increased retail
sales and (iii) commissary sales to franchises. However, there can be no
assurance that the Company's expanded concept will be accepted or
successful.
The Company also intends to increase revenues by attracting wholesale
business. The Company has entered into an agreement with Northwest Airlines
to be the exclusive supplier of bagels on certain domestic Northwest
flights. The agreement is for a three-year term, although either party may
terminate the agreement after the second year. The Company anticipates that
this arrangement will generate approximately $2,200,000 in revenues over a
three-year period based upon Northwest's currently anticipated
requirements. There can be no assurance that the Company will be able to
obtain additional wholesale business or that it will be able to meet
Northwest's requirements. If the Company is unable to service Northwest,
then Northwest may terminate the agreement and the Company will not
generate revenues as anticipated.
In order to increase revenues generated by commissary sales, in March 1998
the Company increased its prices for prepared bagel dough sold to
franchises. In addition, in April 1998 the Company increased retail prices
in its Company-owned stores and has encouraged its franchisees to do the
same.
The Company will make increased efforts to promote its franchise sales by
the Company's visibility in trade and business publications. Two new
franchise stores and one store under a licensing agreement have opened in
the first quarter of 1998.
Reduce Costs
The Company will be moving its Costa Mesa, California commissary to a new
location in Ontario, California, which contains a cold storage facility,
thereby eliminating the need for a second facility for storage. The Company
also recently moved its west coast corporate offices to a smaller, less
expensive facility.
The Company believes that it can maintain the quality of its products
without having to prepare the dough exclusively in its own commissaries.
The Company has now arranged for an independent supplier to supply bagel
dough to certain Company-owned stores, franchises and wholesale accounts.
The Company believes that this will enable it to supply more stores and
wholesale accounts without having to build additional commissaries.
Although the Company is confident that independent suppliers can serve the
Company well, there can be no assurance that the Company will be able to
maintain product quality or engage and retain acceptable suppliers. In
-10-
<PAGE>
addition, since the Company will not be able to exercise direct day-to-day
control over the preparation or delivery of its products, it could suffer
from variations in product quality and delays in shipments. In the event
that the independent supplier is unable to service the Company's needs
sufficiently, the Company's California commissary will be able to
adequately supply the Company-owned stores, franchises and wholesale
accounts.
The Company has been evaluating the desirability of discontinuing the
operations of the lower volume stores that drain the Company's resources.
As part of this process, the Company sold its store located in Park City,
Utah to an unaffiliated entity for $50,000.
Expansion
The Company plans to open additional Company-owned stores and acquire other
bagel stores or complementary retail food outlets which will enhance
existing operations or provide entry into new markets. In January 1998, the
Company purchased a bagel store located in New York City and has an
exclusive option to purchase an additional store in New York City until
January 1999. The Company entered into consulting agreements with the two
former owners of this bagel store, pursuant to which they agreed to assist
the Company to operate this store and in opening additional stores in New
York City. The Company recently leased retail space in New York City where
it intends to open another Company owned store in June 1998. The Company's
ability to make acquisitions and open new Company-owned stores (other than
the second New York City store) is dependent upon its ability to obtain
financing from outside sources. While the Company is exploring its ability
to obtain such financing, there can be no assurance that it will be able to
do so.
The Company intends to open smaller satellite stores. Such stores would be
serviced by stores where baked goods would be prepared and then delivered
to the satellite stores, thereby eliminating the need for baking equipment
in the satellite stores. The satellite stores would sell these baked goods
as well as sandwiches and other non-baked items which can be prepared at
the satellite stores. The Company recently turned one of its Costa Mesa,
California stores into a satellite store and intends to open another
satellite store in Tustin, California in May 1998, both of which are or
will be serviced by the Company's other Costa Mesa, California store.
Chief Financial Officer
In February 1998, the Company hired a part-time Chief Financial Officer.
The Company believes that the increased day-to-day involvement of its Chief
Financial Officer, who has provided the Company with consulting services in
the past, will provide it with a greater degree of financial acumen and
oversight relating to its operations and strategic planning.
-11-
<PAGE>
PART II. - OTHER INFORMATION
Item 2 - Changes in Securities
(c) Recent Sales of Unregistered Securities
During the three months ended March 31, 1998, 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>
2/9/98 Common Stock 24,941 Consulting services 4(2) N/A
2/12/98 Common Stock 18,824 Acquisition of equipment 4(2) N/A
3/31/98 options to purchase 40,000 options granted - no 4(2) exercisable for ten
Common Stock granted consideration received by years from date of
to directors Company until exercise grant at an exercise
price of $0.9375 per
share
- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.11 Stock option agreement, dated March 31, 1998, between the
Company and Mark Weinreb.
10.11.1 Schedule of omitted documents in the form of Exhibit
10.11, including material detail in which such documents
differ from Exhibit 10.11.
27 Financial Data Schedule (3/31/98)
(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: May 14, 1998 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
- --------- ------------ ----
10.11 Stock option agreement, dated March 31, 1998,
between the Company and Mark Weinreb...........................15
10.11.1 Schedule of omitted documents in the form of Exhibit 10.11,
including material detail in which such documents differ
from Exhibit 10.11.............................................22
27 Financial Data Schedule (3/31/98)..............................23
-14-
<PAGE>
EXHIBIT 10.11
STOCK OPTION AGREEMENT
AGREEMENT, made as of the 31st day of March, 1998, 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 $0.9375 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,
2008 (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 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.
-15-
<PAGE>
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.
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;
-16-
<PAGE>
(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 invest
ment 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)the 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.
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.
-17-
<PAGE>
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.
-18-
<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
and Chief Operating Officer
DIRECTOR: Address:
- ----------------------------------- -------------------------------
MARK WEINREB
-19-
<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, 1998
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;
(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:
-20-
<PAGE>
"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)
-21-
<PAGE>
Exhibit 10.11.1
Schedule of Omitted Documents in the Form of
Exhibit 10.11, including Material Detail in
Which Such Documents Differ from Exhibit 10.11
-------------------------------------------------
1. Directors Stock Option Agreement, dated March 31, 1998, with Jerry
Rosner
2. Directors Stock Option Agreement, dated March 31, 1998, with Stanley
Weinreb
3. Directors Stock Option Agreement, dated March 31, 1998, with Stanley
Raphael
The form of the documents listed above does not differ in material
detail from the form of Exhibit 10.11 except with respect to the
identity of the director.
-22-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Mar-31-1998
<CASH> 2,928,326
<SECURITIES> 0
<RECEIVABLES> 222,575
<ALLOWANCES> 35,000
<INVENTORY> 48,807
<CURRENT-ASSETS> 3,285,632
<PP&E> 910,951
<DEPRECIATION> 305,809
<TOTAL-ASSETS> 4,879,327
<CURRENT-LIABILITIES> 619,937
<BONDS> 0
<COMMON> 6,734
0
265
<OTHER-SE> 4,200,853
<TOTAL-LIABILITY-AND-EQUITY> 4,879,327
<SALES> 870,570
<TOTAL-REVENUES> 1,015,326
<CGS> 427,530
<TOTAL-COSTS> 1,679,866
<OTHER-EXPENSES> 1,248,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,402
<INCOME-PRETAX> (664,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (664,540)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
