SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------

                                   FORM 10-KSB

(MARK ONE)

     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT [X]
     OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1997

     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE [ ]
     ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ________ to ____________

                         Commission file number 0-25334

                     The Great American BackRub Store, Inc.
                 (Name of small business issuer in its charter)

         New York                                                 13-3729043
(State  of  jurisdiction  of                                    (IRS  employer
incorporation or organization)                               identification no.)

4500 140th Avenue North Suite 221, Clearwater, Florida         33762
    (Address of Principal Executive Offices)                 (Zip Code)

Issuer's telephone number (813) 532-4818

Securities registered under Section 12(b) of the Exchange Act:

      Title of each class              Name of each exchange on which registered
Common Stock, $.001 par value              Nasdaq Electronic Bulletin Board

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.   [X] yes  [ ] no

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference in Part III of this form 10-KSB or any  amendments to
this Form 10-KSB. [ ]

The registrant's revenue for the year ended December 31, 1997 was $749,264

As of April 13, 1998, the aggregate value of the registrant's  voting stock held
by non-affiliates  was $ 590,047 (computed by multiplying the last reported sale
price on April 13, 1998 by the number of shares of common  stock held by persons
other  than  officers,  directors  or by  record  holders  of 10% or more of the
registrant's  outstanding  common  stock.  This  characterization  of  officers,
directors  and 10% or more  beneficial  owners as  affiliates is for purposes of
computation  only and is not an admission  for any purposes that such person are
affiliates of the registrant).

The number of shares of Common Stock of the issuer  outstanding  as of March 31,
1998 is 14,932,354

Transition Small Business Disclosure Format (check one):    Yes __    No _X_


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     Certain matters discussed herein may constitute  forward-looking statements
within the meaning of the Private  Securities  Litigation Reform Act of 1995 and
as such may involve risks and uncertainties.  These  forward-looking  statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and  statements  regarding the Company's  mission and vision.  The
Company's actual results,  performance, or achievements may differ significantly
from the  results,  performances  or  achievements  expressed or implied on such
forward-looking  statements. For discussion of the factors that might cause such
a  difference,  see "Item 6.  Management's  Discussion  and  Analysis or Plan of
Operations."

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

     The Company is engaged in the creation of a North American  franchise chain
of  stores  under  the name "The  Great  American  BackRub,  Inc."  which  offer
reasonably-priced back rubs to customers while they are seated and fully clothed
in a clean,  open,  non-threatening  environment.  The  Company's  and franchise
stores  will also  offer  back rub  services  off-site,  to  corporate  offices,
convention  centers and tourist  attractions.  The  Company  currently  owns and
operates  eight retail stores in New York City, one in the  Westchester  Mall in
White Plains,  New York, and one at the Woodfield  Mall in Chicago  metropolitan
area. The Company has a franchise  operating at the Roosevelt Field Mall on Long
Island,  New York.  In addition,  the Company  recently  entered into  franchise
agreements for two locations,  one at the Exchange Tower in Toronto, Canada, and
the other at Plaza of America in Dallas, Texas.

     Cash flow from the  Company's  current  corporate  owned stores and the two
franchises  are not  sufficient  to  cover  the  Company's  corporate  overhead.
Therefore the Company's growth strategy is to market  franchises  throughout the
United  States and  Canada.  During 1997 the  Company  had  approximately  1,400
inquiries from  individuals  which were  interested in considering  purchasing a
franchise,  but which were not  pursued  because of former  management  focus on
Company owned  locations.  When new management  took over the Company on October
16, 1997, (See "Significant  Acquisition"),  the franchise offering circular was
updated  to reflect  the  changes  in the  Company.  The  updating  process  was
completed  in the month of January  1998.  The  Company  then mailed a franchise
question and answer booklet which briefly  described a "Great American  BackRub"
franchise  to all of the  parties  that  had  made  franchise  inquires.  If the
individual  was still  interested  the  Company  then sent to the  individual  a
confidential questionnaire.  The questionnaire is to determine if the individual
is  financially  and  personally  qualified  to  own  a  franchise.   After  the
questionnaire  is  returned  and the  individual  is deemed to be  qualified  an
offering  circular  is sent to the  individual.  There is a ten day  cooling off
period where no contact can take place  between the Company and the  individual.
The Company is still pursuing the process  described  above,  no franchise sales
have  resulted  and there can be no  assurances  that sales will result from the
process. The Company will also use traditional  marketing techniques in the sale
of franchises to potential franchisees.

     The Company  intends to expand the franchise  network on a regional  basis.
The Company  believes this  approach  will best utilize the Company's  resources
both  financially and personnel wise. The Company will review the responses from
the inquires of  interested  parties and  determine  which regions have the most
interest in them.  The Company  will then  concentrate  its  resources  in those
regions  to create a  franchise  base that will  allow the  Company  to create a
viable franchise network in that region. However there is no assurance that such
network can be built in regions.


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SIGNIFICANT ACQUISITION

     On  September  30,  1997 the Company  entered  into a  Securities  Exchange
Agreement ( the "Securities Exchange Agreement"), to acquire (the "Acquisition")
100% of the issued and outstanding common stock of CARIBSUN,  Corp. ("CARIBSUN")
from  Ascot.  On  October  16,  1997  the  Acquisition  closed  pursuant  to the
Securities Exchange Agreement and the Company initially issued 11,000,000 shares
of its Common  Stock to Ascot in exchange for all of the  outstanding  shares of
CARIBSUN's Common Stock. Under the terms of the Securities  Exchange  Agreement,
the  Company is  obligated  to issue an  additional  6,097,416  shares of Common
Stock.  CARIBSUN,  through a wholly owned subsidiary Coconut Hall Resorts,  Ltd.
owns approximately 86 acres of vacant land in the island of Antigua for which if
has  obtained  government  concessions  and  approvals  to  construct  a  hotel,
condominiums,  and casino  project.  The  development  of the site will  require
substantial financing.

     The  Securities  Exchange  Agreement was attached to the Company's Form 8-K
dated  September  30,  1997 as an  exhibit  which was  filed via EDGAR  with the
Securities  and  Exchange  Commission.   Further  in  formation  concerning  the
acquisition of CARIBSUN from Ascot can be found in the Company's Form 8-K Report
dated October 16, 1997.  The  description in this  Information  Statement of the
Securities  Exchange Agreement and the respective exhibits and schedules thereto
and is not, and does not purport to be, complete.

     As a result shares issued to Ascot at the Closing of the acquisition, Ascot
owns  approximately 74% of outstanding Common Stock and all of the management of
the Company now consists of officers and directors (or individuals  nominated by
such persons) of Ascot.

     The  Acquisition was approved by the Company's Board of Directors as it was
constituted   prior  to  the  Closing   consisting  of  the  following   persons
(collectively referred to as "Prior Management"):

Name                                    Position

William Zanker                          President, Chairman of the Board
Terrance C. Murray                      Chief Executive Officer, Director
Stephen Seligman                        Director
Andrew L. Hyams                         Director
Donald R. Fleischer                     Director

     Prior  Management  resigned  effective  as of October 16, 1997  (except Mr.
Seligman,  whose  resignation  was effective ten days following the mailing of a
statement to shareholders  pursuant to Rule 14F-1 under the Securities  Exchange
Act of 1934, as amended),  and the following individuals  (collectively referred
to as "New  Management") were nominated to assume the position set forth next to
their names until the next annual meeting of shareholders:

Name                    Age       Position
David S. Coia           42        Chairman of the Board
David Coia              65        President,  Chief  Executive  Officer, and  
                                  Chief  Operating Officer, Director
David L. West           39        Chief Financial Officer, Treasurer, Secretary 
                                  and Director
Kevin P. Stone          39        Director
Waylon E. McMullen      51        Director

INDUSTRY BACKGROUND

     With the  increasing  awareness  that health is a key factor in determining
worker  productivity,  a number  of  businesses  have  emerged  to help  promote
physical and mental well-being. This health


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consciousness  movement  has led to the rapid  expansion of  businesses  such as
health clubs,  spas,  diet  centers/alternative  education  schools,  health and
fitness magazines and health equipment manufactures.

     Back pain and stress have become  increasingly  serious health  concerns in
modern society. The effects of poor posture, long hours at desks/keyboards,  and
increased stress and work related  pressures have all resulted in a society that
suffers from chronic backaches and muscular tension.  The July 14, 1994 issue of
THE NEW ENGLAND JOURNAL OF MEDICINE  reported that backaches rank second only to
respiratory  infections as the leading cause of work absences and are the number
one basis for  worker's  compensation  claims  and that over 80  percent  of the
American adult population suffers from back pain on an occasional basis.

     In recent years,  preventive health care has taken on new meaning, both for
the  consumer  and many  employers.  The December 25, 1994 issue of THE NEW YORK
TIMES  reported that a small but growing  number of  corporations  are including
massage in their employee health programs.

     Although the number is  increasing,  only a small  percentage  of Americans
utilize massage on a regular basis.  Management believes that this is so because
of the  consumer's  perception  that the typical  back rub is high  priced,  not
convenient  to schedule or travel to, and requires the customer to be undressed.
The Company believes that The Great American BackRub Store, Inc. is sensitive to
and addresses all these concerns. The pricing structure ($16.95, $28.95, $38.95,
and $49.95, respectively for 10, 20, 30 and 45 minute back rubs) is perceived by
customers to be very reasonable.  Stores are located in convenient locations and
no  appointments  are required.  The customer  remains fully clothed  during the
entire back rub sequence and, because of the openness of the entire location, is
confident of the "safeness" of the experience.

     Results  from  the  Company's   computerized   point-of-sale  (POS)  system
indicated that repeat  customers  account for an average of 60% of the Company's
daily customers.  A majority (60%) of the customers are women,  with the typical
customer being between the ages of 25 and 50.

CONCEPT

     By design,  The Great  American  BackRub  Store is a specialty  interactive
retailer  offering a wide range of massage  and stress  reduction  products.  In
addition to  experiencing  the hands-on  interaction of back rub,  customers are
able to view the entire process from both the street and inside the store.  Once
inside, customers are encouraged to sample ant test the products on display. The
Company  therefore  believes that the combination of boutique  retailer  concept
with back rub services make The Great American  BackRub Store an unique shopping
experience.

     The  Company's  concept  is  to  provide  a  clean,  open   non-threatening
environment  where  people  can enjoy the  benefits  of a back rub as a daily or
weekly  stress  relaxation  technique  without  having to  undress  and  without
incurring  the time and  expense  of a  conventional  massage.  Integral  to the
Company's  strategy is the sale of massage stress reduction  products in each of
its stores and  franchises,  including  oils,  bath  salts,  back  supports  and
electronic and mechanical  stress reduction  devices.  Also the offering of back
rub  services  off-site,  to corporate  offices,  corporate  events,  convention
centers and tourist attractions is a key part of the Company's growth strategy.

     The focus of the  Company's  service  business is a 10, 20, 30 or 45 minute
back rub that  consists  of an  18-step  massage  sequence  of the  back,  neck,
shoulders, arms and hands conducted on the Company's specially designed back rub
chair.  These areas  represent  eighty percent of the areas  normally  worked on
during a full body massage, without the space-consuming tables or necessity that
the customer undress. In the 20, 30 and 45 minute sequences,  additional time is
spent on  particular  areas where either the customer or the  therapist  detects
stress or tension.  The  percentage  of customers  purchasing  the 20, 30 and 45
minute  sequences  has  increased  to almost 50% of services.  In addition,  the
Company offers scalp


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massages  and has  designed a foot rub  sequence  which  involves  the  customer
wearing a disposable sock during a reflexology treatment.

STORE DESIGN, OPERATIONS AND CONTROLS

     The typical Great American BackRub Store location consists of approximately
600 to 1,200  square  feet,  including  200 to 400 square feet of retail  space.
Customers  are seated on a  specially-designed  chair which  provides  cushioned
support  for the chest,  arms and head.  The  Company's  stores are  designed to
permit people both inside and outside the store to view the back rub process and
at the same time maintain the privacy of the back rub customer.

     Each of the Company's  stores and  franchise  locations  will  typically be
staffed  with a manager,  an  assistant  manager,  and between  eight and twelve
part-time  therapists,  depending  upon the size and  volume of  service  of the
store.

     The back rub  services  are  provided  by  licensed  or  certified  massage
therapists or licensed health care provider who, as employees,  are paid a fixed
hourly wage plus  commission.  All therapists are required to wear the Company's
uniform. See "Employees; Employee Training."

     Management  has  installed  certain  store-level  internal  controls  which
minimize  incidents of employee  theft and  maximize the flow of pertinent  data
from the store to the Company' accounting  department.  When a customer enters a
store, the receptionist greets the customer,  answers any questions the customer
may have, and then prepares a prenumbered  "ticket" on which the customer's name
and requested  service(s) are printed.  The next available  therapist then takes
the ticket from the  receptionist,  leads the  customer to the back rub area and
performs one of three back rub  sequences.  At the end of the back rub sequence,
the therapist verifies the ticket,  escorts the customer to the receptionist and
returns  the  ticket.  The  receptionist  collects  the payment due and issues a
receipt to the customer. At the end of the day, all pre-numbered tickets must be
accounted  for, and cash  deposits  must  balance with reports  generated by the
store's POS system.

     The  POS  system  currently  being  used  by  management  is  that  used in
Supercuts,  Inc. retail stores.  In addition to normal cash register  functions,
the system  generates a  sophisticated  array of reports and cross  checks which
provide  management  with  immediate  access to sales  data,  labor  scheduling,
inventory changes, cash shortages and employee productivity.  The information is
automatically  downloaded every night to the Company's  accounting office and is
available for management's review and use the following day.

INTENDED EXPANSION

     Although no assurances can be given, the Company plans to open a minimum of
50 Franchised stores during the next two years. Management believes an important
element of  "marketing"  is the  franchise's  selection of prime  locations with
heavy traffic  patterns.  During the initial  expansion of franchise  stores the
sites will be generally  limited to high traffic  locations such as malls,  mini
malls,  strip centers,  busy specialty  locations  (e.g.  airports,  casinos and
convention  centers) and locations  that are in close  proximity to business and
office centers.

     The Company, in its franchise offering circular, estimates that the initial
investment  required by a franchisee,  including the initial  franchise  fee, is
approximately  $118,000  to  $188,500,  depending  upon a number  of  variables,
including  leasehold  related  costs and  improvements,  store size,  inventory,
equipment, training fees, staffing, initial advertising and working capital.

     The Company  supplements  its retail  operations  with  corporate  or other
off-site service and intends to actively  increase this portion of its business.
This service  involves  having one or more therapists  taking  portable  massage
chairs to a place of business, convention center or tourist attraction.


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Since  the only  operating  costs  associated  with this  service  are labor and
transportation  the profit  margin on such  corporate and other offsite work are
significant.

     To encourage  repeat  business,  the Company has developed a "Frequent Rub"
program which rewards  repeat  customers with a free back rub after the purchase
of  nine  back  rubs.  The  Company  also  actively  promotes  the  sale of gift
certificates by giving a similar discount on the purchase of nine  certificates.
As an extension of the gift certificate  program,  the Company promoted the gift
certificates  for  Valentine's  Day. As a result of the success of this program,
the Company has expanded such promotions to include other holidays.

STORE DEVELOPMENT

     The  following  table sets forth the  number of stores  opened,  closed and
existing in each of the last three fiscal years:

                                                 1995     1996     1997
                                                 ----     ----     ----
Stores Open at Beginning of the Year               5        8       13
Stores Opened                                      3        5        0
Stores Closed                                      0        0        3
Stores Open at end of Year                         8       13       10

FRANCHISE DEVELOPMENT

     The Company anticipates that the Company's growth will be through franchise
sales.  Management has developed a franchising program which is based largely on
prior  management's  experience  with Supercuts,  Inc. and current  management's
experience  with  hotel  franchising.  The  franchise  plan call for the sale of
individual unit franchises and certain limited territorial sales, to control the
respective  sites  and to limit  the  impact  of a  franchisee  whose  operating
standards are not acceptable to management.  Although  mostly  anticipated to be
sold as  individual  units,  the  intention is to sell  multiple  units within a
market area to one franchisee in order to achieve economies of scale.

     Under the terms of the Company's current franchise agreement, the franchise
fee is $20,000 per unit.  In all cases the  royalty fee is 6% of gross  revenues
(both  services  and  products)  and 3% of gross  revenues  (both  services  and
products) which must be paid to a cooperative advertising fund. The initial term
of the franchise  agreement is five years,  with options (upon payment of a fee)
to extend the term for an additional five years. The franchise  agreement places
strict  limitation on the operations of the business and requires the franchisee
to conform to all operations standards established by the Company. The franchise
agreement also requires that all employees of the franchisee attend and complete
a training  course  conducted by the Company.  The franchisee is required to pay
the Company a fee, of $2,500 for the training.

     The Company's first franchised store (the "Las Vegas Store") opened on July
1994 in Las Vegas,  Nevada. The Company entered into a franchise  agreement June
1, 1994. Pursuant to the Franchise Agreement, the Franchisee paid the Company an
initial,  non-recurring,  non-refundable  franchise fee of $10,000. In addition,
the  Franchisee  paid the  Company  a  monthly  royalty  fee  equal to 8% of the
Franchisee's  gross  monthly  revenues  (as such term is defined in the existing
Franchisee  Agreement at that time).  The Franchisee also paid to the Company an
advertising  and sales  promotion fee which is equal to the greater of 35 of the
Franchisee's  gross monthly revenues or $1,000. On May 30, 1995, the Company and
the Franchisee  entered into a franchise  termination  agreement whereby (I) the
Franchise  Agreement  and related  sublease  were  terminated,  (ii) the Company
purchased  certain  assets  from the  Franchisee  and (iii) the  Company and the
Franchisee  provided for the mutual  release of any  obligations  of each to the
other  whether  arising  out of  the  Franchise  Agreement  ,  the  sublease  or
otherwise. The


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purchase  price for the assets  conveyed  by the  Franchisee  to the Company was
$25,000 and 18,185  shares of Common  Stock.  Simultaneously  with the Franchise
Termination Agreement, the Company closed the Las Vegas store.

     The  Company  entered  into two  option  agreements  (the "Bay Area  Option
Agreements")  with  Bay Area  Backs I, a  California  limited  partnership  (the
"Optionee"),  on June 20, 1994 and June 21, 1994, respectively,  for the opening
of two  franchised  stores in the San Francisco  area.  Pursuant to the Bay Area
Option  Agreements,  the Optionee paid to the Company $5,000 for each of the two
options (the "Bay Area  Options") to require the Company to enter into franchise
agreements  with the  Optionee.  On May 30,  1995,  the Company and the Optionee
entered  into an option  termination  agreement  whereby (I) the Bay Area Option
Agreements were terminated,  (ii) the Company  purchased certain assets from the
Optionee and (iii) the Company and the Optionee  provided for the mutual release
of any  obligations  of each to the other  whether  arising  out of the Bay Area
Option  Agreements or otherwise.  The purchase price for the assets  conveyed by
the  Optionee  to the  Company  and the  termination  of the Bay Area Option was
$27,300.

     Upon  termination of the franchise and the options  referred to above,  the
Company   suspended  its  franchise   program  and  focused  on  developing  its
Company-owned  stores.  Starting in  September  1996,  the  Company  resumed the
marketing of its franchise  program.  In November 1996, the Company entered into
two  franchise  agreements,  one for a location at  Roosevelt  Field Mall,  Long
Island,  New York, and the second for the Cherry Creek Mall,  Denver,  Colorado.
Certain  ex-executive  officers and ex-directors of the Company have an interest
in the Roosevelt Mall franchise.  See Item 12 (Certain Relationships and Related
Transactions). In addition, in November 1996, the Company entered into an option
agreement (the "Franchise Option Agreement") for a franchise location in the Los
Angels,  California  metropolitan  area.  Under  the  terms  of  both  franchise
agreements,   the   franchisee   has  paid  the   Company  a  $12,500   initial,
non-recurring,  non-refundable,  franchise  fee and has  agreed to pay a monthly
royalty equal to 6% of the  franchise's  gross monthly  revenue (as such term is
defined in the franchise  agreements).  Under the terms of the Franchise  Option
Agreement,  the optionee has paid to the Company a non-refundable  fee of $5,000
(to be applied to the $12,500  franchise  fee in the event the optionee  signs a
franchise  agreement  within  120  days  of the  date  of the  Franchise  Option
Agreement)  and the Company has given the optionee an exclusive  right to open a
Great  American  BackRub  franchise  within Los  Angeles  and  Orange  Counties,
California  for a period of 120 days.  In the event the optionee  located a site
within said counties that was  acceptable to both the Company and the optionee ,
the Company and the  franchisee  would have entered  into a franchise  agreement
with terms  identical to those described  above.  The Optionee did not located a
site within said  counties  within the  specified  time  therefore the Franchise
Option Agreement expired.

     In March 1998 the Cherry Creek Mall, Denver Colorado franchise store ceased
operations.  The Company is currently  negotiating a termination  agreement with
the  franchisee.  The Company is a  guarantor  of the store  lease,  part of the
termination  agreement  will  have to  address  the  Company's  relief  from the
franchisee  for the Company's  guarantee.  There can be no  assurances  that the
Company  will get  adequate  relief from the  franchisee  and may have to seek a
settlement with the Mall owner.

     During  1997  the  Company  entered  into  franchise   agreements  for  two
additional locations,  one at the Exchange Towers in Toronto,  Canada and one at
the Plaza of America in  Dallas,  Texas.  The  franchise  circular  called for a
franchise  fee of  $12,500  and a 6%  royalty  fee  based on gross  sales of the
franchise  stores.  The  circular  also  requires  the  franchisee  to  pay a 3%
marketing fee based on gross sales.  The marketing fee goes into a trust account
to be used only for  marketing.  The  Toronto  and Dallas  franchise  stores are
scheduled to open in June of 1998. The two  franchisee are not related  parities
to the Company and have had no previous relationship with current management.

COMPETITION

     Management  knows of a limited number of other  multi-unit  retailer in the
business in which the  Company  operates.  Management  also does not know of any
multi unit franchises in existence offering


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fully  clothed  in-store  back rubs.  Competition  currently  consists  of these
limited multi-unit retailers and numerous independent massage therapists,  spas,
salons and health clubs  providing  full body massage,  and a limited  number of
massage   therapists   providing   seated   massage  in  non-retail   "off-site'
environments.  As competition  may be anticipated to grow,  however,  due to the
relatively  low cost of entry and  absence  of  substantial  barriers  into such
business,  no assurance can be given that the Company will successfully  compete
with any such competitors,  some of whom may have substantial  greater financial
and other resources than the Company.

REGULATION

     The  sales of  franchises  in the  United  States  is  subject  to  certain
requirements  established  by the Federal Trade  Commission  (the "FTC").  These
requirements  generally  relate to the disclosure of  information  regarding the
franchisor and the rights, duties and obligations of the prospective franchisee.
These  disclosures and explanations are set forth in a document called a Uniform
Franchise  Offering  Circular  (which  is  commonly  referred  to as a  "UFCC").
Effective is 1995,  the FTC revised the  disclosure  requirements  for a UFCC to
require,  among other things "plain English language"  disclosures.  The Company
believes it is in compliance with these changes.

     In addition to the  requirements  of the FTC,  certain  states require that
franchisors register in the state and submit a modified UFCC for approval before
offering  franchises  in such  states.  These  state UFCC must  comply  with the
applicable  state laws, which vary from state to state. The Company is currently
registered in New York, California, Florida, Virginia, Maryland and Michigan.

     When new  management  took over the  Company on October  16, 1997 the UFCCs
were updated to reflect the changes in the Company and  management.  The updated
UFCCs were  completed in mid January and were filed with the  appropriate  state
agencies. Not all states required filings, but the ones that did require filings
had UFCCs submitted.

     The two  states in which the  Company  currently  operates,  the  States of
Illinois and New York, require the licensing of massage therapists. Also certain
states in which the Company  plans to market the selling of  franchises  require
the licensing of massage therapists.  The responsibility for that licensing will
fall to the prospective franchisee. The Company, prospective franchisees and its
massage  therapists  employees are and will also be subject to various state and
local laws and ordinances.

     The Company  believes that it is in compliance with all applicable laws and
regulations and has all required licenses to conduct its business.  However,  no
assurances  can be given  tat  current  laws or  regulations  applicable  to the
Company's business will not change. Any such new laws or regulations  applicable
to the Company's  expansion into new geographic  areas could subject the Company
to  substantial   costs  in  order  to  comply  with  such  applicable  laws  or
regulations.  Any failure by the Company to comply with any new or existing laws
or regulations could subject the Company to substantial penalties.

EMPLOYEE; EMPLOYEE TRAINING

     As of December 31, 1997, the Company had 115 employees,  consisting of four
full-time members of management,  three full-time  administrative  employees,  9
full-time  managers,  two-full time  warehouse  employees and 7 full time and 90
part-time in-store  employees.  Other than members of management and the stores'
managers who are salaried employees, all full and part-time personnel are hourly
employees.

     The Company requires each new therapist to participate in the Company's two
day  training  program  as a  condition  to  employment.  The  program  includes
extensive  training  relating to the Company's 10, 20, 30 and 45 minute  massage
sequences,  product  knowledge and customer  service.  All back rub services are
provided by therapists  who are either  licensed (in states where such licensing
is required) or have  completed  training at a school  certified by a recognized
trade association or are licensed health care provider.


                                       8
<PAGE>


     It is estimated by the American Massage  Therapists  Association that there
are over 120,000  licensed/certified  massage  therapists  in the  country.  The
Company's  experience has shown that most therapists are  under-employed and are
seeking  part-time  employment to supplement their existing  private  clientele.
This need for part-time employment allows the Company to use flexible scheduling
and minimize payroll and benefit costs associated with full-time employment.

     Currently,  the Company requires all of its  employee/therapists  to obtain
professional liability insurance in the minimum amount of $1,000,000 from one of
three professional massage organizations. In some cases the Company is permitted
under the applicable policy to be named as an additional  insured.  In addition,
the Company  has  obtained a  professional  liability  policy for an  additional
$1,000,000 covering all of its employees.

     All of the Company's  employees are  non-union.  The Company  considers its
relationship with its employees to be satisfactory.

TRADEMARK PROTECTION

     The mark THE  GREAT  AMERICAN  BACKRUB  is the  subject  of U.S.  Trademark
Registration No. 1,922,629, issued September 26, 1995. The registration includes
the  statement  that the Company does not claim  exclusive  rights to use of the
term  "BACKRUB"  alone,  apart  from  the  trademark  as  shown.  The  trademark
registration  will  remain in full force and effect for a term of ten years from
the date of issue.  However,  a declaration of continued use must be file in the
Trademark  Office no earlier  than the fifth  anniversary  and no later that the
sixth  anniversary of the  registration  in order to avoid  cancellation  of the
registration.  The  registration  give's  the  Company  prima  facie  nationwide
exclusivity  to the mark THE GREAT  AMERICAN  BACKRUB as against any third party
adopting a confusingly similar mark after the date of issue.

DEVELOPMENT OF ANTIGUAN PROPERTY

     The  Company  owns  approximately  86 acres of vacant land on the island of
Antigua.  The land is in close proximity of the  international  airport and runs
along the  waterfront.  The  Company  has  already  received  from the  Antiguan
government  concessions (i.e.  licensees to develop the land) to the develop the
property.  The concessions allow for a 300 room hotel, casino, 48 house lots, 50
condominiums in the first phase, health club, tennis complex and a marina with a
yacht club. The Company has already received other  concessions  which they will
be to the Company's benefit during construction and operations.

     The  Company  has a recent  appraisal  valuing  the  land at  approximately
$10,000,000.  The  appraisal was performed by an  international  appraisal  firm
which  is  not  related  to  the  Company.  The  Company  has a  proposal  for a
feasibility  study,  on the land.  The study will  analyze the  viability of the
development  described above. The Company expects to have the study begin within
the next 45 days. Once the study is completed and the report issued, the Company
will make the final decision as to the type project to develop.


                                       9
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY

     The  Company as of  December  31,  1997 had 8 New York City Great  American
BackRub Store  locations,  one location in the Westchester Mall in White Plains,
New York and one location in the  Woodfield  Mall on  Schaumberg,  Illinois near
Chicago.  Together,  these stores  employ a total of  approximately  97 full and
part-time  employees.  See Item 1 (description of  Business-Employees,  Employee
Training). In February 1998 one store located in New York City was closed due to
poor operating results and its close proximity to another New York City store.

     The location and lease  expiration date of each of the Company's stores are
summarized below:

     LOCATION                                       LEASE EXPIRATION DATE
     --------                                       ---------------------

958 Third Avenue                                         August 31, 2003
New York, New York

323-5 Bleecker Street                                    May 31, 2005
New York, New York

527 Third Avenue                                         January 31, 2002
New York, New York

160 Spring Street                                        February 28, 2005
New York, New York

1573 Second Avenue                                       July 31, 2005
New York, New York

Westchester-Store Mall                                   July 14, 2005
White Plains, New York

138 7th Avenue                                           May 11, 2003
Brooklyn, New York

171 West 71st Street                                     June 30, 2006
New York, New York

2195 Broadway                                            October 31, 2006
New York, New York

Woodfield Mall                                           December 30, 2004
Schaumberg, Illinois

     The Company's  corporate  office is leased and located at 4500 140th Avenue
North,  Suite 221,  Clearwater,  Florida.  The lease  expires May 31, 1998.  The
Company  believes that securing an office space that is adequate for its current
and presently  foreseeable  needs is available within the Tampa Bay metropolitan
area at reasonable market rates.

     The Company currently operates a warehouse/store administrative facility at
53 West 35th Street,  Room 1202, New York, New York. The lease expires September
30, 1999. The Company believes that this space is adequate for its current needs
and if the Company  would no longer  needs the  facility in the future the space
could be subleased.

ITEM 3.  LEGAL PROCEEDINGS


                                       10
<PAGE>


     The Company is defendant in a landlord tenant action entitled  Fashion Mall
Partners,  L.P. v. The Great American BackRub Store,  Inc. (Civil Court of White
Plains,  State of New York) in which the  landlord  is seeking  past due rent of
$228,156.63  and  possession  of  the  premises.  The  Company  believes  it has
counter-claims  against the land lord  relating to the condition of the premises
and its tenancy  and has made an offer to settle the action.  The full amount of
the rent has been accrued  although the Company has been making partial payments
to the landlord,  accordingly the settlement,  if accepted,  will not materially
affect the Company's results of operations.

     The  Company  is also  party to  several  claims of  vendors  which are not
expected to have a material effect on the Company's operatins.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None


                                       11
<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     On February 28, 1995,  the Common Stock was listed for  quotation on Nasdaq
SmallCap Market under the symbol "RUBB". Prior to such listing, the Common Stock
had been traded in the OTC Bulletin  Board since  October 18, 1993. At the close
of business  September  18,1997  the  Company's  securities  (RUBB) was moved to
Nasdaq  Electronic  Bulletin  Board.  The  following  table sets forth,  for the
periods indicated, the high and low bid for the Common Stock as reported for the
Common  Stock on Nasdaq  SmallCap  Market  until  September  18, 1997 and Nasdaq
Electronic  Bulletin Board after September 18, 1997.  Quotations  reflect prices
between  dealers,  without retail mark-up,  mark-down or commissions and may not
necessarily represent actual transactions.

                                                       High Bid          Low Bid
                                                       --------          -------
1996
        1st Quarter ........................            $4.125           $3.06
        2nd Quarter ........................            $6.63            $3.25
        3rd Quarter ........................            $4.88            $2.50
        4th Quarter ........................            $4.625           $3.25
        
1997
        1st Quarter ........................            $4.9375          $2.50
        2nd Quarter ........................            $2.8125          $0.6563
        3rd  Quarter .......................            $0.9375          $0.25
        4th  Quarter .......................            $0.8125          $0.1563

     The Company has not declared or paid any  dividends on the Common Stock and
does not  intend to  declare or pay any  dividends  on the  Common  Stock in the
foreseeable future. The Company currently intends to reinvest earnings,  if any,
in development  and expansion of its business.  The  declaration of dividends in
the future  will be at the  election of the Board of  Directors  and will depend
upon  earnings,  capital  requirements  and  financial  position of the Company,
general economic conditions and the other relevant factors.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

     The Company's  revenues are derived  primarily  from the services of seated
fully clothed back rubs and the sale of back related products. The Company began
operations  in August  1993,  and opened its first store for business in October
1993.  The Company  currently owns and operate 8 retail stores in New York City,
one in Westchester Mall in White Plains, New York, and one at the Woodfield Mall
in the Chicago  metropolitan  area.  In  addition,  the Company has a franchisee
operating at the  Roosevelt  Field Mall on Long Island.  The Company has entered
into  franchise  agreements for two  additional  locations,  one at the Exchange
Towers in Toronto, Canada and one at the Plaza of America in Dallas, Texas.

     The Company  plans to focus the Company's  resources on franchise  sales in
the  future.  The focus  should  allow the Company to shift its revenue mix away
from services of seated fully clothed back rubs and the sale of back rub related
products  to  franchise  fees  and 6%  royalty  fees on the  gross  revenues  of
franchisees.  While  there are no  assurances  that the  Company can achieve the
revenue mix change it is


                                       12
<PAGE>


seeking, management believes with the proper marketing and franchise support the
revenue mix change can be obtained.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED  DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED  DECEMBER 31,
1996

     After giving affect of the reverse  acquisition for the year ended December
31, 1997, revenue from services,  products and franchising  operations increased
to $749,264  compared  to $0 for the  comparable  period in the prior year.  The
increase was due to the reverse acquisition that took place on October 16, 1997.
Operating  expenses  were  $1,579,041  for the year ended  December  31, 1997 as
compared to $336,000 for the comparable period in the prior year, an increase of
$1,243,041  (370.0%).  The increase was due to the reverse acquisition that took
place on October 16, 1997.

     The following  pro-forma  information  presents results of operations as if
the reverse acquisition occurred on January 1, 1996. For the year ended December
31, 1997, the pro-forma  revenue of The Great American  BackRub Store,  Inc. and
subsidiary,  from services,  products and  franchising  operations  increased to
$3,585,530  compared to $3,045,937 for the comparable  period in the prior year.
The net increase of $539,593 (17.7%) was primarily attributable to stores opened
in 1996 being opened in 1997 for a full twelve months.  Operating  expenses on a
pro-forma basis were $6,171,697 for the year ended December 31, 1997 as compared
to  $6,571,578  for the  comparable  period in the prior  year,  a  decrease  of
$399,881 (6.1%).  This decrease was primarily due to the closure of three stores
during the year and a reduction of corporate overhead.

     As a resulted of the  decrease  operating  expenses,  net loss for the year
ended December 31, 1997  decreased to $2,846,890  compared to $3,435,322 for the
comparable  period in the prior year. No Provision for income taxes was required
during  either period due to the  Company's  incurrence  of net  operating  loss
carryforwards.

     While general and  administrative  expenses are expected to increase due to
the need for additional management and administrative  support for the Company's
expanding franchise marketing, sales and support, these expenses as a percentage
of total  revenue are  expected  to decline as total  revenue  increases.  Other
expense  items,  such as  advertising  and  promotion,  as they are  related  to
franchise  marketing  and  franchise  support  are  expected  to increase as the
franchise base increases.  Advertising and promotion,  salaries and wages, costs
of products,  however,  as they are related to retail operations  themselves and
their  relative  percentage of total revenue are likely to decline over the next
year as corporate owned stores are sold to potential franchisee.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had  ($1,746,744) in working capital deficit as of December 31,
1997,  after giving  effect to the reverse  acquisition  compared with a working
capital of $251,565 as of December  31, 1996.  The decrease is primarily  due to
amounts spent on operations in the development of a corporate  infrastructure in
anticipation  of the Company's  former growth  strategy of developing  corporate
owned stores.

     From  inception  to  December  31,  1997,  the  Company  has used  cash for
operating  activities of $7,382,756  and spent an additional  $1,577,724 for the
purchase of property,  equipment,  purchased leases,  leasehold improvements and
investments.  These  expenditures  have been offset by the net cash  provided by
financing  activities,  principally  from the  Company's  October  1993  private
placement of common stock,  aggregating  $870,000,  bridge notes and  short-term
financing in the principal  amount of $867,000,  the Company's March 1995 public
offering of common stock resulting in net proceeds of  approximately  $5,000,000
and the issuance of common stock to warrant and option holders of  approximately
$1,000,000.  Also in November  1997 a related  party,  Oregon  Properties  d/b/a
Barclay  Group loan the  Company  $250,000  and  subsequent  to year end another
$210,000 has been loaned to the Company.

     Inasmuch  as the  Company  continues  to  have a high  level  of  operating
expenses  and  will  be  required  to  make  certain  up-front  expenditures  in
connection with its proposed franchise  expansion,  the Company anticipates that
losses  will  continue  for at least the next 9 months and until  such time,  if
ever,  as the  Company  is able to  generate  significant  revenues  or  achieve
profitable  operations.  As a result, in their report on the Company's Financial
Statements as of December 31, 1997, the Company's  independent  certified public
accountants  have  included an  explanatory  paragraph  that  describes  factors
raising  substantial  doubt about the  Company's  ability to continue as a going
concern.


                                       13
<PAGE>


     On February 5, 1997,  the Company filed a  registration  statement to offer
270,000  shares of  preferred  stock for  approximately  $2,700,000,  which,  if
successful,  after  commissions  and fees,  would  provide the Company  with net
proceeds of approximately  $2,000,000.  The principal  underwriter  ceased doing
business before the offering was completed and no securities were sold.

     In  accordance  with current  management's  plans,  the Company has been in
discussions  with several  private lenders in the possibility of securing a loan
of up to  $2,000,000.  The Company  would pledge its asset of land in Antigua as
collateral for the loan.  Also a related party Oregon  Properties  d/b/a Barclay
Group is  prepared  under  certain  circumstances  to  provide  additional  real
property  collateral  and/or  certain  guaranties.   However  there  can  be  no
assurances that such financing can be obtained upon reasonable  terms or that it
will be  available  in the near  future.  While  management  believes  that such
financing will provide  sufficient  capital to fund the Company's growth and pay
the bridge Notes, if it is not available, the Company will have to substantially
reduce its operations.

Item 7. Financial Statements.

     See Financial Statements at the end of this report.


Item 8. Changes in and Disagreements with Accountants on accounting and
        financial disclosure.

     Incorporated by reference to Form 8-K as amended, dated January 30, 1998.


                                       14
<PAGE>


                                    PART III

ITEM 9. DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

     Information with respect to directors,  executive  officers,  promoters and
control  person:  Compliance  with Section 16(A) of the Exchange Act will be set
forth in the Company's  definitive proxy statement which is expected to be filed
within 120 days of December 31, 1997 and is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION.

     Information with respect to executive compensation will be set forth in the
Company's  definitive  proxy  statement which is expected to be filed within 120
days of December 31, 1997 and is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Information with respect to security ownership of certain beneficial owners
and management  will be set forth in the Company's  definitive  proxy  statement
which is  expected  to be filed  within  120 days of  December  31,  1997 and is
incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information with respect to certain  relationships and related transactions
will be set forth in the Company's  definitive proxy statement which is expected
to be filed within 120 days of December 31, 1997 and is  incorporated  herein by
reference.

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.

(A) EXHIBITS

Exhibit No.                Description                                     I/B/R
-----------                -----------                                     -----

   3.1   Certificate of Incorporation of the Company, as amended.       **

   3.2   Amendment of Certificate of Incorporation of the Company
         (designating Series A Convertible Preferred Stock).            *

   3.3   Amended and Restated By-Laws of the Company.                   **

   4.1   Specimen Certificate of the Company's Common Stock.            **

   4.2   1994 Employee Stock Option Plan.                               **

   4.3   Nonqualified Option Agreement of Mr. Zanker.                   **

   4.4   Nonqualified Option Agreement of Mr. Murray.                   **

   4.5   Form of Option Agreement for Options to be issued to outside
         Directors upon completion of the offering.                     **

  10.1   Employment Agreement dated November 1, 1994 between
         the Company and Mr. Zanker.                                    **


                                       15
<PAGE>


 10.1.1  Amendment dated February 1, 1995 to the Employment
         Agreement dated November 1, 1994 between the Company and
         William Zanker.                                                **

 10.1.2  Amendment No. 2 dated February 27, 1995 to the
         Employment Agreement dated November 1, 1994 between the
         Company and William Zanker.                                    **

 10.2    Employment Agreement dated November 1, 1994 between the
         Company and Terrance C. Murray.                                **

 10.2.1  Amendment dated February 1, 1995 to the Employment
         Agreement dated November 1, 1994 between the Company and
         Terrance C. Murray.                                            **

 10.2.2  Amendment No. 2 dated February 27, 1995 to the
         Employment Agreement dated November 1, 1994 between the
         Company and Terrance C. Murray.                                **

 10.3    Franchise Agreement dated May 14, 1994 between
         Emerald Desert Rub and the Company.                            **

 10.4    Lease Agreement dated August 25, 1993 between 175
         East 57th Street, Inc. and the Company concerning the Third
         Avenue Store.                                                  **

 10.5    Lease Agreement dated February 1994 between Town Sports
         International, Inc. and The Company concerning the East 86th
         Street Store.                                                  **

 10.6    Notice of Town Sports International, Inc. to the Company
         terminating the East 86th Street Store Lease.                  **

 10.6.1  Lease Extension dated February 27, 1995 relating to the 86th
         Street Store Lease.                                            **

 10.7    Lease Agreement dated May 15, 1994 between Martin Cable
         and the Company.                                               **

 10.8    Sublease Agreement dated May 31, 1994 between the
         Company and Emerald Desert Rub.                                **

 10.9    Commercial Lease and Deposit Receipt dated December 31,
          1994 for the Company's San Rafael, California Office.         **

 10.10   Promissory Note dated April 5, 1994 issued to Colonial
         Capital Corp. for $165,000.                                    **

 10.11   Substitute Promissory Note dated November 1, 1994 issued
         to Colonial Capital Corp. for 165,000.                         **

 10.12   Letter Agreement dated December 23, 1994 between the
         Company Colonial Capital, Inc.                                 **


                                       16
<PAGE>


 10.13   Promissory Note dated April 5, 1994 issued to Gary D. Lipson
         for $50,000.                                                   **

 10.14   Substitute Promissory Note dated November 1, 1994 issued
         to Gary D. Lipson for $50,000.                                 **

 10.15   Promissory Note dated April 5, 1994 issued to Kipnis
         Tescher Lippman Valinsky and Kain for $115,000.                **

 10.16   Substitute Promissory Note dated November 1, 1994 issued
         to Kipnis Tescher Lippman Valinsky & Kain for $115,000.        **

 10.17   Letter Agreement dated December 28, 1994 between the
         Company and Kipnis Tescher Lippman Valinsky and Kain.          **

 10.18   Letter of Understanding dated December 16, 1994 from
         the Company to Colonial Capital, Inc.                          **

 10.19   Purchase Agreement dated June 10, 1993 by and among the
         Company, Michael Schub, Linda Amori, Ron Rodriguez,
         Debbie Dworkin and William Zanker.                             **

 10.20   Mutual Termination Agreement dated November 15, 1994 by
         and among the Company, Michael Schub, Linda Amori,
         Ron Rodriguez, Debbie Dworkin and William Zanker.              **

 10.21   Option Agreement dated June 20, 1994 between Bay Area
         Backs I and the Company relating to a potential franchise
         agreement.                                                     **

 10.22   Option Agreement dated June 21, 1994 between Bay Area
         Backs I and the Company relating to a potential franchise
         agreement.                                                     **

 10.23   Letter dated October 19, 1994 from the Company to Bay
         Area Backs I extending the term of the Option Agreement.       **

 10.23.1 Letter dated February 13, 1995 from the Company to Bay
         Area Backs I extending the term of the Option Agreement.       **

 10.24   Form of Bridge Note relating to December 1994 private
         placement securities offering.                                 **

 10.25   The Company's Uniform Franchise Offering Circular dated
         April 1, 1994.                                                 **

 10.26   Letter of Intent dated June 9, 1994 between Brookstone, Inc.
         and the Company.                                               **

 10.27   Letter of Intent dated October 6, 1994 between 
          Brookstone, Inc. and the Company.                             **


                                       17
<PAGE>


 10.28   Assignment of Patent Rights dated December 23, 1994
         from William Zanker to the Company.                            **

 10.29   Consulting Agreement dated March 9, 1995 between
         the Company and A. Clinton Allen.                              **

 10.30   Option Agreement dated March 9, 1995 between the Company
         and A. Clinton Allen.                                          **

 10.31   Indemnification Letter dated March 9, 1995 from the Company
         to A. Clinton Allen.                                           **

 10.32   Franchise Termination Agreement dated as of May 30,
         1995, by and between the Company and Emerald Desert, Rub.      ***

 10.33   Option Termination Agreement dated as of May 30, 1995, by
         and between the Company and Bay Area Backs I.                  ***

 10.34   Franchise Agreement dated November 19, 1996 between the
         Company and Roosevelt Field Partners, LLC.                     ****

 10.35   Franchise Agreement dated November 20, 1996 between
         the Company and Marion Holdings, Inc.                          ****

 10.36   Option Agreement dated November 21, 1996 between
         the Company and Marylou Garcia.                                ****

 10.37   Agency Agreement dated November 22, 1996 between the
         Company and Investors Associates, Inc., as amended
         December 20, 1997.                                             ****

 10.38   Finders' Fee Agreement between the Company and Josh
         Alexander Associates dated October 16, 1997 as amended
         and supplemented.                                              *****

 10.39   Termination and Settlement Agreement between the
         Company and Terrance Murray dated as of October 16, 1997.      *****

 10.40   Settlement Agreement between the Company and Keith Dee
         dated October 28, 1997.                                        *****

 10.41   Satisfaction Agreement between the Company and Bernard
         Wincig dated October 16, 1997.                                 *****

 11.1    Statement regarding Computation of Per Share Earnings.         ***

 16.1    Letter from BDO Seidman, LLP.                                  ******

 21.1    Subsidiaries of the Company.                                   ***



                                       18
<PAGE>


----------
*         corporated  by reference to the  Company's  Registration  Statement on
          Form SB-2 (File No. 333-21203)

**        Incorporated by reference to the Company's  Registration  Statement on
          Form SB-2 (File No. 33-88052)

***       Incorporation by reference to the Company's Form 10-KSB for the fiscal
          year ended December 31, 1995 (File No. 0-25334).

****      Incorporated  by reference to the Company's Form 10-KSB for the fiscal
          year ended December 31, 1996 (File No. 0-25354).

*****     Incorporated  by  reference  to the  Company's  Form S-8  Registration
          Statement dated November 24, 1997.

******    Incorporated  by reference to the Company's  Form 8-K/A Current Report
          dated January 30, 1998.


(B) REPORTS ON FORM 8-K

     Form 8-K dated January 30, 1998 as amended


                                       19
<PAGE>


                                   SIGNATURES

     In accordance with Section 13 or 15 (d) of the requirements of the Exchange
Act, the registrant has duly caused the report to be signed on its behalf by the
undersigned,  thereunto duly authorized in the City of Clearwater,  Florida,  on
the 14th day of April 1998.

                                    THE GREAT AMERICAN BACKRUB STORE, INC.


                                    By: /s/ David Coia
                                        -----------------------------
                                            David Coia
                                            President

     In  accordance  with Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities on the dates
indicated.

<TABLE>
<CAPTION>
      SIGNATURE                            TITLE                                       DATE
      ---------                            -----                                       ----

<S>                                 <C>                                           <C> 
/s/ David S. Coia                   Chairman of the Board                         April 14, 1998
---------------------------

/s/ David Coia                      Chief Executive Officer, and Director         April 14, 1998
---------------------------         (principal executive officer)


/s/ David L. West                   Chief Financial Officer and Secretary         April 14, 1998
---------------------------         (principal financial and accounting 
                                    officer)                            


/s/ Kevin Stone                     Director                                      April 14, 1998
---------------------------


/s/ Waylon E. McMullen              Director                                      April 14, 1998
---------------------------
</TABLE>



                                       20
<PAGE>





                     THE GREAT AMERICAN BACKRUB STORE, INC.

                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 1997




<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY

                                    CONTENTS



PAGE  1  -  2  -  REPORT OF INDEPENDENT CERTIFIED PUBLIC
                  ACCOUNTANTS


PAGE  3  -  4  -  CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31,
                  1997


PAGE        5  -  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
                  YEARS ENDED DECEMBER 31, 1997 AND 1996


PAGE        6  -  CONSOLIDATED STATEMENT OF CHANGES IN
                  STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
                  DECEMBER 31, 1997 AND 1996

PAGE        7  -  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
                  YEARS ENDED DECEMBER 31, 1997 AND 1996

PAGE  8  - 20  -  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors of:
 The Great American Backrub Store, Inc.

We have  audited  the  accompanying  consolidated  balance  sheet  of The  Great
American  Backrub  Store,  Inc. and  subsidiary  as of December 31, 1997 and the
related consolidated  statements of operations,  changes in stockholders' equity
(deficit),  and cash flows for the year then  ended.  We have also  audited  the
accompanying   statements  of  operations,   changes  in  stockholders'   equity
(deficit),  and cash flows of Caribsun Corp., the Company's legal subsidiary and
acquirer for accounting  purposes under the reverse  acquisition as discussed in
Note 3, for the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We did not audit the 1996  financial  statements of The Great  American  Backrub
Store,  Inc., the legal  acquirer under the reverse  acquisition as discussed in
Note 3, which statements reflected total assets of $3,578,661 as of December 31,
1996, and total revenues of $3,045,937 for the year then ended. Those statements
were audited by other  auditors  whose report has been  furnished to us, and our
opinion,  insofar  as it  relates  to the  amounts  included  in  the  Company's
financial  statements  for 1996 is  based  solely  on the  report  of the  other
auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  uses and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of The Great  American  Backrub
Store,  Inc.  and  subsidiary  as of December  31, 1997 and the results of their
operations and their cash flows for the two years then ended in conformity  with
generally accepted accounting principles.


<PAGE>


The  accompanying  1997  consolidated  financial  statements  have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated  financial statements,  the Company has suffered recurring
losses since its inception and has an accumulated  deficit of $1,334,522,  which
raises  substantial  doubt about its  ability to  continue  as a going  concern.
Management's  plans  regarding  those  matters also are described in Note 2. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


                         WEINBERG & COMPANY, P.A.



Boca Raton, Florida
April 13, 1998


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 1997


                                     ASSETS

CURRENT ASSETS
 Cash                                                               $   131,078
 Other receivables, net of allowance of $103,310                         26,886
 Inventory                                                              146,889
 Prepaid expenses                                                        25,148
 Capitalized loan costs, net of $7,808
  accumulated amortization                                               67,192
                                                                    -----------
    Total Current Assets                                                397,193
                                                                    -----------
PROPERTY AND EQUIPMENT - NET
 Real property                                                        5,305,129
 Furniture and fixtures                                                 426,887
 Leasehold improvements                                                 849,649
 Purchased lease, net of $30,276
  accumulated amortization                                               89,724
 Computer equipment                                                      44,983
                                                                    -----------
                                                                      6,716,372
 Less accumulated depreciation                                         (303,835)
                                                                    -----------
     Net Property and Equipment                                       6,412,537
                                                                    -----------
OTHER ASSETS
 Notes receivable, net of allowance of $50,000                          100,000
 Accrued interest receivable                                              9,000
 Lease and equipment deposits                                           198,550
                                                                    -----------
    Total Other Assets                                                  307,550
                                                                    -----------
GOODWILL, NET OF $57,918 ACCUMULATED
 AMORTIZATION                                                         1,332,130
                                                                    -----------
TOTAL ASSETS                                                        $ 8,449,410
                                                                    ===========


                 See accompanying notes to financial statements.
                                        3


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 1997


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts payable                                                   $   476,212
 Accrued expenses                                                       435,177
 Accrued payroll and related expenses                                   129,306
 Management fees payable - related party                                409,394
 Bridge notes                                                           262,667
 Note payable - related party                                           250,000
 Deferred revenue                                                       181,181
                                                                    -----------
     Total Current Liabilities                                        2,143,937
                                                                    -----------
OTHER LIABILITIES
 Deferred rent                                                          184,100
                                                                    -----------
COMMITMENTS AND CONTINGENCIES                                              --

STOCKHOLDERS' EQUITY
 Series A  convertible  preferred  stock, $.001 par
   value, 15,000,000  shares authorized, none issued
 Common stock, par value $0.001, 20,000,000 shares
  authorized, 15,154,354 shares issued
  and outstanding                                                        15,155
 Common stock to be issued, 6,097,416 shares,
  par value $0.001                                                        6,097

Additional paid-in capital                                            7,055,652

Additional paid-in capital on
 common stock to be issued                                              462,241

Accumulated Deficit                                                  (1,334,522)
                                                                    -----------
                                                                      6,204,623
Less Subscriptions Receivable                                            83,250
                                                                    -----------

TOTAL STOCKHOLDERS' EQUITY                                            6,121,373
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 8,449,410
                                                                    ===========


                 See accompanying notes to financial statements.
                                        4


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDARY
                       CONSOLIDATED STATEMENTS OF CHANGES
                        IN STOCKHOLDERS' EQUITY (DEFICIT)
                        AS OF DECEMBER 31, 1997 AND 1996
                 See accompanying notes to financial statements

<TABLE>
<CAPTION>
                                       COMMON STOCK               COMMON STOCK            PREFERRED        STOCK       ADDITIONAL   
                                                                   TO BE ISSUED                                         PAID-IN    
                                    SHARES      AMOUNT          SHARES      AMOUNT          SHARES         AMOUNT       CAPITAL     
                                    ------      ------          ------      ------          ------         ------      ----------   
<S>                             <C>          <C>                 <C>         <C>            <C>            <C>      <C>           
Balance, December 31, 1995             100   $         1              --         --             --           --     $     6,513   

Net Loss 1996                         --            --                --         --             --           --            --     
                                ----------   -----------         ---------   --------        -------        -----   -----------   

Balance, December 31, 1996             100             1                                                                  6,513   

Issuance of Preferred Stock                                                                  500,000        5,000     5,693,615   


Changes in Equity Resulting
 From Reverse Acquisition
 Accounting Treatment            2,416,754         2,416                                    (500,000)      (5,000)      156,767   
                                                                                            
Issuance of Common Stock To      
  Shareholders' Of Caribsun 
  Corp. Pursuant To Reverse 
  Acquisition                   12,000,000        12,000         6,097,416      6,097                                   833,901   

Issuance of Common Stock As 
 Acquisition Costs Pursuant 
 To Reverse Acquisition          1,000,000         1,000                                                                 75,809   

Exercise Of Common Stock
 Warrants                          300,000           300                                                                189,700   

Exercise Of Common Stock           287,500           288                                                                 24,497   
 Options

Issuance Of Common Stock
 As Loan Fee                       150,000           150                                                                 74,850   

Net Loss 1997                                                                                                                    
                                ----------   -----------         ---------   --------        -------        -----   -----------   
                                                                                                                                  
BALANCE, DECEMBER 31,
 1997                           15,154,354   $    15,155         6,097,416   $  6,097           --           --     $ 7.055,652   
                                ==========   ===========         =========   ========        =======        =====   ===========   


<CAPTION>
                                    ADDITIONAL                                                          
                                  PAID-IN CAPITAL                              
                                     ON COMMON                              STOCK                             
                                    STOCK TO BE        ACCUMULATED       SUBSCRIPTION                                   
                                       ISSUED            DEFICIT          RECEIVABLE        TOTAL 
                                  ---------------      -----------       ------------     ------------         
<S>                                <C>                 <C>                <C>             <C>            
Balance, December 31, 1995              --             $  (168,000)             --        $  (161,486) 
                                                                                         
Net Loss 1996                           --                (332,000)             --           (332,000) 
                                   -----------         -----------        -----------     -----------    
                                                                                         
Balance, December 31, 1996                                (500,000)                          (493,486)                       
                                                                                         
Issuance of Preferred Stock                                                                 5,698,615        
                                                                                         
                                                                                         
Changes in Equity Resulting                                                              
 From Reverse Acquisition                                                                
 Accounting Treatment                                                                         154,183 
                                                                                         
Issuance of Common Stock To                                                              
  Shareholders' Of Caribsun                                                              
  Corp. Pursuant To Reverse 
  Acquisition                          462,241                                              1,313,239        
                                                                                         
Issuance of Common Stock As                                                              
 Acquisition Costs Pursuant                                                              
 To Reverse Acquisition                                                                        76,809
                                                                                         
Exercise Of Common Stock                                                                 
 Warrants                                                                                     190,000         
                                                                                         
Exercise Of Common Stock                                                      (83,250)        (58,465)     
 Options                                                                                 
                                                                                         
Issuance Of Common Stock                                                                 
 As Loan Fee                                                                                   75,000
                                                                                         
Net Loss 1997                                             (834,522)                          (834,522)                 
                                   -----------         -----------        -----------     -----------    
                                                                                         
BALANCE, DECEMBER 31,                                                                    
 1997                              $   462,241         $(1,334,522)       $   (83,250)    $ 6,121,373    
                                   ===========         ===========        ===========     ===========    
</TABLE>

                 See accompanying notes to financial statements.
                                        5


<PAGE>

              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        AS OF DECEMBER 31, 1997 AND 1996


                                                  1997                 1996
                                               ------------        ------------
REVENUES
 Services                                      $    533,721        $       --
 Products                                           200,481                --
 Royalties, franchise
  fees and other                                     15,062                --
                                               ------------        ------------
      Total Revenues                                749,264                --
                                               ------------        ------------
OPERATING EXPENSES
 Salaries and wages                                 679,658                --
 Costs of products sold                              21,509                --
 Rental expenses                                    296,227                --
 Advertising and promotion                           41,638                --
 General and administrative                          80,191                --
 Consulting fees                                    144,712                --
 Depreciation                                        11,188                --
 Amortization of goodwill                            57,918                --
 Management fees-related
  party                                             246,000             336,000
                                               ------------        ------------
      Total Operating Expenses                    1,579,041             336,000
                                               ------------        ------------
NET LOSS FROM OPERATIONS                           (829,777)           (336,000)
                                               ------------        ------------

OTHER INCOME (EXPENSE)
 Interest income                                      5,325               4,000
 Interest expense                                   (10,070)               --
                                               ------------        ------------
      Total Other Income
         (Expense)                                   (4,745)              4,000
                                               ------------        ------------

NET LOSS                                       $   (834,522)       $   (332,000)
                                               ============        ============
Weighted average number of
 shares outstanding during
 the period                                      18,357,014          17,097,416
                                               ============        ============
Net loss per common share
 and equivalents                               $    (0.0455)       $    (0.0194)
                                               ============        ============


                 See accompanying notes to financial statements.
                                        6


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        AS OF DECEMBER 31, 1997 AND 1996

                                                         1997           1996
                                                       ---------      ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                              $(834,522)     $(332,000)
 Adjustments to reconcile net
  loss to net cash (used in)
  operating activities
 Amortization of Goodwill                                 57,918           --
 Depreciation and other amortization                      49,272           --
 Consulting expense incurred for capital
  stock                                                  190,000           --
 Changes in assets and liabilities
 (Increase) decrease in:
   Accounts receivable - net                               3,110           --
   Accrued interest receivable                            (5,000)        (4,000)
   Inventory, net                                         30,346           --
   Prepaid expenses and other current
    assets                                               (14,621)          --
 Increase (decrease) in
  Accounts payable and accrued
   expenses                                                5,224           --
  Accrued payroll and related                             88,294           --
  Deferred revenues and rent                              69,253           --
  Management fees payable                                205,394        336,000
                                                       ---------      ---------
Net cash used in operating activities                   (145,332)          --
                                                       ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Lease and equipment deposits and
  other assets                                            11,847           --
                                                       ---------      ---------
    Net cash provided by investing
     activities                                           11,847           --
                                                       ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net cash proceeds from the issuance
  of common stock                                         24,563
 Net cash proceeds from the issuance
  of notes payable                                       250,000
                                                       ---------      
    Net cash provided by financing
     activities                                          274,563           --
                                                       ---------      ---------
Net increase in cash and cash equivalents                131,078           --
Cash and cash equivalents-beginning                         --             --
                                                       ---------      ---------
CASH AND CASH EQUIVALENTS-ENDING                       $ 131,078      $    --
                                                       =========      =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
Cash paid during the period for:
  Interest                                             $   3,451           --
  Income taxes                                              --             --

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

As fully  discussed  in Note 3, the Company  issued  common  stock in a business
combination accounted for as a reverse acquisition.

                 See accompanying notes to financial statements.
                                        7


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The Great American  Backrub Store,  Inc. and  Subsidiary  (the  "Company") is an
owner\operator  and  franchiser  of retail stores which  provide  seated,  fully
clothed  back rubs and sell  back and  stress  related  products.  The  Company,
incorporated  in 1992,  began  operations in 1993. As of December 31, 1997,  the
Company has ten retail stores in operation and two franchised  store  locations.
As  discussed  in  Note  3 the  Company  acquired  one  hundred  percent  of the
outstanding common stock of Caribsun Corp. ("Caribsun") from Ascot International
Corp. ("Ascot"), a previously unrelated company.  Caribsun, formed in 1995 under
the laws of the State of Delaware, holds title to approximately 86 acres of real
property in the Parish of St. Peter, Antigua through a wholly-owned  subsidiary.
On October 1, 1997 the real property was appraised by an  independent  appraiser
and their report dated October 14, 1997 opines that the fair market value of the
real property was $10,000,000. The Company intends to develop the real property.

Change in Management

As a  result  of the  reverse  acquisition  discussed  in  Note 3,  the  Company
underwent a change in management  effective October 16, 1997.  Management of the
Company consists of the officers and directors of Ascot.

Principle of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned subsidiary, Caribsun. All significant intercompany balances and
transactions have been eliminated in consolidation.

Use of Estimates

In  preparing  financial   statements  in  conformity  with  generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses  during the reported  period.  Actual results could differ
from those estimates.


                                        8


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

Cash and Cash Equivalents

Cash and cash equivalents  represents all amounts held in banks and money market
accounts and short term  investments  such as United States  Treasury bills with
original maturities of less than three months.

Concentration of Credit Risk

There were no financial  instruments  which  potentially  subject the Company to
significant concentration of credit risk at December 31, 1997.

Inventory

Inventories,  consisting of merchandise held for resale, are valued at the lower
of cost or market. The Company uses the retail inventory method.

Property and Equipment

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Expenditures  from  maintenance  and repairs are charged to expense as incurred.
Depreciation  is provided  using the  straight-line  method  over the  estimated
useful life's of the assets as follows:

Leasehold improvements       The  lesser  of  10  years,  or  the remaining life
                             of the lease.
Purchased lease              The  lesser of 10 years, or the  remaining life  of
                             the lease.
Furniture and fixtures       5 - 10 years
Computer equipment           5 years

Revenue Recognition

The  Company-owned  store revenues are recognized  when services are provided or
upon the  sale of  products.  Sales of gift  certificates  are  recognized  when
redeemed or upon expiration.  Royalties are recognized as income in the month is
which  franchise  services are rendered or products are sold by franchises.  The
Company  recognizes  franchise  revenue in accordance with SFAS No. 45. Deferred
revenues represent unredeemed and unexpired gift certificates.


                                        9


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Per Share Data

Net loss per  common  share for the year  ended  December  31,  1997 and 1996 is
computed by dividing net loss by the weighted average common shares  outstanding
during the year as defined by Financial Accounting Standards, No. 128, "Earnings
per Share".  The assumed  exercise of common share  equivalents was not utilized
since the effect was anti-dilutive.

Long-Lived Assets

During 1995, Statement of Financial Accounting Standards No.121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
("SFAS  121"),  was issued.  SFAS 121 requires the Company to review  long-lived
assets and certain  identifiable  assets  related to those assets for impairment
whenever  circumstances  and situations  change such that there is an indication
that the carrying  amounts may not be recoverable.  If the  undiscounted  future
cash  flows of the  enterprise  are less  than  their  carrying  amounts,  their
carrying amounts are reduced to fair value and an impairment loss is recognized.
The  adoption of this  pronouncement  did not have a  significant  impact on the
Company's financial statements as of December 31, 1997 and 1996.

Stock Options

In October  1995,  the FASB issued  Statement  of  Financial  Standards  No. 123
"Accounting  for  Stock-Based   Compensation"  ("SFAS  123").  SFAS  123  allows
companies to choose whether to account for stock-based  compensation on the fair
value method or to continue to account for  stock-based  compensation  under the
current Intrinsic Value method as prescribed by APB Opinion No. 25,  "Accounting
for  Stock  Issued  to  Employees."  The  Company  had  adopted  the  disclosure
alternative  under  SFAS 123  during  1996  and  will  continue  to  follow  the
provisions of APB Opinion No. 25.


                                       10


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997


NOTE 2 - GOING CONCERN

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a going  concern;  they do not  include  adjustments
relating to the  recoverability of recorded asset amounts and  classification of
recorded  assets and  liabilities.  The Company has  incurred  losses  since its
inception  and has  accumulated  a deficit of  $1,334,522  at December 31, 1997.
Insomuch as the Company continues to have a high level of operating expenses and
will be  required  to make  significant  expenditures  in  connection  with  its
proposed  franchising concept and development of the property owned by Caribsun,
the Company  anticipates  that losses will  continue  for at least 12 months and
until such time, if ever, as the Company is able to generate sufficient revenues
to finance its operations and the costs of continued expansion. Since inception,
the Company's operations have generated negative cash flow, as its expenses have
exceeded  revenues,  and the  Company's  ability to continue its  operations  is
dependent upon additional debt or equity  financing.  There can be no assurances
that the  Company  will be able to  generate  significant  revenues  or  achieve
profitable  operations or that its operations will generate  positive cash flow.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.

In accordance with  management's  plans, the Company is negotiating with lenders
for long term  financing  needs.  However,  no assurances  can be given that the
Company will be successful in raising additional capital.  Further,  there is no
assurance,  assuming the Company  successfully  raises additional funds that the
Company will achieve profitability or positive cash flow.

If the  Company is unable to obtain  adequate  additional  financing,  or if the
existing  operations  do not meet  projections,  management  will be required to
sharply curtail its plans and operations.


                                       11


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997

NOTE 3 - REVERSE ACQUISITION

On September 30, 1997, as amended on October 16, 1997, the Company  entered into
a Securities  Exchange Agreement (the "Agreement") to acquire 100% of the issued
and  outstanding  common stock of Caribsun from Ascot in exchange for 17,097,416
shares of common stock of the Company.  Caribsun owns  approximately 86 acres of
land  located  in  Parish of Saint  Peter,  Antigua.  On  October  16,  1997 the
acquisition was consummated and the Company  initially issued  11,000,000 shares
of its common stock to Ascot in exchange for 100% of the issued and  outstanding
common stock of Caribsun. Due to a deficiency in the Company's authorized shares
of common  stock on October 16,  1997,  6,097,416  shares of common stock of the
Company remain to be issued to Ascot.  Upon shareholder  approval and completion
of an amendment to the Company's  certificate  of  incorporation  increasing the
authorized shares, the remaining  6,097,416 common shares will be issued.  These
unissued  shares are presented in the balance sheet as Common stock to be issued
and Additional paid-in capital on common stock to be issued.

The Caribsun  acquisition  and issuance of the  Company's  common stock to Ascot
resulted in Ascot obtaining approximately an 80% voting interest in the Company.
Generally  Accepted  Accounting   Principles  require  that  the  company  whose
shareholders  retain the  majority  interest in the voting stock of the combined
business be treated as the acquirer for accounting  purposes.  As a result,  the
acquisition is accounted for as a reverse  acquisition  for financial  reporting
purposes and Caribsun is deemed to have acquired the Company.  Accordingly,  the
Company's financial  statements at the acquisition date and at December 31, 1997
are  presented as follows:  (1) the balance  sheet  consists of  Caribsun's  net
assets at historical  cost, and the Company's net assets at fair market value on
the date of  acquisition  (acquired  cost);  and (2) the statement of operations
includes  Caribsun's  operations  for the periods  presented  and the  Company's
operations from the date of acquisition, October 16, 1997.

The purchase  price  consists of the  17,097,416  common  shares issued to Ascot
multiplied  by the average  fair market value of the  Company's  common stock as
measured  just  before  and  after  the  agreement  and   announcement   of  the
acquisition,  as adjusted  for  management's  estimate of the fair market  value
dilution  effect of issuing those shares,  plus  acquisition  costs.  The entire
difference between the purchase price and net assets of the Company acquired was
allocated to goodwill.


                                       12


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997


NOTE 3 - REVERSE ACQUISITION - CONTINUED

Goodwill is being  amortized  over the expected  useful life of five years.  The
purchase price and goodwill computation follows:

Shares issued October 16, 1997
 pursuant to reverse acquisition                                      17,097,416

Fair market value of common stock
 as adjusted for dilution effect                                     $   0.08625

Fair market value of stock issued                                    $ 1,474,652
Acquisition costs                                                        108,750
                                                                     -----------
Total purchase price                                                 $ 1,583,402
Less: Net assets acquired                                                193,354
                                                                     -----------
Goodwill                                                             $ 1,390,048
                                                                     -----------

The following unaudited pro-forma information presents a summary of consolidated
results of operations of the Company as if the reverse  acquisition had occurred
on January 1, 1996.  These pro-forma  results have been prepared for comparative
purposes  only and do not purport to be  indicative of the results of operations
which  actually  would have  resulted had the  acquisition  occurred on the date
indicated, or which may result in the future. The pro-forma results follow:

                                                    Year Ended December 31,
                                                  1997                 1996
                                               ------------        ------------
Revenues                                       $  3,595,220        $  3,045,937
Operating expenses                                6,171,697           6,571,578
                                               ------------        ------------
Net loss from operations                         (2,576,477)         (3,525,641)
Other income (expense)                             (270,513)             90,319
                                               ------------        ------------
Net loss                                       $ (2,846,990)       $ (3,435,322)
                                               ============        ============
Weighted average number of
 shares outstanding during
 the period                                      21,116,975          21,101,770
                                               ============        ============
Net loss per common share                      $    (0.1348)       $    (0.1628)
                                               ============        ============


In connection  with the reverse  acquisition,  warrants to purchase common stock
were issued to certain  former  officers  and  consultants  of the  Company.  At
December 31, 1997, 270,000 of the warrants were unexercised and may be exercised
through October 15, 2002 at exercise prices ranging from $0.50 to $1.00.

                                       13


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997
NOTE 4 - BRIDGE NOTES

On December  27,  1996,  the Company  issued 10% Bridge  Notes in the  principal
amount of $ 262,667,  payable as to principal and interest at the earlier of the
closing of a public offering  through the sale of equity  securities or December
27, 1997.  In  connection  with these notes,  the Company also issued  4,000,000
warrants,  each warrant representing the right to purchase one share of Series A
preferred  stock at an exercise price of $5.00 per share.  Upon  consummation of
the offering,  each bridge warrant was to  automatically,  without any action by
the bridge note holders,  be converted  into half of a redeemable  warrant which
entitles  the holder to  purchase  one-half  share of a new  Series B  preferred
stock.  The  Series B  preferred  stock was never  authorized  by the  Company's
shareholders, and in February 1997 the Offering was cancelled.

The Series A preferred  stock  warrants are  exercisable  at anytime  during the
three-year  period  commencing  on the  first  anniversary  of the  date  of the
warrant, December 27, 1997. The Series A preferred stock is convertible into the
greater of (1) two shares of common  stock or (2) the number of shares of common
stock equal to $8.00  divided by the average  closing  price of the common stock
for the 10 trading days ending on the third  trading day  preceding  the date of
conversion.  In  connection  with the  issuance of the Bridge  Notes an original
issue  discount of $262,667 was recorded to be amortized  over the lesser of the
expected term of the notes,  or until  consummation  of the offering (3 months),
along with $91,743 of financing expenses.  Interest expense  amortization of the
original  issue discount of $255,319 and $7,348 for the years ended December 31,
1997 and 1996,  occurred prior to the reverse  acquisition and reflects non-cash
financing costs related to such warrants.

Because of the cancellation of the Public Offering, the Notes were not converted
and became due on December  27, 1997.  As of the date of this report,  the Notes
are past due, and the Company is in negotiation with the noteholders.

NOTE 5 - OPTIONS, STOCK PLANS AND MANAGEMENT COMPENSATION

At the Company's 1994 annual stockholders  meeting,  the Company's  shareholders
approved an Employee Plan under which 75,000 shares of stock were authorized for
grants. To date, 8,500 have been granted. The purpose of the Employee Plan is to
promote  the  success of the  Company by  providing  a method  whereby  eligible
employees  of the  Company  and its  subsidiaries,  as defined  therein,  may be
awarded additional remuneration for services rendered. The Employee Plan is also
intended to aid in attracting persons of suitable ability to become employees of
the Company and its subsidiaries.


                                       14


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997


NOTE 5 - OPTIONS, STOCK PLANS AND MANAGEMENT COMPENSATION - CONTINUED

In December  1994,  the Company  granted  ten year  options to purchase  360,000
shares of Common  Stock to executive  officers of the  Company.  At December 31,
1997 240,000 of these options were  exercised at $.375 per share and 120,000 are
still  exercisable  at $3.75  per  share.  In July  1995,  the  Company  granted
additional  five-year  options to 100,000  shares of Common  Stock to  executive
officers of the Company.  Such options are  exercisable  at a purchase  price of
$2.5625 per share.  All options expire on the day before the 5-year  anniversary
of vesting.

In March 1995, the Company  granted ten year options to purchase  100,000 shares
of Common Stock. Such options are exercisable at a price of $5.00 per share. All
such  options are  currently  exercisable.  In July 1995,  the  Company  granted
five-year options  for  purchase  25,000 and  40,000  shares of Common  Stock to
consultants of the Company. Such options are exercisable at a price of $4.00 per
share.  All options  are  currently  exercisable.  In August  1995,  the Company
granted  three  year  options to  purchase  100,000  share of Common  Stock to a
consultant to the Company,  of which options to purchase  76,500 shares had been
exercised in prior years. In January 1997 the balance of the options to purchase
23,500 shares were  exercised.  Such options were exercised at a price of $2.375
per share.

In 1996,  the Company  granted 3 year options to the  Company's  underwriter  to
purchase 125,000 shares of common stock. Such options are currently  exercisable
at a price of $6.00 per share and expire in February 2000.

FASB Statement 123,  "Accounting  for  Stock-Based  Compensation,"  requires the
Company to provide pro forma  information  regarding net income and earnings per
share as if  compensation  costs for the Company's  stock options plans had been
determined in accordance with the fair value-based method in FASB Statement 123.
As discussed in Note 3, the 1997 and 1996  statements of operations  include the
net loss of The Great  American  Backrub  Store,  Inc.  only for the period from
October 16, 1997 to December 31, 1997 and, therefore, only stock options granted
during this period would affect the results of  operations.  Since there were no
significant  stock  options  granted  during this period for  compensation,  the
pro-forma information required under FASB No. 123 is not presented.


                                       15


<PAGE>



              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997


NOTE 5 - OPTIONS, STOCK PLANS, AND MANAGEMENT COMPENSATION - (CONTINUED)

Non-qualified stock option transactions during the years ended December 31, 1997
and 1996 are summarized below:

<TABLE>
<CAPTION>
                                           December 31, 1997                             December 31, 1996
                                           -----------------                             -----------------

                                            Exercise Price    Weighted Average             Exercise Price       Weighted Average
                           Shares           Range per Share   Exercise Price    Shares     Range Per Share      Exercise Price
                           ------           ---------------   --------------    ------     ---------------      --------------
<S>                        <C>              <C>                   <C>           <C>        <C>                       <C>  
Outstanding Options        
  at beginning of year     558,500          $2.375 - $5.00        $3.94         925,000    $1.875 - $5.00            $3.20
                                                                  
Options granted            328,500           0.375 -  6.00         2.08         300,000    $1.00  - $2.50            $2.00
                                                                  
Options exercised          311,000           0.375 -  2.375        0.521        576,500    $1.00  - $2.375           $2.01
                                                                  
Options forfeited          107,500               $2.50             2.50          90,000         $2.375               $2.375
                           -------               -----             ----          ------         ------               ------
                                                                  
Outstanding options at     
 end of year               468,500          $0.375 - $6.00        $4.735        558,500    $2.375 - $5.00            $3.93
                           -------          ------   -----        ------        -------    ------   -----            -----
                                                                  
Exercisable options at     
 end of year               468,500          $0.375 - $6.00        $4.735        553,500    $2.375  -  $5.00          $3.94    
                           -------          ------   -----        ------        -------    ------     -----          -----    
</TABLE>
                                                             

                 See accompanying notes to financial statements.
                                       16

<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997

NOTE 6 - INCOME TAXES

Income taxes are provided based on the liability  method of accounting  pursuant
to Statement of Financial  Accounting  Standards (SFAS) No. 109, "Accounting for
Income  Taxes."   Deferred   income  taxes  are  recorded  to  reflect  the  tax
consequences  on future  years  differences  between the tax basis of assets and
liabilities and their financial  reporting  amounts at each year-end.  Valuation
allowances  have been  established  for all  income  tax  benefits  since  their
realizability is uncertain.

For Federal tax purposes,  the Company had available,  at December 31, 1997, net
operating loss carryforwards of approximately  $8,720,000,  which expire through
2011 subject to certain perscribed rate annual limitations.

NOTE 7 - RELATED PARTY TRANSACTIONS

In  December  31,  1997,  the  Company  had a  receivable  due  from  one of its
franchisees  totaling  approximately  $127,000.  The franchise was closed during
1997.  Certain former officers and directors of the Company prior to the reverse
acquisition  owned an  interest of  approximately  40% in this  franchise.  This
receivable has been fully reserved at December 31, 1997, is due on demand and is
non-interest bearing.

On  November  24,  1997,  the  Company  obtained a $250,000  loan from a company
controlled by the Company's  chairman.  In connection with this loan the Company
issued  150,000 shares of common stock to the  controlled  company.  The 150,000
shares were  accounted for as a loan fee to be amortized  over the one year term
of the loan. Amortization of these loan costs was $7,808 in 1997.

Under the terms of a  management  agreement  that  commenced on July 1, 1995 and
terminated on September 23, 1997,  Caribsun had been charged  management fees of
$246,000  and  $336,000  in 1997 and 1996,  respectively  by Ascot  prior to the
reverse acquisition for managerial and administrative  services.  Of this amount
$409,394  remains  unpaid at December 31, 1997 and is shown in the  accompanying
balance sheet as management fees payable.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

(a)  Leases

The Company leases retail stores and office equipment.  All of the retail stores
are leased under noncancellable agreements which expire at various dates through
the year 2006. The agreements,  which have been classified as operating  leases,
require the Company to pay insurance, taxes and other maintenance costs.

                                       17


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997



NOTE 8 - COMMITMENTS AND CONTINGENCIES - CONTINUED

(a)  Leases - Continued

The following is a schedule of future minimum rental payments which are required
under operating leases that have initial or remaining noncancellable lease terms
in excess of one year as of December 31, 1997.

         Year ending December 31,               Net Minimum
                                                  Rentals

              1998                             $  688,458
              1999                                695,348
              2000                                693,518
              2001                                711,049
              2002                                677,400
              Thereafter                        1,388,177
                                               ----------
                                               $4,853,950

The rental expense, including deferred rent, under operating leases was $972,762
and $734,588 for the years ended December 31, 1997 and 1996, respectively.

Deferred  rent results as the Company  recognizes  the costs of leases with free
rent periods and accelerating  lease payments on a straight-line  basis over the
term of the lease.

(b)  Legal Proceedings

The Company is a defendant in a landlord  tenant  action  entitled  Fashion Mall
Partners,  L.P. v. The Great American Backrub Store,  Inc. (Civil Court of White
Plains,  State of New York) in which the  landlord  is seeking  past due rent of
$228,156  and  possession  of  the  premises.   The  Company   believes  it  has
counter-claims  against the landlord  relating to the  condition of the premises
during  its  tenancy  and has made an offer to settle the  action.  An amount of
approximately  $80,000  has been  accrued  although  the Company has been making
partial payments to the landlord.  Accordingly the settlement, if accepted, will
not materially affect the Company's results of operations.


                                       18


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997


NOTE 9 - FINANCIAL ADVISORY AND CONSULTING AGREEMENT

In February 1996, the Company  entered into a financial  advisory and consulting
agreement  with an investment  banking firm to advise it on the possible sale of
additional  equity  securities,  as  well  as to  introduce  and  assist  in the
evaluation of potential merger and partnering opportunities.

The  agreement  was for a period of one year  commencing on February 1, 1996 and
includes  a  $100,000  retainer,  paid on the  execution  of the  agreement  and
warrants to purchase  100,000 shares of the Company's stock at an exercise price
of $1.00 per share  exercisable  from the date of the agreement to and including
January 31,  1997,  all of which have been  exercised,  and warrants to purchase
200,000  shares of common stock of the Company at an exercise price of $2.50 per
share,  exercisable from the date of the agreement to and including February 31,
1998, of which all have been exercised.

Such  warrants  resulted  in a non-cash  charge of  $481,250  for the year ended
December 31, 1996 and resulted in a charge of approximately $50,000 for the year
ended December 31, 1997.

NOTE 10 - SUBSEQUENT EVENTS

Change of State of Incorporation and Amendments to
 Certificate of Incorporation

On  January  20,  1998,  the  Board  of  Directors   approved   actions  to  (1)
reincorporate the Company under the laws of the State of Delaware through merger
of the Company into a Delaware  subsidiary formed specifically for this purpose;
and (2) amend the Company's  certificate of incorporation to (a) change the name
of the Company to "Darco International Corp."; (b) reverse split the outstanding
shares of the Company's common stock one-for-four;,  (c) increase the authorized
shares of the Company's  common stock to  25,000,000  from  20,000,000;  and (d)
permit shareholders to take action by written consent without a meeting.  Ascot,
which holds  approximately an 80% voting interest in the Company's common stock,
has approved  these actions and will vote their shares in favor of these actions
at  the  next  shareholder  meeting  scheduled  in  May  1998.  Pursuant  to the
provisions  of  New  York  corporate  law  and  the  Company's   certificate  of
incorporation,  the  reincorporation  by merger requires the affirmative vote of
two thirds of the  Company's  outstanding  shares of common  stock and the other
amendments require the approval of a majority of such shares.  Accordingly,  the
vote of Ascot is sufficient to approve these actions.


                                       19


<PAGE>


              THE GREAT AMERICAN BACKRUB STORE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1997


NOTE 10 - SUBSEQUENT EVENTS - CONTINUED

Letter of Intent for Acquisition of a Private Unaffiliated Company

In early 1998 the  Company  executed a letter of intent  relating  to a possible
acquisition  of a private  unaffiliated  company.  Under  terms of the letter of
intent if the acquisition is completed, the Company will issue 350,000 pre-split
common  shares of the  Company's  common  stock in  exchange  for a  controlling
interest in the private company.


                                       20


<PAGE>


               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT


We  hereby  consent  to the use in the Form  10-KSB  Annual  Report of The Great
American  Backrub  Store,  Inc. for the year ended December 31, 1997, our report
dated April 13, 1998, relating to the financial statements of The Great American
Backrub Store, Inc. which appear in such Form 10-KSB.




                           WEINBERG & COMPANY, P.A.
                           Certified Public Accountants





Boca Raton, Florida
April 15, 1998