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 September 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 November 10, 1998, the issuer had
outstanding 1,431,712 shares of Common stock, par value $.001 per share.




<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.   Financial Statements          

BIG CITY BAGELS, INC. AND SUBSIDIARY
BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                  September 30,            December 31,
                                                                                      1998                    1997
                                                                                      ----                    ----
                                                          ASSETS
<S>                                                                             <C>                     <C>               
Current assets:
      Cash and cash equivalents...............................................  $        1,346,799      $        4,118,031
      Accounts receivable.....................................................             196,108                 104,190
      Inventory...............................................................              51,506                  43,868
      Prepaid expenses and other current assets...............................             109,870                  41,133
                                                                                ------------------     -------------------
           Total current assets...............................................           1,704,283               4,307,222

      Fixed assets, net of accumulated depreciation...........................             769,325                 611,095
      Intangible assets, net of accumulated amortization......................             154,777                  23,267
      Security deposits and other assets......................................             109,917                 220,380
                                                                                ------------------     -------------------
           TOTAL..............................................................  $        2,738,302      $        5,161,964
                                                                                ==================     ===================

                                                       LIABILITIES
 Current liabilities:
       Capital lease obligations...............................................  $          41,790      $           38,862
      Unearned franchise fee income...........................................             213,500                 278,500
      Accounts payable........................................................             319,533                 287,138
      Accrued expenses........................................................              56,796                  74,206
                                                                                ------------------     -------------------
           Total current liabilities..........................................             631,619                 678,706

      Deferred rent payable...................................................                   0                   7,795
      Capital lease obligations, noncurrent...................................              35,592                  57,235
                                                                                ------------------     -------------------
           Total liabilities..................................................             667,211                 743,736
                                                                                ------------------     -------------------

STOCKHOLDERS' EQUITY
Convertible  (redeemable)  preferred  stock;  $.001 par value;  1,000,000 shares
   authorized;  247,940 and 265,000  shares issued and  outstanding at September
   30, 1998 and December 31, 1997,  respectively  (liquidation  value $3,099,250
   and $3,312,500, respectively)..............................................                 248                     265
Common stock; $.001 par value; 25,000,000 shares authorized;
    1,495,092 and 1,268,694 shares issued at September 30, 1998
    and December 31, 1997, respectively....................................                  1,495                   1,269
Additional paid-in capital.................................................             10,124,484               9,682,264
Treasury stock (63,380 shares, at cost)....................................                (64,134)                      0
Accumulated deficit........................................................             (7,991,002)             (5,258,070)
Unearned portion of compensatory stock....................................                       0                  (7,500)
                                                                                ------------------     -------------------
     Total stockholders' equity............................................              2,071,091               4,418,228
                                                                                ------------------     -------------------
     TOTAL.................................................................      $       2,738,302      $        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>
                                                                Nine Months Ended                         Three Months Ended
                                                       September 30,         September 30,        September 30,        September 30,
                                                            1998                 1997                  1998                1997
                                                            ----                 ----                  ----                ----
<S>                                               <C>               <C>                  <C>                   <C>                
REVENUES:
Product sales by company-owned stores             $    1,769,702    $       1,279,682    $          411,679    $           398,267
Product sales to franchisees and others                  550,773              506,901               190,813                172,775
Franchise fees                                           124,500              151,000                     0                 91,000
Royalty income                                           158,622              124,679                57,217                 37,036
Interest and other income                                121,373               37,804                37,225                  6,815
                                                  --------------    -----------------    ------------------    -------------------
     Total revenues                                    2,724,970            2,100,066               696,934                705,893
                                                  --------------    -----------------    ------------------    -------------------
                                                     
COSTS AND EXPENSES:
                                                     
Cost of sales                                          1,173,205            1,052,944               327,558                351,234
Selling, general and administrative
   expenses                                            3,698,975            3,013,432             1,049,232                865,915
Interest expense                                          10,875               33,176                 2,946                  8,592
Write-off of intangible assets                           572,195                    0                     0                      0
                                                  --------------    -----------------    ------------------    -------------------
     Total costs and expenses                          5,455,250            4,099,552             1,379,736              1,225,741
                                                  --------------    -----------------    ------------------    -------------------
                                                 
NET (LOSS)                                        $   (2,730,280)    $     (1,999,486)    $        (682,802)    $         (519,848)
                                                  ===============    =================    ==================    ===================

Basic and diluted net (loss) per common
   share                                          $        (2.00)    $          (1.97)    $           (0.47)    $            (0.49)
                                                  ===============    =================    ==================    ===================
Weighted average common shares
   outstanding                                         1,366,208            1,013,165             1,450,382              1,066,370
                                                  ===============    =================    ==================    ===================
</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                                      Compensatory Stock
                                 ---------------   ---------------                                     -------------------  
                                                                      Additional
                                  Shares  Amount   Shares    Amount     Paid-In   Accumulated  Treasury  Shares  Amount     Total
                                                                        Capital    Deficit       Stock
                                  -------  -----  ---------  -------  ----------- -----------   --------  ----- ------- -----------
<S>                               <C>      <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
Purchase of treasury stock                                                                       $(64,134)                  (64,134)
Shares issued as
    compensation                                      4,988        5       26,495                                            26,500
Preferred stock converted
    to common stock               (17,060)  (17)    143,335      143         (126)
Amortization of
    compensatory stock                                                                                            7,500       7,500
Registration costs - related
 to December 1997 private
 placement                                                                (31,723)                                          (31,723)
Stock dividends                                       5,011        5        2,647      (2,652)
Net loss                                                                           (2,730,280)                           (2,730,280)
                                  -------  -----  ---------  -------  ----------- -----------   --------  ----- ------- -----------
BALANCE, September 30, 1998       247,940  $ 248  1,495,092  $ 1,495  $10,124,484 $(7,991,002)  $(64,134) 3,000 $     0 $ 2,071,091
                                  =======  =====  =========  =======  =========== ===========   ========  ===== ======= ===========
</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 NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
                                                                                     1998                        1997
                                                                                     ----                        ----
<S>                                                                        <C>                      <C>                
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................. $         (2,730,280)     $       (1,999,486)
                                                                           --------------------     -------------------

Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization..........................................              140,175                 182,645
   Write off of intangible assets.........................................              572,195                       0
   Issuance of common stock for compensation and
        professional services.............................................               34,000                  22,500
   Gain on sale of equipment..............................................              (18,730)                      0
   (Increase) Decrease in:
     Accounts receivable..................................................              (91,918)                (65,906)
     Inventory............................................................               (7,638)                 14,521
     Interest receivable on U.S. Treasury bills...........................                    0                  21,135
     Prepaid expenses and other current assets............................              (68,737)                  9,143
   Increase (Decrease) in:
     Unearned franchise fee income........................................              (65,000)                 14,750
     Deferred rent payable................................................               (7,795)                 (8,586)
     Accounts payable.....................................................               32,395                  11,249
     Accrued expenses.....................................................              (17,410)                (13,243)
                                                                           --------------------     -------------------
Total adjustments.........................................................              501,537                 188,208
                                                                           --------------------     -------------------
Net cash used in operating activities.....................................           (2,228,743)             (1,811,278)
                                                                           --------------------     -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of franchise store.........................................                    0                 (75,000)
   Purchases of fixed and intangible assets...............................             (691,448)                (32,244)
   Sale of fixed assets...................................................              153,068                       0
   Decrease (Increase) in security deposits and other assets..............              110,463                 (13,459)
   Purchase of United States Treasury bills...............................                    0                (243,880)
   Sales of United States Treasury bills..................................                    0               1,219,691
   Purchase of treasury stock.............................................              (64,134)                      0
                                                                           --------------------     -------------------
Net cash (used in) provided by investing activities.......................             (492,051)                855,108
                                                                           --------------------     -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from exercise of warrants.................................                    0               1,691,402
   Proceeds from exercise of unit purchase option.........................                    0                 540,000
   Registration costs.....................................................              (31,723)                      0
   Repayment of stockholder loans.........................................                    0                 (65,655)
   Repayment of notes payable.............................................              (18,715)                (37,263)
                                                                           --------------------     -------------------
Net cash (used in) provided by financing activities.......................              (50,438)              2,128,484
                                                                           --------------------     -------------------

NET (DECREASE) INCREASE IN CASH...........................................           (2,771,232)              1,172,314
Cash, beginning of period................................................. $          4,118,031      $          654,856
                                                                           ====================     ===================
Cash, end of period....................................................... $          1,346,799      $        1,827,170
                                                                           ====================     ===================
</TABLE>



                            (Continued on next page)



                                       -5-

<PAGE>



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

Supplemental disclosure of non-cash activities:

<TABLE>
<CAPTION>

<S>                                                                                      <C>                      <C>             
      Cash paid during the year for:                                                            1998              1997
                                                                                                ----              ----
         Interest.......................................................................   $        7,920     $      32,510
         Income taxes....................................................................           6,450             3,500

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 and intangible 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 and nine months ended
                  September  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.  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) -        Conversion of Preferred Stock

                  Through  September 30, 1998,  17,060 shares of preferred stock
                  have been  converted  into  143,335  shares of common stock at
                  conversion  rates  ranging  from  $.2585 to $.50625 per share.
                  Upon  conversion,   the  preferred  stockholders  received  an
                  aggregate of $2,652 of dividends,  which the Company paid with
                  5,011 shares of common stock.

(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.


(NOTE E)  -       Employment Agreements:

                  On August 21, 1998, the Company  entered into  an  Amended and
                  Restated  Employment   Agreement  with   Mark   Weinreb,   the
                  Company's   Chairman  and   Chief  Executive   Officer.    The
                  amendment  extended Mr.  Weinreb's  employment  term  for  one
                  year  until  December  31, 1999 and  provides  for a salary at
                  the rate of  $200,000  per annum.  The amendment also provides
                  that if (i) the  Company  terminates Mr. Weinreb's  employment
                  without   cause,   (ii)  the   Company   fails  to  renew  his
                  employment  agreement  for  one  additional  year or (iii) Mr.
                  Weinreb elects to  terminate  his employment for "good reason"
                  (as defined  in the  agreement), then Mr. Weinreb will receive
                  a lump  sum  cash  payment  of  $200,000.  In   addition,  the
                  Company granted to Mr. Weinreb an option under  the  Company's
                  1998  Performance  Equity Plan to purchase  100,000  shares of
                  Common  Stock at an exercise  price of $1.00  per  share.  The
                  option   is    immediately   exercisable   and   will   remain
                  exercisable until August 2008.

                                       -8-

<PAGE>



ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

          The following  discussion  and analysis  should be read in conjunction
with the Company's financial statements and the notes thereto. The discussion of
results,  causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.

Forward-Looking Statements

          When used in the Form 10-QSB and in future filings by the Company with
the  Securities  and  Exchange  Commission,  the words or phrases  "will  likely
result,"  "management  expects"  or  "the  Company  expects,"  "will  continue,"
"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 nine months ended  September  30, 1998 were
$696,934 and  $2,724,970,  respectively,  a 1% decrease  and 30%  increase  from
revenues  of  $705,893  and  $2,100,066  for the  three  and nine  months  ended
September 30, 1997. The decrease in revenue for the quarter was  attributable to
the temporary  closing of a  Company-owned  store for renovation and the Company
not  recognizing  any  franchise  fees.  The  increase for the nine months ended
September 30, 1998 was attributable to gains in the following  areas:  store and
commissary  product sales,  royalty income and interest and other income.  Store
and commissary product sales increased by $31,450 and $533,892,  respectively, a
6% and 30% increase,  to $602,492 and  $2,320,475  for the three and nine months
ended  September  30, 1998 from $571,042 and  $1,786,583  for the three and nine
months  ended  September  30,  1997.  This  increase  was  primarily  due to the
acquisition  of one new store in January  1998 and the  growth of the  wholesale
business.  Franchise fee revenues for the three and nine months ended  September
30,  1998 were $0 and  $124,500,  respectively,  as  compared  with  $91,000 and
$151,000 of franchise fee revenues for the three and nine months ended September
30,  1997,  due to the fact that more  stores  opened  during the three and nine
months ended September 30, 1997. Revenue under franchise agreements generally is
recognized  when the  franchise  stores are opened.  The  Company  has  unearned
franchise fee income of $213,500 at September 30, 1998,  compared to $278,500 at
September 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 $20,181 and $33,943,  or 54% and 27%, to $57,217 and
$158,622 for the three and nine months ended  September  30, 1998,  from $37,036
and $124,679 for the three and nine months ended  September  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 nine months  ended  September  30, 1998 was $19,925 and
$88,909,  respectively,  a 192%  increase  and 135%  increase  from the interest
income for the three and nine months ended  September 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 Option in
1997, which were deposited into interest bearing accounts.

          During the nine months ended  September 30, 1998, the Company  entered
into one new franchise agreement as compared to two franchise agreements and two
franchise  area  development  agreements  (one  three-store  agreement  and  one
seven-store agreement) for the nine months ended September 30, 1997.

                                       -9-

<PAGE>



          Cost of sales were $327,558 and $1,173,205,  representing  54% and 51%
of net sales for the three and nine months ended September 30, 1998, compared to
$351,234  and  $1,052,944  or 62% and 59% of net  sales  for the  three and nine
months ended  September 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 and increased  efficiency
at the recently renovated commissary.  The increase in cost of sales of $120,261
for the nine months  ended  September  30, 1998 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 $1,049,232
and $3,698,975,  respectively, for the three and nine months ended September 30,
1998, a 21% and 23% increase from $865,915 and $3,013,432 for the three and nine
months ended September 30, 1997. This increase was primarily a result of: (i) an
increase in salaries of $42,348 and $370,839  from $325,179 and  $1,159,232  for
the three and nine months ended  September  30, 1997 to $367,527 and  $1,530,071
for the three and nine months ended  September 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  $61,277  and  $160,388  in  rent  due  to  the  opening  of a new
Company-owned  store,  and $76,240 and $105,971 in consulting  and  professional
fees,  for the three and nine months ended  September  30,  1998,  respectively,
primarily  due to the  Company  exploring  new  business  opportunities  and the
potential sale of certain assets.

          Interest expense  decreased by $5,646 and $22,301,  respectively,  for
the three and nine months ended September 30, 1998, primarily due to the Company
retiring its debt obligations to its shareholders.

          The net losses of the three and nine months ended  September  30, 1998
were $682,802 and $2,730,280,  respectively,  compared to net losses of $519,848
and $ 1,999,486  for the three and nine months ended  September  30,  1997.  The
reasons for the  increase in the loss for the nine month  period were  primarily
due to the  severance  payment  of  approximately  $150,000  resulting  from the
termination of an officer's contract,  a write down of goodwill in the amount of
$572,195, losses attributable to Company-owned store operations in New York, and
increases in SG&A expenses.

Liquidity and Capital Resources

          Cash and cash  equivalents  at  September  30,  1998 were  $1,346,799,
compared to  $4,118,031  at December  31,  1997.  This  decrease  was  primarily
attributable to funding the Company's operating losses for the nine months ended
September 30, 1998,  purchasing two stores in New York City,  opening a Company-
owned store and relocating the Company's commissary in California.

          Accounts receivable  increased to $196,108 at September 30, 1998, from
$104,190 at December 31, 1997.  This  increase was primarily due to increases in
royalty  fees,  commissary  sales to  franchisees  and the  Company's  wholesale
business.

          Inventory  increased to $51,506 at September 30, 1998, from $43,868 at
December 31, 1997,  due to the opening of two  Company-owned  stores,  increased
commissary sales to franchisees and the Company's wholesale business.

          Prepaid  expenses and other  current  assets  increased to $109,870 at
September  30, 1998 from  $41,133 at December  31,  1997,  primarily  due to the
purchase and renovation of the Company's two New York City stores.

          Fixed assets, net of accumulated  depreciation,  increased to $769,325
at September  30, 1998 from  $611,095 at December 31, 1997,  resulting  from the
opening of the Company's new commissary, the purchase of stores in New York City
and the opening of a Company-owned store in California.


                                      -10-

<PAGE>



          Intangible  assets,  net of  accumulated  amortization,  increased  to
$154,777 at September 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 $109,917 at September
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
closing of the Company's  original  commissary  and the sale of a  Company-owned
store.

          The  current  and  non-current  portion of capital  lease  obligations
decreased to $77,382 at September 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
$376,329 at September 30, 1998 from $361,344 at December 31, 1997.

          At September 30, 1998, the Company had $1,072,664 of  working  capital
and a current ratio of 2.7 to 1.

          The Company's operating  activities used net cash of $2,228,743 during
the nine  months  ended  September  30,  1998,  as  compared to net cash used in
operations of $1,811,278 for the  corresponding  period of the prior year.  This
increase was  primarily due to the increased net loss and a decrease in unearned
franchise fees received.

          The  Company's  Board of Directors has  determined  that the Company's
current  business  of  operating  retail  bagel  stores no longer  provides  the
opportunity for growth or profitability.  Accordingly,  in order to reduce costs
and losses and to  replenish  capital  needed for  operations,  the  Company has
decided to sell unprofitable Company-owned stores to new or existing franchisees
(or to unaffiliated parties). There can be no assurance that the Company will be
able to sell these stores or raise additional  capital from such sales. As a way
of attracting  potential  franchisees  and operating more cost  effectively,  in
August   1998,   the   Company   began   operating   its   Internet   web   site
(www.big-citybagels.com).  The Company has received  many online  inquiries  and
confidential  qualification  forms from interested  potential  franchisees.  The
Company  expects  that  the  portion  of the web site  designed  to  retail  the
Company's products over the Internet will be operating by the end of 1998.

          Even by taking the steps outlined above, the Company  anticipates that
it will not have sufficient  capital for its operations through the end of 1999.
Accordingly,  the  Company  has been  actively  engaged  in  exploring  possible
acquisitions or mergers with profitable  companies,  which may include companies
outside  of the  food  industry.  While  the  Company  has not yet  reached  any
definitive  agreements,  management anticipates that the current market price of
the  Company's  common  stock and  market  overhang  effect  of its  outstanding
preferred  stock  will  require  the  Company  to accept  an offer  that will be
dilutive to holders of its common stock.

Other Information

          Year 2000 Compliance

          Many computer  systems  currently in use were designed to use only two
digits in the date field and thus may  experience  difficulty  processing  dates
beyond the Year 1999.  Consequently,  some  computer  hardware and software will
need to modified prior to the Year 2000 to remain functional.  The Company's own
systems are Year 2000  compliant  (which means that the systems will  accurately
process  date/time  date  regardless  of  whether  the date is in the  twentieth
century or the twenty-first century).

          The  Company  is  also  in  the  process  of  assessing  its  vendors,
utilities,  banks and others with whom it does business to determine whether the
failure of any of the foregoing to be Year 2000 compliant  would have a material
adverse effect on the Company.  Management  believes that the likelihood of such

                                      -11-

<PAGE>


adverse effect is immaterial. The Company's operations utilize relatively little
electronic data  interchange with vendors and other third parties.  However,  to
the extent that such third parties, particularly utilities and banks, may not be
Year 2000  compliant,  the  Company  may be  adversely  affected,  although  the
magnitude of such effect cannot be estimated.  The cost to the Company of making
its third-party Year 2000 compliance assessment is not expected to be material.

          Amended Employment Agreement for Mark Weinreb

          On August 21, 1998,  the Company  entered into an Amended and Restated
Employment  Agreement  with  Mark  Weinreb,  the  Company's  Chairman  and Chief
Executive Officer.  The amendment extended Mr. Weinreb's employment term for one
year until  December  31, 1999 and provides for a salary at the rate of $200,000
per annum.  The amendment  also provides that if (i) the Company  terminates Mr.
Weinreb's  employment  without  cause,  (ii) the  Company  fails  to  renew  his
employment  agreement for one  additional  year or (iii) Mr.  Weinreb  elects to
terminate his employment for "good reason" (as defined in the  agreement),  then
Mr. Weinreb will receive a lump sum cash payment of $200,000.  In addition,  the
Company  granted to Mr. Weinreb an option under the Company's  1998  Performance
Equity Plan to purchase  100,000  shares of Common Stock at an exercise price of
$1.00  per  share.  The  option  is  immediately  exercisable  and  will  remain
exercisable until August 2008.

          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 November 10, 1998, the Company had repurchased  approximately
65,280 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 November 10,
1998,  17,060 shares of Preferred  Stock have been converted into 143,335 shares
of common  stock and  dividends of $2,652 have been paid through the issuance of
5,011 shares of common stock.

PART II. OTHER INFORMATION
Item 1.  Legal Proceedings

          On July 29, 1997,  in the Superior  Court of  California,  Los Angeles
County, a lawsuit was commenced by Michael  Schweid,  et al, against Victor Saab
and George Saab, et al, former franchisees of the Company,  and the Company.  On
August 25, 1998, the court granted the Company's motion for summary judgment and
found that the claims  against the Company  were without  merit.  On November 2,
1998, the court denied plaintiffs' motion for  reconsideration and to vacate the
judgment of dismissal and, accordingly, upheld its grant of summary judgment.

          On October 5, 1998, in the Arizona Superior Court, County of Maricopa,
a lawsuit was commenced by Mercado del Lago L.L.C.,  owners of a shopping center
in  which  a  Big  City  Bagels  store,  formally  franchised  and  subsequently
Company-owned,  was  located,  against the former  franchisee  and the  Company,
seeking an unspecified  amount of damages.  Plaintiff's  claim is based upon the
allegation  that the  Company is in default of its lease by not making  required
rent payments.  The Company was unable to economically  operate the store and it
was closed on July 31, 1998.  The Company  believes  that it has no liability in
this  matter  and  intends to  vigorously  defend  the  claims  asserted  by the
plaintiff.

                                      -12-

<PAGE>



Item 2.   Changes in Securities and Use of Proceeds

          (c)     Recent Sales of Unregistered Securities

          During the three months ended September 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>   
7/15/98            Common Stock                51,450       Conversion of Preferred        4(2)         Convertible at a
                                                            Stock                                       conversion rate of
                                                                                                        $.50625 per share
8/13/98            Option to purchase          100,000      Option granted - no            4(2)         Exercisable for ten
                   common stock granted                     consideration received by                   years from date of
                   to CEO                                   Company until exercise                      grant at an exercise
                                                                                                        price of $1.00 per
                                                                                                        share
------------------ ---------------------- ----------------- ----------------------- ------------------  --------------------
</TABLE>

Item 5.   Other Information

          On October 14,  1998,  the Company  received  correspondence  from the
Nasdaq Stock Market  regarding  the continued  listing of the  Company's  common
stock on the Nasdaq SmallCap Market. The Company was notified that it has failed
to maintain a closing bid price greater than or equal to $1.00.  The Company has
been given  ninety (90)  calendar  days in which to regain  compliance  with the
minimum  bid  price  requirement.  If  the  Company  is  unable  to  demonstrate
compliance with this  requirement  for ten  consecutive  trading days during the
ninety day period,  then the common stock will be subject to delisting effective
with the close of business on January 14, 1999.  Although the Company's  efforts
to  strategically  refocus its  business  may result in the Company  maintaining
compliance  with  Nasdaq,  there  can be no  assurance  that  delisting  will be
avoided.

          On October 15,  1998,  the Company  received  correspondence  from the
Nasdaq Stock Market regarding the continued listing of the Company's warrants on
the Nasdaq SmallCap Market.  The Company has failed to maintain a minimum of two
active market  makers  necessary  for  continued  listing of the  warrants.  The
Company has been given thirty (30) calendar days in which to regain  compliance.
The Company  expects the warrants to remain subject to delisting  effective with
the close of business on November 16, 1998.

Item 6.   Exhibits and Reports on Form 8-K

          (a)     Exhibits

                  10.12    Amended and Restated Employment Agreement between the
                           Company and Mark Weinreb

                  10.13    Stock Option Agreement  between  the Company and Mark
                           Weinreb

                  27.1     Financial Data Schedule (9/30/98)

                  27.2     Restated Financial Data Schedule (9/30/97)

          (b)     Reports on Form 8-K

                           None

                                      -13-

<PAGE>



                                    SIGNATURE


          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated:    November 12, 1998

                                             Big City Bagels, Inc.
                                       ______________________________________
                                                  (Registrant)

                                             /s/ Mark Weinreb
                                       By:____________________________________
                                          Mark Weinreb, Chairman 
                                          and Chief Executive Officer


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


                                      -14-

<PAGE>



EXHIBIT INDEX

EXHIBIT
NUMBER                     DESCRIPTION                         

10.12      Amended and Restated Employment Agreement
           between the Company and Mark Weinreb

10.13      Stock Option Agreement between the Company and Mark Weinreb

27.1       Financial Data Schedule (9/30/98)

27.2       Restated Financial Data Schedule (9/30/97)


                                      -15-

<PAGE>