<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15 (d) of the Security
- --- Exchange Act of 1934 For the Quarterly period ended September 30, 1997.
- --- Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Transition Period from ________ to ________.
Commission file number: 0-25334
-------
THE GREAT AMERICAN BACKRUB STORE, INC.
--------------------------------------
(Exact name of Small Business Issuer as specified in the charter)
New York 13-3729043
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
4500 140th Avenue No., Suite 221, Clearwater, Florida 33762
------------------------------------------------------------
(Address of principal executive offices)
(813) 532-4818
--------------
(Issuer's telephone number)
53 West 36th Street, Room 1202, New York, New York 10018
--------------------------------------------------------
(Former name or former address if changed since last report)
Check whether the issuer: (1) filed all reports required by Section 13 or 15
(d) of the Securities Exchange Act during the past 12 months (or for such
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at November 12, 1997
----- --------------------------------
Common Stock, $.001 par value 13,700,716
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
(A Developmental Stage Company)
Part I
FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
------------------------------
Condensed Balance Sheet 3
Condensed Statement of Operations 4
Statement of Cash Flows 5
Notes to unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Financial Condition and Results of Operations 9
---------------------------------------------
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
Signature Page 13
Exhibit Index 14
Exhibit 11: Statement re: Computation of per share earnings 15
Exhibit 27: Financial Data Schedule 16
Page 2
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(UNAUDITED)
As of September 30, 1997
<TABLE>
<CAPTION>
Part 1: Financial Information
Item 1: Financial Statements
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,404
Receivables - other 129,722
Prepaid expenses 10,527
Inventory 207,235
-----------
Total current assets 359,888
-----------
Property and equipment:
Furniture and fixtures 463,560
Leasehold improvements 930,946
Purchased lease 120,000
Computer equipment 45,107
-----------
1,559,613
Less, Accumulated depreciation ( 419,637)
-----------
1,139,976
-----------
Other assets:
Note receivable 50,938
Lease and equipment deposits 197,109
-----------
Total other assets 248,047
-----------
Total assets $1,747,911
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 620,678
Accrued expenses 202,977
Accrued payroll and related 41,012
Bridge notes 239,796
Deferred revenue 30,343
-----------
Total current liabilities 1,134,806
-----------
Deferred rent 371,412
-----------
Commitments and contingencies
Stockholders' equity:
Series B convertible preferred stock, $.001 par value
15,000,000 shares authorized, none issued --
Common stock, par value $0.001 per share,
20,000,000 shares authorized, 2,416,854
shares issued and outstanding 2,417
Additional paid in capital 8,865,331
Deficit accumulated during the development stage ( 8,626,055)
===========
241,693
===========
Total liabilities and stockholders' equity $1,747,911
===========
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended December 18, 1992
September 30, September 30, (Inception) to
1997 1996 1997 1996 September 30, 1997
---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Services $ 666,850 $ 597,793 $ 2,324,092 $ 1,527,390 $ 5,931,196
Products 135,863 174,827 501,390 442,114 1,871,559
Royalties, franchise fees and other 5,349 -- 20,474 -- 104,451
------------ ------------ ------------ ------------ ------------
Total 808,062 772,620 2,845,956 1,969,504 7,907,206
------------ ------------ ------------ ------------ ------------
Operating expenses:
Salaries and wages 454,613 358,606 1,413,777 991,435 4,699,173
Cost of products sold,buying and occupancy 112,493 122,407 406,576 300,252 1,395,459
Rental expense 261,908 178,581 825,742 463,798 2,240,044
Advertising and promotion 11,273 36,383 58,437 73,862 564,864
Non-cash financial advisory fees -- 131,250 43,750 350,000 525,000
General and administrative 305,625 490,938 1,355,547 1,356,342 5,898,061
Depreciation 131,030 20,900 139,748 61,700 452,042
Waived salaries -- -- -- -- 350,000
------------ ------------ ------------ ------------ ------------
Total 1,276,942 1,339,065 4,243,577 3,597,389 16,124,643
------------ ------------ ------------ ------------ ------------
Net loss from operations ( 468,880) ( 566,445) ( 1,397,621) ( 1,627,885) ( 8,217,437)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest Income 2,329 66,578 11,967 82,607 255,324
Interest expense ( 80,020) -- ( 234,894) -- (663,942)
------------ ------------ ------------ ------------ ------------
Total ( 77,691) 66,578 ( 222,927) 82,607 ( 408,618)
------------ ------------ ------------ ------------ ------------
Net loss ($ 546,571) ($ 499,867) ($ 1,620,548) ($ 1,545,278) ($ 8,626,055)
============ ============ ============ ============ ===========
Weighted average number of
shares outstanding during the period 2,405,354 2,024,078 2,402,743 1,868,394
============ ============ ============ ============
Net loss per common share and equivalents $ (0.23) $ (0.25) $ (0.67) $ (0.83)
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 18, 1992
September 30, September 30, (Inception) to
1997 1996 September 30, 1997
--------------- -------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 1,620,548) ($ 1,545,278) ($ 8,626,055)
-------------- ------------- -------------
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 247,588 61,700 465,412
Salaries waived by officers - - 350,000
Warrant financing costs 232,536 - 645,036
Options granted as compensation - 525,000 631,830
Common stock issued to former franchisee and
consultant - - 98,478
(Increase) decrease in:
Accounts receivable 85,338 9,054 ( 129,722)
Prepaid expenses 40,163 ( 183,774) ( 10,527)
Inventory 122,034 ( 75,769) ( 207,235)
Other assets 159,905 ( 82,023) ( 248,047)
Increase (decrease) in:
Accounts payable and accrued expenses ( 331,215) ( 238,771) 875,462
Deferred revenues and rent ( 167,247) ( 41,368) 401,755
Accrued officer expenses - - -
-------------- ------------- -------------
Total adjustments 389,102 ( 25,951) 2,872,442
-------------- ------------- -------------
Net cash used in operating activities ( 1,231,446 ( 1,571,229 ( 5,753,613)
-------------- ------------- -------------
Cash flows from investing activities:
Purchase of certificate of deposit - - ( 1,000,000)
Maturity of certificate of deposit 1,000,000 1,000,000
Purchased lease - - ( 120,000)
Purchase of property and equipment - ( 259,490) ( 1,471,423)
-------------- ------------- -------------
Net cash used in investing activities - 740,510 ( 1,591,423)
-------------- ------------- -------------
Cash flows from financing activities:
Net proceeds from the issuance of common stock 55,812 848,447 7,182,516
Net proceeds from the issuance of bridge warrants - - 4,000
Proceeds from issuance of bridge notes and short-term debt - - 867,667
Payment of bridge notes and short-term debt - - ( 605,000)
Bridge financing costs - - ( 91,743)
Payment of officer loan payable - - -
-------------- ------------- -------------
Net cash provided by financing activities 55,812 848,447 7,357,440
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ( 1,175,634) 17,728 12,404
Cash and cash equivalents, beginning of period 1,188,038 1,221,737 -
-------------- ------------- -------------
Cash and cash equivalents, end of period $ 12,404 $ 1,239,465 $ 12,404
============== ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - $ - $ 20,892
============== ============= =============
Income taxes $ 2,500 $ 1,500 $ 10,875
============== ============= =============
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Description of Business
The Great American Backrub Store, Inc. (the "Company"), formerly American
Pleasure, Inc., is an owner/operator of retail stores which provide seated,
fully clothed back rubs and sell back related products. The Company,
incorporated on December 28, 1992, began operations in August, 1993 and opened
its first store for business in October, 1993. As of September 30, 1997 the
Company has ten retail stores in operation and two franchise store locations.
Management believes that the Company's planned principal operations, the
establishments of Company-owned stores and franchised stores throughout the
country have not yet commenced. The initial nine stores have been used to
continued to develop and modify the Company's retail concept. Accordingly, the
accompanying financial statements have been presented as a development stage
company in accordance with Statement of Financial Accounting Standards (SFAS)
No. 7.
Note 1 - Initial Public Offering
In an initial public offering completed on March 7, 1995 the Company sold
1,250,000 shares of common stock for approximately $6,250,000 which, after
commissions and fees, provided the Company with net proceeds of approximately
$5,127,732.
Notes 2 - Condensed Financial Statements
The condensed balance sheet as of September 30, 1997 and the condensed
statements of operations and cash flows for the nine month period ended
September 30, 1997 and 1996, and the period December 28, 1992 (inception) to
September 30, 1997 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and changes in cash flows at September 30, 1997 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed financial
statements should be read in conjunction with the financial statements and
notes thereto of the Company as of December 31, 1996.
The results of operations for the nine month period ending September 30, 1997
and 1996 are not necessarily indicative of the operating results for the full
year.
Note 3 - Cash and Cash Equivalents
Cash and cash equivalents represent all amounts held in banks and money market
accounts and short term investments such as United States Treasury Bills with
original maturities of three months or less.
Note 4 - Earnings per Share
Net loss per common share for the nine month period ended September 30, 1997
and 1996 is computed by dividing net loss by the weighted average of common
shares outstanding during the period. The assumed exercise of common share
equivalents was not utilized since the effect was anti-dilutive.
page 6
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 5 - Options, Stock Plans and Management Compensation.
At the Company's 1994 annual meeting of shareholders held on July 18, 1994,
the Company's shareholders approved the Employee Plan. 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, thereby
increasing aid in attracting persons of suitable ability to become employees
of the Company and its subsidiaries. The plan covers an aggregate of 75,000
shares of the Company's Common Stock. As of September 30, 1997, options to
purchase 8,500 shares f Common Stock were outstanding under the plan.
In December 1994, the Company granted ten year options to purchase 360,000
shares of Common Stock to executive officers of the Company. Such options are
exercisable at a price of $3.75 per share. One-third of such options became
exercisable in March, 1995, one-third became exercisable in December 1995 and
one-third became exercisable in December 1996. In July 1995, the Company
granted five-year options to purchase 100,000 shares of Common Stock to
executive officers of the Company. Such options are exercisable at a price of
$1.875 per share. All such options have been exercised. In July 1995, the
Company granted options to purchase 10,000 shares of Common Stock to executive
officer of the Company. Such options are exercisable at a price of $2.5625 per
share. Options to purchase 5,000 shares vest and became exercisable in July
1996 and options to purchase an additional 5,000 shares vest and became
exercisable in July 1997. 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 to a consultant to the Company. 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 to
purchase 25,000 and 40,000 shares of Common Stock to consultants to 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 shares of Common Stock to a consultant to the
Company. Such options are exercisable at a price of $2.375 per share. All such
options have been exercised.
Note 6 - Leases
The Company leases retail stores and office equipment. All of the retail
stores are leased under noncancelable agreements which expire at various dates
through the year of 2005. The agreements, which have been classified as
operating leases, require the Company to pay insurance, taxes and other
maintenance costs.
Rent expense amounted to $261,908 and $178,581 for the three month periods
ended September 30, 1997 and 1996, respectively. Rent expense amounted to
$825,742 and $463,798, for the nine month periods ended September 30, 1997 and
1996, respectively. Rent expense from December 18, 1992 (inception) to
September 30, 1997 was $2,240,044.
Note 7 - Financial advisory and consulting agreements
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.
page 7
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
The agreement is was for a period of one year commencing on February 1, 1996
and included a $100,000 retainer paid on the execution of the agreement and
warrants to purchase 100,000 shares of the Company's Common 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 January 31, 1998 of all have been exercised.
Such warrants resulted in a non-cash charge of $43,500 for the nine month
period ended September 30, 1997
Note 8 - Preferred Stock Offering
On February 5, 1997, the Company filed a registration statement to offer
270,000 shares of Series B convertible Preferred Stock for approximately
$2,700,000, which if successful, after commissions and fees would have
provided the Company, with net proceeds of approximately $2,000,000. This
offering was canceled due to regulatory problems worth the Company's former
Investment Banker.
Note 9 - Subsequent Events
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 from Ascot International
Corp. ("Ascot"). On October 16, 1997 the Securities and Exchange Agreement was
amended 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 will
issue up to a maximum of 17,097,419 shares in exchange for Caribsun. The final
number of shares may be reduced to the extent the audited net worth of Caribsun
at October 15, 1997 is less than $4.5 million, the audit of Caribsun balance
sheet is not delivered by Ascot prior to November 15, 1997, or if Ascot does not
provide at least $150,000 of financing to the Company before November 15, 1997.
The balance of the shares due to Ascot will be issued following shareholder
approval of a proposal to amend the Company's certificate of incorporation
to increase the Company's authorized capital.
The Caribsun Acquisition and the issuance of approximately 80% of the Company's
outstanding common stock to the former Caribsun stockholder resulted in that
stockholder obtaining a majority voting interest in the Company. Generally
accepted accounting principles require that the Company whose stockholders
retain the majority interest in a combined business be treated as the acquirer
for accounting purposes. As a consequence, the Caribsun Acquisition will be
accounted for as a reverse acquisition for financial reporting purposes and
Caribsun will be deemed to have acquired the Company, as of the date of the
acquisition. Accordingly, the Company's financial statements following the
acquisition date will be as follows: (1) the balance sheet will consist of
Caribsun's net asset at historical cost and the Company's net assets at fair
value (acquired cost); and (2) the statement of operations will include
Caribsun's operations for the period presented and the Company's operations from
October 16, 1997.
In November 1997, in connection with the Acquisition and future public relations
services, the Company will issue in lieu of cash compensation 1,830,000 shares
of its common stock to consultants and one former officer.
page 8
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's unaudited financial statements and the related notes thereto
included elsewhere herein.
General
The Company's revenues are derived from the service of seated, fully clothed
back rubs and the sale of stress related products. The Company began
operations in August, 1993, and opened its first store for business in
October, 1993. As of September 30, 1997, the Company has ten retail stores in
operations and two franchised store locations.
The Company's registration statement to offer 270,000 shares of Series B
convertible Preferred Stock, which was filed on February 5, 1997, was canceled
in the Quarter ended June 30, 1997. The cancellation of the Preferred Stock
offering has severely hampered the Company's ability to expand its business
and has significant affect on its future operating results since additional
funds had not been raised during the period ended September 30, 1997.
Management evaluated other financial possibilities, and identified a merger
candidate. The merger took place in October 1997. See "Subsequent Events"
In addition, an important part of the Company's business plan was an
aggressive store and franchise growth strategy. The proposed offering of
Preferred Stock was an essential element to implement this business plan and,
therefore, any Company expansion has been canceled or put on hold. The failure
to open new stores and franchised operations could have a material adverse
impact on the Company's future sales and operations. Since the merger
management is reevaluating the timing of future expansion, contingent on the
availability of financing. However, no assurance can be given that the Company
will be successful in obtain such financing.
Management is also evaluating store level performance of its existing
locations to isolate and possibly close unprofitable locations. As of
September 30, 1997, the Company closed three locations due to poor performance
and continued losses. The Company is also evaluating the possibility of
franchising one of its existing locations to raise cash and is in preliminary
discussions with several parties. There can be no assurance that the Company
will be successful in identifying potential franchisees and selling existing
locations.
Subsequent to September 30, 1997, the Company has entered into negations with
two potential franchisee, whose proposed locations would be located outside
the state of New York.
Results of Operations
The Company is in the development stage and has not had significant revenues
since the commencement of its retail store operations in October 1993. From
this time through September 30, 1997, the Company has generated cumulative
revenue of $7,907,206 while incurring a cumulative loss of $8,626,055. The
losses to date have been primarily associated with the Company's establishment
of a corporate and administrative infrastructure to position itself to open
additional retail stores and expend its franchise operations. For the nine
month period ended September 30, 1997, retail store and franchise operations
continue to reflect losses although overall stores opened more than one year
have shown increased sales. In addition, the Company expects to incur
additional operating losses for the next six months and possibly longer.
page 9
<PAGE>
Results of Operations - cont'd
The Company presently sells services in the form of its back rub, and product,
in the form of a variety of massage and stress reduction products, in its
retail stores. Since inception sales of services have accounted for 74% of
total revenue, products for 24% and the remaining 2% from other sources. Since
the Company is still a development stage enterprise, it is not clear whether
these percentages are indicative of future ratios in a larger operation.
Three month period ended September 30, 1997 compared to three month period
ended September 30, 1996 and nine month period ended September 30, 1997
compared to the nine month period ended September 30, 1996 results are
discussed as follows:
For the three months ended September 30, 1997, revenues from services and
products at the Company's stores increased 4.5% to $808,062 from the
corresponding 1996 period. This increase was mainly attributed to increased
traffic and the opening of additional stores as compared to the corresponding
1996 period. Operating expenses were $1,276,942 for the three month period
ended September 30, 1997 as compared to $1,339,065 for the same period in the
prior year an decrease of 4.6%. This decrease was primarily due to the
reduction of corporate overhead. Of these amounts, approximately $305,625 was
related to corporate overhead expenses and $830,287 to store and franchise
level operations for the three month period ended September 30, 1997. No
provision for income taxes was required during either period to the Company's
incurrence of net operating losses.
For the nine months ended September 30, 1997, revenues from services and
products at the Company's stores increased 52% to $2,845,956 from the
corresponding 1996 period. This increase was mainly attributed to increase
traffic and the opening of additional stores as compared to the corresponding
1996 period. Operating expenses were $4,243,577 for the nine month period
ended September 30, 1997 as compared to $3,597,389 for the same period in the
prior year, an increase of 18%. This increase was primarily due to the
development of a management team, operational systems, marketing and design
plans in the attempted implementation of the Company's expansion plans. Of
these amounts, approximately $1,355,547 was related to corporate overhead
expenses and $2,179,347 to store and franchise level operations for the nine
month period ended September 30, 1997. No provision for income taxes was
required during either period due to the Company's incurrence of net operating
losses.
During the next six months general and administrative expenses are expected to
decrease as management streamlines operations of the existing corporate owned
stores. Other expense items such as advertising and promotion, salaries and
wages, cost of products, however, are related to retail operations themselves
and their relative percentages to total revenue are likely to remain fairly
constant in the near term but should decrease as the Company streamlines
operations and begins to sell some corporate owned stores. However, no
assurance can be given that the Company will be able to decrease its expense
levels to support existing operations or that the Company can sell corporate
owned stores to potential franchisees.
Liquidity and Capital Resources
The Company had negative working capital of $774,918 as of September 30, 1997,
compared with working capital of $1,377,331 as of September 30, 1996. The
decrease is primarily due to amounts spent on property, equipment and
leasehold improvements to fund the Company's initial thirteen stores and
amounts spent on operations in the development of a corporate infrastructure
in anticipation of the Company's growth strategy.
page 10
<PAGE>
Results of Operations - cont'd
From inception to September 30, 1997, the Company has used cash for operating
activities of $5,753,613 and spent an additional $1,591,423 for the purchase
of property, equipment, purchase leases, leasehold improvements and
investments. These expenditures have been offset by net cash provided by
financing activities, principally from the Company's October, 1993 private
placement of common stock, aggregating $870,00, Bridge notes and short-term
financing in the principal amount of $867,667, the Company's March 1995 public
offering of common stock resulting in the net proceeds of approximately
$5,127,732 and the issuance of common stock to warrant and option holders of
approximately $1,184,784. See "Statement of Cash Flows" included in the
Company's unaudited financial statements.
Inasmuch as the Company continues to have a high level of operating expenses,
the Company anticipates that losses will continue for at least the next six
months and until such time, if ever, as the Company is able to generate
significant revenue or achieve profitable operations. As a result, in their
report of the Company's Financial Statements as of December 31, 1996, 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.
Subsequent Events
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 from Ascot International
Corp. ("Ascot"). On October 16, 1997 the Securities and Exchange Agreement was
amended and the Company initially issued 11,000,000 share 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 Exchanges Agreement, the Company will
issue up to a maximum of 17,097,419 shares in exchange of Caribsun. The final
number of shares may be reduced to the extent the audited net worth of
Caribsun at October 15, 1997 is less than $4.5 million, the audit of Caribsun
balance sheet is not delivered by Ascot prior to November 15, 1997, or if
Ascot does not provide at least $150,000 of financing to the Company before
November 15, 1997. The balance of the shares due to Ascot will be issued
following shareholder approval of a proposal to amend the Company's
certificate of incorporation to increase the Company's authorized capital.
As of November 13, 1997 $100,000 of the $150,000 of financing has been
provided to the Company.
Forward-Looking Statements. This report contains certain forward-looking
statements that are based on current expectations. In light of the important
factors that can materially affect results, including those set forth above
and elsewhere in this report, the inclusion of forward-looking information
herein should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved. The
Company may encounter competitive, financial and business challenges making it
more difficult than expected to continue to develop its stores, franchises and
real estate projects; necessary financing may not be available or may only be
available upon onerous terms; competitive conditions within the industry may
change adversely; the Company may be unable to retain existing key management
personnel; the Company's forecasts may not accurately anticipate market
demand; and there may be other material adverse changes in the Company's
operations or business. Certain important factors affecting the
forward-looking statements made herein include, but are not limited to (i)
accurately forecasting capital expenditures; and (ii) obtaining new sources of
external financing. Assumptions relating to budgeting, marketing, and other
management decisions are subjective in many respects and thus susceptible to
interpretations and periodic revision based on actual experience and business
developments, the impact of which may cause the Company to alter its capital
expenditure or other budgets, which may in turn affect the Company's financial
position and results of operations.
page 11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is a defendant in a landlord tenant action entitled
Fashion Mall Partners I.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 landlord 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 effect 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 operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
Exhibit 11: Statement re: Computation of per share earnings
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
Dated September 30, 1997
Dated October 16, 1997
page 12
<PAGE>
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE GREAT AMERICAN BACKRUB STORE, INC.
--------------------------------------
Registrant
Date: November 14, 1997
David L. West, Chief Financial Officer (duly
authorized officer and principal financial
officer and principal accounting officer)
Treasurer and Secretary
page 13
<PAGE>
EXHIBIT INDEX
-------------
Exhibits Description
- -------- -----------
11 Statement re: Computation of per share earnings
27 Financial Data Schedule
page 14
<PAGE>
THE GREAT AMERICAN BACKRUB STORE, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months' Three Months'
weighting weighting
Nine Months Ended Three Months ended factor factor
September 30, September 30, (in months) (in months)
------------- ------------- -----------------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock, June 1993 375,000 375,000 375,000 375,000 9 9 3 3
Sale of common stock, October 1993 125,000 125,000 125,000 125,000 9 9 3 3
Sale of common stock, March 1995
1,250,000 shares 1,250,000 1,250,000 1,250,000 1,250,000 9 9 3 3
Sale of common stock through the issuance of options and
warrants in prior periods 631,854 118,394 631,854 274,078 see below see below
Shares issued upon exercise of options and warrants 20,889 - 23,500 - see below see below
--------- --------- --------- ---------
Common stock and equivalents 2,402,743 1,868,394 2,405,354 2,024,078
--------- --------- --------- ---------
Computation of weighted average number of shares issued
- -------------------------------------------------------
upon exercise of options and warrants:
- --------------------------------------
Period ended September 30, 1997 Nine months' Three months' Period ended September 30, Nine months' Three months'
weighting factor weighting factor 1997 weighting factor weighting factor
(in days) (in days) ---- (in days) (in days)
Shares --------- --------- Shares --------- ---------
Date Issued 1996 1996 Date Issued 1997 1997
---- ------ ---- ---- ---- ------ ---- ----
5/1/96 12,500 6,944 12,500 1/31/97 23,500 20,889 23,500
6/1/96 200,000 88,889 200,000 ------- ------- -------
6/3/96 12,500 5,417 12,500
6/7/96 4,000 1,674 4,000
6/18/96 4,000 1,511 4,000
6/18/96 6,000 2,267 6,000
7/8/96 2,500 759 2,278
7/9/96 2,000 600 1,800
8/22/96 7,500 1,444 4,333
9/18/96 200,000 8,889 26,667
-------- --------
Total 118,394 274,078
-------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's form 10-QSB for the nine month period ended September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,404
<SECURITIES> 0
<RECEIVABLES> 129,722
<ALLOWANCES> 0
<INVENTORY> 207,235
<CURRENT-ASSETS> 359,888
<PP&E> 1,559,613
<DEPRECIATION> 419,637
<TOTAL-ASSETS> 1,747,911
<CURRENT-LIABILITIES> 1,134,806
<BONDS> 0
0
0
<COMMON> 2,417
<OTHER-SE> 8,865,331
<TOTAL-LIABILITY-AND-EQUITY> 1,747,911
<SALES> 2,845,956
<TOTAL-REVENUES> 2,845,956
<CGS> 406,576
<TOTAL-COSTS> 4,243,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,894
<INCOME-PRETAX> (1,620,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,620,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,620,548)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
