FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996
OR
[ ] 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: 33-20432
WHITESTONE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-2228828
State or other jurisdiction of(I.R.S. Employer
incorporation or organization Identification No.)
19200 Von Karmen Avenue, Suite 550, Irvine, California 92715
(Address of Principal Executive Office) (Zip Code)
(714) 622-5565
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
The number of shares of registrant's Common Stock, $.0001 par value,
outstanding as of June 30, 1996 was 4,899,643 shares.
<PAGE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -- June 30, 1996 2
Consolidated Statement of Operations--Three and six months ended June 30,
1996 and 1995 and cumulative period December 7, 1995 (inception) 3
to June 30, 1996
Consolidated Statement of Cash Flows -- Six months ended June 30,
1996 and 1995 and cumulative period December 7, 1995 (inception) 4
to June 30, 1996
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION 7
SIGNATURES 8
1
<PAGE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Prepaid expenses $ 45,000
----------------
TOTAL CURRENT ASSETS 45,000
EQUIPMENT - tooling 270,000
PATENTS 13,704
----------------
$ 328,704
================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Cash - overdraft $ 30,297
Accounts payable 482,898
Bank credit line 36,000
Loans - other 17,355
----------------
TOTAL CURRENT LIABILITIES 566,550
----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $ .01 par value ; 3,000,000 shares;
authorized, 100,000 shares issued and outstanding 100
Common stock, $ .0001 par value; 30,000,000 shares
authorized, 4,899,643 shares issued and outstanding 490
Additional paid-in capital 2,168,026
Accumulated deficit (2,325,212)
Unearned consulting fees (81,250)
----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (237,846)
----------------
$ 328,704
================
See notes to consolidated financial statements
2
<PAGE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
December 7,
1995
(Inception)
to June 30, Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ---------------------------
1996 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
General and administrative 221,381 38,125 - 160,148 -
Direct expenses 10,140 - - - -
Payroll 89,750 89,750 - 89,750 -
Research and development 204,045 17,672 - 102,342 -
Non-cash imputed compensation expense 96,200 96,200 - 96,200 -
Amortization of unearned consulting fees 81,250 40,625 - 81,250 -
------------ ------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 702,766 282,372 - 529,690 -
------------ ------------ ------------ ------------ ------------
-
LOSS FROM CONTINUING OPERATIONS (702,766) (282,372) - (529,690) -
LOSS FROM DISCONTINUED OPERATIONS - - (77,717) - (152,153)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (702,766) $ (282,372) $ (77,717) $ (529,690) $ (152,153)
============ ============ ============ ============ ============
LOSS PER COMMON SHARE:
Continuing operations $ ($.21) $ ($.07) $ - $ (0.14) $ -
Discontinued operations - - (0.07) - (0.13)
------------ ------------ ------------ ------------ ------------
NET LOSS PER COMMON SHARE $ (0.21) $ (0.07) $ (0.07) $ (0.14) $ (0.13)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,287,143 4,143,810 1,173,443 3,867,560 1,173,443
============ ============ ============ ============ ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
December 7,
1995
(Inception)
to June 30, Six Months Ended June 30,
----------------------------
1996 1996 1995
------------ ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Loss from continuing operations $ (702,766) $ (529,690) $ (152,153)
Amortization of unearned consulting fees 81,250 81,250 -
Common stock issued for services 96,200 96,200 -
Changes in assets and liabilities:
(Increase) in prepaid expenses (45,000) - -
Increase in patents (13,704) (13,704) -
Increase in accounts payable 482,898 363,673 -
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS (101,122) (2,271) (152,153)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations - - -
Changes in assets and liabilities of discontinued business - - -
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS - - -
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (270,000) (270,000) -
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (270,000) (270,000) -
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 287,470 187,485 152,153
Advances from stockholders - - -
Loans - other 17,355 17,355 -
Advances on bank credit line 36,000 36,000 -
Repayment of notes payable - stockholder - - -
Cash overdraft 30,297 30,297 -
------------ ------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 371,122 271,137 152,153
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH - (1,134) -
CASH AT BEGINNING OF PERIOD - 1,134 -
------------ ------------ ------------
CASH AT END OF PERIOD $ - $ - $ -
============ ============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
WHITESTONE INDUSTRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions on Form 10-QSB and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, such
consolidated financial statements reflect all adjustments necessary for a fair
presentation of the results of operations and financial position for the interim
periods presented. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the full fiscal year.
For a more complete understanding of the Company's financial position and
results of operations, reference is made to the financial statements and related
notes thereto previously filed with the Company's Form 10-KSB for the year ended
December 31, 1995.
NOTE 2 - EARNINGS (LOSS) PER SHARE
Per share information is computed based on the weighted average number of shares
outstanding during the period.
NOTE 3 - EQUIPMENT
During the quarter ended March 31, 1996, the Company had specialized tooling
developed which will be used in its manufacturing process. The cost of this
tooling was $270,000, none of the cost of which has yet been paid and is
included in accounts payable at June 30, 1996. The Company will depreciate the
equipment over its useful life when manufacturing commences.
NOTE 4 - ISSUANCE OF STOCK
During the quarter ended June 30, 1996, the Company issued 130,000 shares of
common stock to various individuals for consulting services. These shares have
been valued at $.74 per share, resulting in a non-cash expense of approximately
$96,000.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The three and six months ended June 30, 1996 compared to the three and six
months ended June 30, 1995
No true comparison can be made between the periods ended June 30, 1996 and June
30, 1995. The business in which the Company had been engaged in the previous
year's periods was subsequently discontinued during 1995. The Company entered
into a new line of business commencing December 7, 1995 and continues to be in a
development stage of operations. The Company has not realized any revenues from
its new activities as of June 30, 1996. Costs incurred to date have been
primarily for the research and development of its new toy products and general
and administrative expenses incurred in setting up the organizational
structures, developing its market entries and putting in place its financing
structures. Research and development costs totaled $17,672 for the 1996 quarter,
$102,342 for the six months and $204.045 since inception. General and
administrative costs totaled $38,125 for the quarter, $160,148 for the six
months and $221,381 since inception. Payroll, which commenced during the June
1996 quarter, totaled $89,750.
As previously disclosed in the Company's Form 10-KSB for the year ended December
31, 1995, the Company entered into a financial consulting agreement in
consideration of which it issued 650,000 shares of common stock, which have been
valued at the fair market value of such stock at the time the agreement was
entered into. The resultant computed fee of $162,500 is being amortized over the
twelve month term of the consulting agreement which ends in December 1996. The
related amortization expense totaled $40,625 for the quarter and $81,250 for the
six months. Additionally, the Company issued 130,000 shares to various
individuals for consulting services, the value of which resulted in a non-cash
charge of $96,200.
Liquidity and Capital Resources
As of June 30, 1996, the Company's current liabilities exceed its current assets
by approximately $522,000. Included with current liabilities is an accounts
payable balance of $270,000 which is due to the vendor who developed the tooling
equipment to be used in the Company's manufacturing process.
The Company has funded its development stage activities to date primarily
through the sale of common stock. Stock sold since the inception of development
stage activities aggregated 525,000 shares and has provided net proceeds to the
Company of $287,470. Of these amounts, 325,000 shares, providing net proceeds of
$187,485, were sold during the six months ended June 30, 1996. Additionally, in
April 1996, the Company obtained an overdraft credit line from its commercial
bank totaling $50,000. As of June 30, 1996 the Company has borrowed $36,000 on
this credit line. The Company is continuing to seek additional financing and
will require significantly increased capital resources to graduate to a fully
operational level.
6
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - None
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K - None
7
<PAGE>
SIGNATURES
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.
WHITESTONE INDUSTRIES, INC.
Date: August 12, 1996 By: Donald Yu
------------------------- --------------------------
President and Chief Executive Officer
8
<PAGE>
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<CIK> 0000838796
<NAME> WHITESTONE INDUSTRIES, INC.
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<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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</TABLE>
