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 June 30, 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. 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) 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 August 10, 1998, the issuer had
outstanding 1,495,092 shares of Common stock, par value $.001 per share.




<PAGE>



BIG CITY BAGELS, INC. AND SUBSIDIARY
BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                 June 30,        December 31,
                                                                                   1998               1997
                                                                                   ----               ----
                                     ASSETS
<S>                                                                              <C>           <C>
Current assets:
      Cash and cash equivalents ................................................ $  2,182,284  $  4,118,031
      Accounts receivable ......................................................      207,371       104,190
      Inventory ................................................................       60,757        43,868
      Prepaid expenses and other current assets ................................      116,585        41,133
                                                                                 ------------  ------------
           Total current assets ................................................    2,566,997     4,307,222

      Fixed assets, net of accumulated depreciation ............................      735,107       611,095
      Intangible assets, net of accumulated
      amortization .............................................................      161,851        23,267
      Security deposits and other assets .......................................      136,932       220,380
                                                                                 ------------  ------------
           TOTAL ............................................................... $  3,600,887  $  5,161,964
                                                                                 ============  ============


                                              LIABILITIES

Current liabilities:

      Capital lease obligations ................................................ $     41,790  $     38,862
      Unearned franchise fee income ............................................      213,500       278,500
      Accounts payable .........................................................      299,286       287,138
      Accrued expenses .........................................................      190,623        74,206
                                                                                 ------------  ------------
           Total current liabilities ...........................................      745,199       678,706

      Deferred rent payable ....................................................        2,071         7,795
      Capital lease obligations, noncurrent ....................................       35,592        57,235
                                                                                 ------------  ------------
           Total liabilities ...................................................      782,862       743,736
                                                                                 ------------  ------------


STOCKHOLDERS' EQUITY
Convertible  (redeemable)  preferred  stock;  $.001 par value;  1,000,000 shares
    authorized; 250,440 shares issued and
    outstanding (liquidation value $3,130,500) .................................          250           265
Common stock; $.001 par value; 25,000,000 shares authorized;
    1,443,642 and 1,268,694 shares issued and outstanding
    at June 30, 1998 and December 31, 1997, respectively
                                                                                        1,444         1,269
Additional paid-in capital .....................................................   10,121,881     9,682,264
Accumulated deficit ............................................................   (7,305,550)   (5,258,070)
Unearned portion of compensatory stock .........................................            0        (7,500)
                                                                                 ------------  ------------
     Total stockholders' equity ................................................    2,818,025     4,418,228
                                                                                 ------------  ------------
     TOTAL ..................................................................... $  3,600,887  $  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>
                                                            Six Months Ended                     Three Months Ended
                                                      June 30,            June 30,            June 30,            June 30,
                                                        1998                1997                1998                1997
                                                  -----------------    ---------------    -----------------    --------------
<S>                                              <C>                  <C>                 <C>                 <C>    
REVENUES:

Product sales by company-owned stores             $       1,358,023    $       881,415    $         661,183    $      424,841
Product sales to franchisees and others                     359,960            334,126              186,230           183,843
Franchise fees                                              124,500             60,000               64,000            60,000
Royalty income                                              101,405             87,643               56,836            44,289
Interest and other income                                    84,148             30,989               44,461            13,509
                                                  -----------------    ---------------    -----------------    --------------
     Total revenues                                       2,028,036          1,394,173            1,012,710           726,482
                                                  -----------------    ---------------    -----------------    --------------

COSTS AND EXPENSES:

Cost of sales                                               845,647            701,710              418,117           343,054
Selling, general and administrative
   expenses                                               2,649,745          2,147,517            1,400,811         1,048,844
Interest expense                                              7,929             24,584                4,527            11,616
Write-off of intangible assets                              572,195                                 572,195
                                                  -----------------    ---------------    -----------------    --------------
     Total costs and expenses                             4,075,516          2,873,811            2,395,650         1,403,514
                                                  -----------------    ---------------    -----------------    --------------
NET (LOSS)                                        $     (2,047,480)    $   (1,479,638)    $     (1,382,940)    $    (677,032)
                                                  =================    ===============    =================    ==============

Basic and diluted net (loss) per common
   share                                          $          (1.51)    $        (1.50)    $          (0.98)    $       (0.69)
                                                  =================    ===============    =================    ==============
Weighted average common shares
   outstanding                                            1,360,308            986,121            1,414,979           986,404
                                                  =================    ===============    =================    ==============
</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
                                                                             Additional                Compensatory Stock
                                  Preferred Stock        Common Stock         Paid-In    Accumulated    ---------------          
                                 Shares     Amount    Shares     Amount      Capital       Deficit      Shares   Amount    Total
                                 ------     ------    ------     ------    -----------  ------------    ------   ------   --------
<S>                             <C>      <C>        <C>       <C>        <C>            <C>             <C>    <C>       <C>       
BALANCE, January 1, 1998        265,000  $    265   1,268,694 $  1,269   $  9,682,264   $ (5,258,070)   3,000  $ (7,500) $4,418,228

Issuance of common stock
  for acquisition of assets                            73,064       73        444,927                                       445,000

Shares issued as
    compensation                                        4,988        5         26,495                                        26,500

Preferred stock converted
    to common stock            (14,560)       (15)     93,952       94            (79)

Amortization of
    compensatory stock                                                                                            7,500       7,500

Registration costs                                                            (31,723)                                      (31,723)

Stock dividends                                         2,944        3             (3)

Net loss                                                                                 (2,047,480)                     (2,047,480)
                              _____________________________________________________________________________________________________

BALANCE, June 30, 1998          250,440  $    250    1,443,642 $ 1,444  $  10,121,881  $ (7,305,550)    3,000  $     0  $ 2,818,025
                              =====================================================================================================
</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 SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
                                                                                1998              1997
                                                                                ----              ----
<S>                                                                        <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................  $ (2,047,480)     $  (1,479,638)
                                                                            -------------     --------------    

Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization..........................................        99,887            121,787
   Write off of intangible assets.........................................       572,195                  0
   Issuance of common stock for compensation and
        professional services.............................................        34,000             15,000
   Gain on sale of equipment..............................................       (11,981)                 0
   (Increase) Decrease in:
     Accounts receivable..................................................      (103,181)           (99,790)
     Inventory.......................................................            (16,889)            23,931
     Interest receivable on U.S. Treasury bills..........................              0             21,135
     Prepaid expenses and other current assets............................       (55,452)            16,877
   Increase (Decrease) in:
     Unearned franchise fee income........................................       (65,000)            71,875
     Deferred rent payable................................................        (5,724)            (5,724)
     Accounts payable.....................................................        12,148            125,076
     Accrued expenses.....................................................       116,417            122,412
                                                                           ---------------   ---------------
Total adjustments.........................................................       576,420            412,579
                                                                           ---------------   ---------------
Net cash used in operating activities.....................................    (1,471,060)        (1,067,059)
                                                                           ---------------   ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of franchise store.........................................             0            (75,000)
   Purchases of fixed and intangible assets...............................      (634,515)           (13,472)
   Sale of fixed assets...................................................       136,818                  0
   Decrease (Increase) in security deposits and other assets..............        83,448            (10,795)
   Purchase of United States Treasury bills...............................             0           (243,880)
   Sales of United States Treasury bills..................................             0          1,228,487
                                                                           ---------------   ---------------
Net cash (used in) provided by in investing activities....................      (414,249)           885,340
                                                                           ---------------   ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Registration costs.....................................................       (31,723)           (65,286)
   Repayment of stockholder loans.........................................             0            (23,700)
   Repayment of notes payable.............................................       (18,715)           (24,958)
                                                                           ---------------   ---------------
Net cash used in financing activities.....................................       (50,438)          (113,944)
                                                                           ---------------   ---------------

NET DECREASE IN CASH......................................................    (1,935,747)          (295,663)
Cash, beginning of period................................................. $   4,118,031      $     654,856
                                                                           ===============    ==============
Cash, end of period....................................................... $   2,182,284      $     359,193
                                                                           ===============    ==============
</TABLE>




                            (Continued on next page)


                                       -5-

<PAGE>



                      BIG CITY BAGELS, INC. AND SUBSIDIARY
                        CASH FLOWS STATEMENTS (CONTINUED)
                       FOR THE SIX MONTHS ENDED JUNE 30,






Supplemental disclosure of non cash activities:

     Cash paid during the year for:                      1998        1997
                                                         ----        ----
         Interest.................................... $  7,929  $   22,350
         Income taxes................................    5,650       1,900

In February 1997, the Company  acquired 
all of the assets of a franchise store for the
following:
         Forgiveness of outstanding accounts receivable......... $   8,796
         Issuance of 1,653 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 73,064
        shares of common stock..................... $445,000
     Cash paid.....................................  386,466
                                                    --------

         Total amount attributed to fixed assets... $831,466
                                                    ========







    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 and six months ended June
               30,  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.

               On June 23, 1998,  the Company  effected a  one-for-five  reverse
               stock split of the Company's Common Stock (the "Reverse  Split").
               All per-share  data and  references to number of shares have been
               retroactively restated in these financial statements.  Holders of
               outstanding  shares  of the  Company's  Class A  Preferred  Stock
               ("Preferred  Stock") were not affected by the Reverse Split.  The
               Reverse Split  affected the holders of each class of warrants and
               options outstanding insofar as the exercise price of each warrant
               was adjusted  upward by a factor of five and the number of shares
               of common  stock  issuable  upon  exercise of each  warrant  were
               reduced by a factor of five.

(NOTE B) -     Acquisitions and Sales:

               In January 1998,  BCNY,  Inc., 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 69,299 shares of the Company's common stock at
               fair value ($425,000).

               In February 1998, BCNY, Inc.  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 3,765 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.

               In June 1998,  the Company sold one of its retail stores in Costa
               Mesa, California for $75,000 in cash to a new franchisee.



                                       -7-

<PAGE>


                      BIG CITY BAGELS, INC. AND SUBSIDIARY
                          NOTES TO FINANCIAL STATEMENTS



(NOTE C) -     Dividends Paid

               Pursuant to the private  placement of 265,000 shares of Preferred
               Stock,  the  Company  paid a dividend  of 2,944  shares of common
               stock to the preferred shareholders,  cumulative through June 30,
               1998.

(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  2,000
               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 8,000  shares of Common Stock at an
               exercise price of $4.6875 per share.

                                       -8-

<PAGE>



ITEM 2.  MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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,"  "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 results 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, 1998,  were $1,012,710
and $2,028,036,  respectively,  a 39% and 45% increase from revenues of $726,482
and $1,394,173  for the three and six months ended June 30, 1997.  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 $238,729 and $502,442,  respectively,  a 39% and 41%  increase,  to
$847,413  and  $1,717,983  for the three and six months ended June 30, 1998 from
$608,684 and $1,215,541  for the three and six months ended June 30, 1997.  This
increase was due to the maturing of Company-owned  retail store operations,  the
acquisition  of one new store in  January  1998,  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,  1998 were  $64,000  and
$124,500,  respectively,  as compared  with $60,000 and $60,000 of franchise fee
revenues for the three and six months ended June 30, 1997,  due to the fact that
more stores opened  during the three and six months ended June 30,1998.  Revenue
under franchise agreements generally is recognized when the franchise stores are
opened.  The Company has unearned  franchise  fee income of $213,500 at June 30,
1998,  compared  to $335,625  at June 30,  1997 due to related  franchise  store
openings and no new franchise sales.  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 $12,547 and $13,762, or
28% and 16%, to $56,836 and $101,405 for the three and six months ended June 30,
1998, from $44,289 and $87,643 for the three and six months ended June 30, 1997.
This was due to the maturing of operations of existing  franchise stores and the
commencement of operations of new franchise stores that opened in 1998. Interest
income for the three and six months ended June 30, 1998 was $29,297 and $68,984,
respectively, a 117% increase and 123% increase from the interest income for the
three and six months ended June 30, 1997. Interest income resulted 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  Purchased
Warrants  ("Class  B  Warrants")  and the  Unit  Purchase  Options,  which  were
deposited into interest bearing accounts.

     During the six months ended June 30, 1998, the Company  entered into no new
franchise  agreements as compared to two franchise  agreements and one franchise
area  development  agreement  (three  stores) for the six months  ended June 30,
1997.


                                       -9-

<PAGE>



     Cost of sales were $418,117 and $845,647,  representing  49% and 49% of net
sales for the three and six months ended June 30, 1998, compared to $343,054 and
$701,710 or 56% and 58% of net sales for the three and six months ended June 30,
1997.  The  decrease  in cost of sales as a  percentage  of sales was  primarily
attributable  to an  increase in the mix  between  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 $75,063 and
$143,937,  respectively,  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 $1,400,811 and
$2,649,745,  respectively,  for the three and six months  ended June 30, 1998, a
34% and 23% increase from $1,048,844 and $2,147,517 for the three and six months
ended June 30, 1997. This increase was primarily a result of: (i) an increase in
salaries of $230,723 and $328,491  from  $415,421 and $834,053 for the three and
six months ended June 30, 1997 to $646,144 and  $1,162,544 for the three and six
months ended June 30,  1998,  due to the hiring of a part-time  chief  financial
officer,  a one time officer's  severance contract  termination  payment and the
opening of  additional  Company-owned  stores and (ii)  increases of $72,411 and
$99,111 in rent,  and $41,921 and $29,731 in consulting and  professional  fees,
for the  three and six  months  ended  June 30,  1998,  respectively,  that were
mandated by a growing business.

     Interest  expense  decreased  by $7,089 and $16,655  respectively,  for the
three and six months ended June 30, 1998,  primarily due to the Company retiring
its debt obligations to its shareholders.

     The net  losses  of the  three  and six  months  ended  June 30,  1998 were
$1,382,940 and $2,047,480,  respectively, compared to net losses of $677,032 and
$1,479,638 for the three and six months ended June 30, 1997. The reasons for the
increase  in  the  loss  were   primarily  due  to  the  severance   payment  of
approximately  $150,000 resulting from the termination of an officer's contract,
and a write down of goodwill in the amount of $572,195.

Liquidity and Capital Resources

     Cash and cash  equivalents  at June 30, 1998 were  $2,182,284,  compared to
$4,118,031 at December 31, 1997.  This decrease was  primarily  attributable  to
funding the Company's operating losses for the six months ended June 30, 1998, a
one time severance  contract  termination  payment,  and for the purchase of two
stores in New York City.

     Accounts  receivable  increased to $207,371 at June 30, 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 $60,757 at June 30, 1998, from $ 43,868 at December
31, 1997, due to the purchase of a Company-owned store and increased  commissary
sales to franchisees and the Company's wholesale business.

     Prepaid expenses and other current assets increased to $116,585 at June 30,
1998 from $41,133 at December 31, 1997,  due to the  renovation of the Company's
two New York City stores.

     Fixed assets,  net of  accumulated  depreciation,  increased to $735,107 at
June 30, 1998 from $611,095 at December 31, 1997,  resulting from the opening of
the Company's new commissary and the purchase of stores in New York City.


                                      -10-

<PAGE>



     Intangible assets, net of accumulated  amortization,  increased to $161,851
at June 30,  1998 from  $23,267 at December  31,  1997,  resulting  from the net
goodwill  realized on the acquisition  and the subsequent  write down of a bagel
store in New York City.

     Security  deposits and other assets  decreased to $136,932 at June 30, 1998
from  $220,380 at December  31, 1997,  due to the opening of the new  commissary
which costs were capitalized until operations began in 1998.

     The current and non-current portion of capital lease obligations  decreased
to $77,382 at June 30, 1998 from $96,097 at December  31,  1997,  as a result of
the Company making the required lease payments during this period.

     The  combination  of accounts  payable and accrued  expenses  increased  to
$489,909 at June 30, 1998 from $361,344 at December 31, 1997.  This increase was
primarily due to the growth of the Company.

     At June 30,  1998,  the Company  had  $1,821,798  of working  capital and a
current ratio of 3.4 to 1.

     The Company's  operating  activities used net cash of $1,471,060 during the
six months ended June 30, 1998,  as compared to net cash used in  operations  of
$1,067,059  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 in unearned  franchise fees received,  progress payments made
for the construction for the new commissary and Company-owned satellite store in
New York City, and a one time officer's severance contract termination payment.

     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 and  potential
acquisitions. The Company is considering a strategic refocusing of its business,
which may include the acquisition of companies outside of the food industry. The
Company's  ability to make such  acquisitions may require it to obtain financing
from outside sources, although there can be no assurance that it will be able to
do so.

     The Company's plans to increase revenues and reduce costs are as follows:

     Increase Revenues

     The Company  recently  expanded its concept to include  more deli  products
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.  In April 1998, the Company increased retail prices in its
Company-owned  stores and has  encouraged  its  franchisees  to do the same. The
Company's  revenues  would  increase  as a result of  increases  in: (i) royalty
payments from existing  franchises  with  increased  retail sales,  (ii) royalty
payments  from new  franchise  stores  opened,  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  intends to  increase  revenue  by  attracting  new  wholesale
business.  The Company  relocated  its bagel  production  facilities to Ontario,
California from its Costa Mesa,  California facility.  The new facility is large
enough to service the Company's existing wholesale clients and retail stores and
will enable the Company to service the  requirements  of potential new franchise
and wholesale  clients.  The Company's  agreement with Northwest Airlines as the
exclusive  supplier on certain domestic Northwest flights has provided increased
wholesale revenues to the Company. If the Company is unable to service Northwest


                                      -11-

<PAGE>



or Northwest  experiences labor or equipment problems,  then the Company may not
generate revenues as anticipated.

     The Company has engaged DME  Interactive  Services to design and service an
electronic  commerce web site that will retail the  Company's  bagels,  muffins,
breads and other assorted  products via the Internet.  The Company believes that
the scope of the Internet  will provide the Company  with a new  opportunity  to
sell its products,  although to date the web site is not online and there are no
projected sales expectations. The Company intends to have the web site operating
by  September  1998.  Additional  pages  on the web  site  will be  designed  to
introduce potential franchisees to the Company's bagel/deli cafe opportunities.

     The Company  will make  increased  efforts to promote its  franchise  sales
through  advertising  in trade  and  business  publications  as well as  through
increased exposure expected from the web site. Four new franchise stores and one
store under a licensing agreement have opened in the first six months of 1998.

     The Company  opened a satellite  store in Tustin,  California  in May 1998,
which is being serviced by the Company's Costa Mesa, California store.

     Reduce Costs

     The  Company  has taken  steps to  reduce  operational  and  administrative
expenses.  In June 1998, Jerry Rosner,  President and Chief Operating Officer of
the Company,  resigned to pursue other  interests.  Other  reductions in payroll
have been made without impairing the Company's ability to conduct its business.

     Relocating  the Company's  commissary has enabled the Company to adequately
supply California  Company-owned stores,  franchises and wholesale accounts. Due
to the efficiencies and product volume capabilities of this new commissary,  the
Company no longer has to use independent bagel dough suppliers.  The Company has
been  evaluating the  desirability  of  discontinuing  the operations of certain
Company-owned  stores  that  drain  the  Company's  resources.  As  part of this
process,  in June 1998,  the Company sold its  satellite  store located in Costa
Mesa,  California to a new  franchisee for $75,000 and in July 1998, the Company
closed its  Scottsdale,  Arizona  store.  The Company is evaluating  the sale of
other  Company-owned  stores  to new  or  existing  franchisees  as  well  as to
unaffiliated parties to further reduce costs.

Other Information

     Board of Directors Authorizes Repurchases of Common Stock

     On July 10,  1998,  the  Board  of  Directors  authorized  the  Company  to
repurchase from time to time up to 100,000 shares of the Company's  Common Stock
in the public market.  The Company believes that the share price at the time was
below value.  As of August 10, 1998, the Company had  repurchased  approximately
26,400 shares of Common Stock.

     Preferred Stock

     On December 31, 1997, the Company completed a private placement in which it
received net proceeds of $2,334,158  through the sale of 265,000 shares of Class
A Preferred Stock ("Preferred  Stock"). The Preferred Stock accrues dividends at
the rate of 8% per annum,  payable  in cash or in shares of common  stock at the
election of the Company. The dividend is paid on the date the Preferred Stock is
converted into shares of common stock.  As of August 10, 1998,  17,060 shares of
Preferred Stock have been converted into 148,136 shares of common stock.

                                      -12-

<PAGE>



Item 1 - Legal Proceedings

     On September 24, 1997, in the Arizona Superior Court, County of Maricopo, a
lawsuit was commenced by Earl and Linda Fraley (dba "Xtremely Xpresso"),  owners
of a store  in a  shopping  mall in  which a Big  City  Bagels  store,  formerly
franchised and  subsequently  Company-owned,  was located,  against the landlord
(the owners of the mall),  the former  franchisee  and the  Company,  seeking an
unspecified amount of damages.  The landlord has filed a cross-claim against the
Company  for breach of the lease and claims  that it is  entitled  to rent owed,
damages  arising  out of the breach and to be  indemnified  by the  Company  for
losses  arising  out of the  litigation.  The  Company  has filed a  cross-claim
against the landlord. Plaintiffs' claim is based upon a provision in their lease
which plaintiffs  assert prohibits the owner from leasing space to other tenants
who sell substantial amounts of coffee products,  and therefore,  prohibited the
owner from leasing  space for the Big City Bagels  store.  As a result of events
that caused the Company to be unable to  economically  operate the store, it was
closed on October 23,  1997.  The Company  believes  that it has no liability in
this  matter and that it is the  obligation  of the  landlord to  indemnify  the
Company for these  claims.  The Company  also  believes  that the  landlord  has
breached its  obligations to the Company under its lease.  The Company has moved
for  summary  judgment  against  the  plaintiff  and intends to move for summary
judgment  against the landlord.  The Company  intends to  vigorously  defend the
cross claim asserted by the landlord.

Item 2 - Changes in Securities and Use of Proceeds

     (c)  Recent Sales of Unregistered Securities

     During the three months ended June 30, 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>
5/1/98 - 6/22/98    Common Stock         96,896       Conversion of Preferred       4(2)           Convertible at
                                                            Stock                                  conversion rates
                                                                                                   ranging from $.2585
                                                                                                   to $.421875 per share
------------------ --------------    ------------     -----------------------  --------------     ----------------------
</TABLE>


Item 4 - Submission of Matters to a Vote of Security Holders

     On June 19, 1998, the Company held its annual meeting of  shareholders,  at
which the Company's shareholders considered (i) the election of directors,  (ii)
the approval of the Company's 1998 Performance Equity Plan ("1998 Plan"),  (iii)
the approval of an amendment to the Company's  Certificate of  Incorporation  to
implement  a  reverse  stock  split of the  Company's  Common  Stock of  between
one-for-two  up to  one-for-five  and (iv) the approval of the issuance,  in the
discretion of the Board of Directors,  of up to 5,000,000 shares of Common Stock
on a pre-split  basis at a purchase price  reflecting a discount of up to 50% of
the fair  market  value of the  Common  Stock  on the date of  issuance  ("Stock
Issuance").  Shareholders  voted to elect Mark Weinreb,  Jerry  Rosner,  Stanley
Weinreb and Stanley Raphael to serve as directors for the ensuing year and until
their successors are elected and qualified.  1,208,575 shares were voted for and
12,070 shares were withheld in Mark  Weinreb's and Stanley  Raphael's  election,
1,208,395  shares  were  voted for and  12,250  shares  were  withheld  in Jerry
Rosner's  election and  1,208,375  shares were voted for and 12,270  shares were
withheld in Stanley  Weinreb's  election.  With  respect to approval of the 1998
Plan, 1,164,547  shares  were  voted for, 54,278 shares  were  voted against and


                                      -13-

<PAGE>


1,820 shares  abstained  from voting.  With respect to the reverse  stock split,
1,140,313 shares were voted for, 79,792 shares were voted against and 540 shares
abstained from voting.  With respect to the Stock Issuance,  638,558 shares were
voted for, 86,592 shares were voted against,  6,860 shares abstained from voting
and 488,634 shares were not voted.

Item 5 - Other Information

     Pursuant  to  Rule  14a-4   promulgated  by  the  Securities  and  Exchange
Commission,  shareholders  are advised that the  Company's  management  shall be
permitted to exercise  discretionary  voting authority under proxies it solicits
and obtains for the Company's 1999 Annual Meeting of  Shareholders  with respect
to any  proposal  presented  by a  shareholder  at  such  meeting,  without  any
discussion  of the proposal in the Company's  proxy  statement for such meeting,
unless the Company receives notice of such proposal at its principal  offices in
Hicksville, New York no later than April 3, 1999.

     In April 1998, the Company  received  correspondence  from the Nasdaq Stock
Market  regarding  the  continued  listing  of the  Company's  Common  Stock and
warrants on the Nasdaq SmallCap Market. The Company needed to maintain a closing
bid price greater than or equal to $1.00 to be eligible for continued listing of
all securities, except warrants and rights. The Company was provided ninety (90)
calendar  days in  which  to  regain  compliance  with  the  minimum  bid  price
requirement.  Although  the bid price of the Common  Stock was $1.00 or more for
only  several of the last days during such 90-day  period,  since July 10, 1998,
the bid price of the Common stock has been at least $1.00.

Item 6 - Exhibits and Reports on Form 8-K

     (a)  Exhibits

          3.1.4   Amendment to Certificate of Incorporation

          10.11   Amendment to Founders' Shareholder Agreement

          27.1    Financial Data Schedule (6/30/98)

          27.2    Restated Financial Data Schedule (6/30/97)

     (b)  Reports on Form 8-K

          None

                                      -14-

<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)

                                             /s/ Mark Weinreb
Dated:    August 14, 1998               By:____________________________________
                                           Mark Weinreb, Chairman and
                                            Chief Executive Officer


                                             /s/ Howard J. Fein
                                        By:____________________________________
                                        Howard J. Fein, Chief Financial Officer
                                           (and principal accounting officer)

                                      -15-

<PAGE>



EXHIBIT INDEX

EXHIBIT
NUMBER                     DESCRIPTION                               PAGE

3.1.4    Amendment to Certificate of Incorporation..............      17

10.11    Amendment to Founders' Shareholder Agreement...........      20

27.1     Financial Data Schedule (6/30/98)......................      21

27.2    Restated Financial Data Schedule (6/30/97)..............      22

                                      -16-

<PAGE>