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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 March 31, 1996 was 4,769,643 shares.
<PAGE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -- March 31, 1996 2
Consolidated Statement of Operations -- Three months ended March 31,
1996 and 1995 and cumulative period December 7, 1995 (inception) 3
to March 31, 1996
Consolidated Statement of Cash Flows -- Three months ended March 31,
1996 and 1995 and cumulative period December 7, 1995 (inception) 4
to March 31, 1996
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION 8
SIGNATURES 9
1
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WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 6,038
Prepaid expenses 45,000
-------------
TOTAL CURRENT ASSETS 51,038
EQUIPMENT - tooling 270,000
PATENTS 13,704
-------------
$ 334,742
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 427,041
-------------
TOTAL CURRENT LIABILITIES 427,041
-------------
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, 4,769,643 shares issued and outstanding 477
Additional paid-in capital 2,396,839
Accumulated deficit (2,124,090)
Unearned consulting fees (365,625)
--------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (92,299)
--------------
$ 334,742
=============
See notes to consolidated financial statements
2
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<TABLE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
MARCH 31, 1996
(Unaudited)
<CAPTION>
CUMULATIVE
DECEMBER 7,
1995
(INCEPTION)
TO MARCH 31, THREE MONTHS ENDED MARCH 31,
------------- -----------------------------
1996 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
---------- ---------- -----------
COST AND EXPENSES
General and administrative 183,256 122,023 -
Direct expenses 10,140 - -
Research and development 186,373 84,670 -
Amortization of unearned consulting fees 121,875 121,875 -
---------- ---------- -----------
TOTAL COSTS AND EXPENSES 501,644 328,568 -
---------- ---------- -----------
LOSS FROM CONTINUING OPERATIONS (501,644) (328,568) -
LOSS FROM DISCONTINUED OPERATIONS - - (77,717)
---------- ---------- -----------
NET LOSS $ (501,644) $ (328,568) $ (77,717)
=========== =========== ==========
LOSS PER COMMON SHARE
Continuing operations $ (0.14) $ (0.09) -
Discontinued operations - - (0.07)
----------- ----------- ----------
NET LOSS PER COMMON SHARE $ (0.14) $ (0.09) $ (0.07)
=========== =========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,584,018 3,470,476 1,173,224
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
MARCH 31, 1996
(Unaudited)
<CAPTION>
CUMULATIVE
DECEMBER 7,
1995
(INCEPTION) THREE MONTHS ENDED MARCH 31,
TO MARCH 31, ----------------------------
1996 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Loss from continuing operations $ (501,644) $ (328,568) $ -
Amortization of unearned consulting fees 121,875 121,875 -
Changes in assets and liabilities:
(Increase) in prepaid expenses (45,000) - -
(Increase) in patents (13,704) (13,704) -
(Increase) in accounts payable 427,041 307,816 -
------------ ------------- ------------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS (11,432) 87,419 -
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations - - (77,717)
Changes in assets and liabilities of discontinued business - - 100,812
----------- ------------- -----------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS - - 23,085
----------- ------------- -----------
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 -
Advances from stockholders - - 172,593)
Repayment of notes payable - stockholder - - (207,540)
----------- ------------ -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 287,470 187,485 (34,947)
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH 6,038 4,904 (11,862)
----------- ------------ -----------
CASH AT BEGINNING OF PERIOD - 1,134 32,121
----------- ------------ -----------
CASH AT END OF PERIOD $ 6,038 $ 6,038 $ 20,259
=========== =========== ==========
</TABLE>
4
<PAGE>
WHITESTONE INDUSTRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1996. The Company will depreciate the
equipment over its useful life when manufacturing commences.
NOTE 4 - STOCK SALES
In February 1996, the Company sold 200,000 shares of common stock at $.50 per
share. In March 1996, the Company sold 125,000 shares at $.74 per share.
Aggregate net proceeds from stock sales, after expenses, were $187,485.
5
<PAGE>
NOTE 5 - CONSULTING AGREEMENTS
In December 1995, the Company entered into a twelve month financial consulting
agreement which terminates in December 1996. As consideration for the services
to be provided under this agreement, the Company issued 650,000 shares of
common stock in February 1996. Such shares were valued at an aggregate of
$162,500, which amount is being amortized to expense over the term of the
agreement.
In January 1996, the Company entered into another financial consulting
agreement with the same consultant. The agreement covers the twelve month period
ending December 31, 1996. The agreement calls for the Company to issue 130,000
shares of common stock. The Company has recorded a value for this consideration
of $325,000 which is being amortized as expense over the term of the agreement.
The shares have not yet been issued.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1995
No true comparison can be made between the quarters ended March 31, 1996 and
March 31, 1995. The business in which the Company had been engaged in the
previous year's quarter 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 March 31, 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 $84,670 for
the 1996 quarter and $186,373 since inception. General and administrative costs
totaled $122,023 for the quarter and $183,256 since inception.
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.
Additionally, the Company entered into another twelve month financial consulting
agreement with the same consultant in January 1996, recording deferred
compensation of $325,000 in connection with 130,000 common shares to be issued
thereunder. The related amortization expense for the quarter ended March 31,
1996 totaled $121,875.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's current liabilities exceed its current
assets by approximately $376,000. 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 quarter ended March 31, 1996. Additionally,
in April 1996, the Company obtained an overdraft credit line from its
commercial bank totaling $50,000. The Company is continuing to seek additional
financing and will require significantly increased capital resources to
graduate to a fully operational level.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - Effective January 31, 1996, the Company
effectuated a 1 for 10 (1:10) reverse stock split of its common
stock and increased the number of authorized shares of common stock,
par value $.0001 from 20,000,000 shares to 30,000,000 shares. The
Company also increased the number of authorized shares of preferred
stock from 1,000,000 shares to 3,000,000 shares and changed the par
value of the Company's preferred stock from $.01 to $.001.
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
(a) On February 9, 1996, the Company filed a Form 8-K for Item 5
(Other Events) concerning the following: Effective January 31, 1996,
the Company effectuated a 1 for 10 (1:10) reverse stock split of its
common stock and increased the number of authorized shares of common
stock, par value $.0001 from 20,000,000 shares to 30,000,000 shares.
The Company also increased the number of authorized shares of
preferred stock from 1,000,000 shares to 3,000,000 shares and
changed the par value of the Company's preferred stock from $.01 to
$.001.
8
<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: May 30, 1996 By: Donald Yu
-------------------------------------
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10 QSB FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,038
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,038
<PP&E> 270,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 334,742
<CURRENT-LIABILITIES> 427,041
<BONDS> 0
0
100
<COMMON> 477
<OTHER-SE> (92,876)
<TOTAL-LIABILITY-AND-EQUITY> 334,742
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 328,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (328,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (328,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (328,568)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> 0
</TABLE>
