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, 1997
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, 1997 was 38,173 shares.
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WHITESTONE INDUSTRIES, INC.
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheet -- June 30, 1997 2
Statement of Operations -- Three and six months ended
June 30, 1997 and 1996 3
Statement of Cash Flows -- Six months ended June 30, 1997 and 1996 4
Notes to 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.
BALANCE SHEET
JUNE 30, 1997
(Unaudited)
ASSETS
$ --
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES: $ --
-----------
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, 43,063 shares issued, 38,173 shares
outstanding and 4,890 shares in treasury 4
Additional paid-in capital 2,556,278
Accumulated deficit (2,555,796)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) --
$ --
===========
See notes to financial statements
2
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WHITESTONE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET LOSS FROM DISCONTINUED OPERATIONS $ (6,892) $ 282,372) $ (12,060) $ (529,690)
============ ============ ============ ============
NET LOSS PER COMMON SHARE:
Discontinued operations $ (0.18) $ (9.34) $ (0.32) $ (18.76)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 38,173 30,247 38,173 28,230
============ ============ ============ ============
</TABLE>
See notes to financial statements
3
<PAGE>
WHITESTONE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
------------------------
1997 1996
---------- ----------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations $ (12,060) $ (529,690)
Amortization of unearned consulting fees 81,250
Common stock issued for services 96,200
Changes in assets and liabilities of
discontinued business 12,060 349,969
---------- ----------
NET CASH (USED IN) DISCONTINUED OPERATIONS -- (2,271)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (270,000)
NET CASH (USED IN) INVESTING ACTIVITIES -- (270,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock -- 187,485
Stockholder's loan -- 17,355
Bank debt -- 36,000
Cash overdraft -- 30,297
CASH PROVIDED BY FINANCING ACTIVITIES -- 271,137
NET (DECREASE) IN CASH -- (1,134)
CASH AT BEGINNING OF PERIOD -- 1,134
CASH AT END OF PERIOD $ -- $ --
========== ==========
See notes to financial statements
4
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WHITESTONE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited 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 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, 1996.
The financial statements for the period ended June 30, 1996 have been restated
to conform to the current year's presentation.
NOTE 2 - EARNINGS (LOSS) PER SHARE
Per share information is computed based on the weighted average number of shares
outstanding during the period restated to reflect the Company's June 1997
reverse stock split.
NOTE 3 - LITIGATION
A. In October 1996, the Company entered into an agreement with a Latvian company
to obtain certain financing. The Latvian company agreed to buy 700,000 shares of
Company's common stock for $500,000 and to additionally provide loan financing
of $400,000, to be secured by 1,483,750 shares of stock owned by certain
shareholders. Subsequent to the issue and transfer of the 2,183,750 shares, the
Company learned that the agreed to funds were not provided.
In February 1997, the Company filed lawsuit as to ownership of the 2,183,750
shares transferred. Since then, these shares have been enjoined by the United
States District Court for the Northern District of California pending
resolution. The Company has challenged the record owner's entitlement to the
shares in question.
5
<PAGE>
B. In June 1997, the Company was named, among other parties, in a lawsuit by a
shareholder. The Company believes it has jurisdictional defenses in this matter,
and does not believe that any loss would be material.
NOTE 4 - DISCONTINUED OPERATIONS
On June 16, 1997, Royal Capital, Inc.("Royal") entered into an agreement with
the Company and its president, Donald R. Yu, whereby Royal (i) acquired 100,000
shares of the Company's preferred stock held by Mr. Yu; and (ii) acquired the
voting proxy of 1,120,000 shares of common stock. The consideration paid to Mr.
Yu was $100,000. As a result, Royal obtained a voting majority of the Company's
capital stock.
On June 24, 1997, the Company, Royal and Proformix, Inc., a Delaware company
("Proformix") entered into an acquisition agreement whereby the Company will
acquire all or substantially all of the outstanding shares of capital stock of
Proformix, Inc. In order to enter into the aforesaid agreement, the Company's
Board of Directors authorized a 137:1 reverse split of its outstanding shares of
Common Stock. Such reverse split is retroactively reflected for all periods
presented. The Company then intends to exchange one share of its Common Stock
with 3.4676 shares Proformix common stock. The aforesaid acquisition will not
include Golden Bear Entertainment Corporation ("Golden Bear"), the Company's
wholly owned subsidiary. The Company's Board has authorized a 5% stock dividend
consisting of the Common Stock of Golden Bear to the current shareholders of the
Company. Accordingly, the accompanying financial statements reflect the results
of the previous business operations as discontinued operations. In connection
with the distribution of Golden Bear, the recipient shareholder received assets
consisting of patents with a book value of $13,704, assumed accounts payable of
$95,941 and bank debt in amount of $67,254 and forgave loans to the Company
totaling $162,689. The excess of liabilities assumed and forgiven over assets
distributed was $312,180. This amount is accounted for as a contribution to
capital. The Company remains contingently liable for the accounts payable and
bank debt assumed.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company entered into a new line of business commencing December 7, 1995 and
discontinued the development of this business in June 1997. The Company had not
realized any sales revenues from its new activities as of June 30, 1997. 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. During the six months ended June 30, 1997, the only
cost incurred was general and administrative costs in the amount of $12,060.
Liquidity and Capital Resources
As of June 30, 1997, the Company had neither assets nor liabilities.
The Company funded its previous development stage activities primarily through
the sale of common stock, from bank debt and loans from its officer. 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. In April 1996, the Company obtained an overdraft credit
line from its commercial bank totaling $50,000. In December 1996, the Company
obtained a $67,254 note from the same bank. This note has not been paid since
its due date of January 21, 1997. In June 1997, the Company's previous major
shareholder was distributed assets consisting of patents with a book value of
$13,704, assumed accounts payable of $95,941 and bank debt in the amount of
$67,254 and forgave loans to the Company totaling $162,689.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
(a) In October 1996, the Company entered into an agreement with a
Latvian company to obtain certain financing. The Latvian company
agreed to buy 700,000 shares of Company's common stock for $500,000
and to additionally provide loan financing of $400,000, to be secured
by 1,483,750 shares of stock owned by certain shareholders. Subsequent
to the issue and transfer of the 2,183,750 shares, the Company learned
that the agreed to funds were not provided.
In February 1997, the Company filed lawsuit as to ownership of the
2,183,750 shares transferred. Since then, these shares have been
enjoined by the United States District Court for the Northern District
of California pending resolution. The Company has challenged the
record owner's entitlement to the shares in question.
(b) In June 1997, the Company was named, among other parties, in a
lawsuit by a shareholder. The Company believes it has jurisdictional
defenses in this matter, and does not believe that any loss would be
material.
Item 2. CHANGES IN SECURITIES - On July 15, 1997 the Company effected a
reverse split of its outstanding Common Stock in the ratio of 137:1
("Reverse Split") and changed its name to Proformix Systems, Inc. The
Reverse Split has no effect on the par value or authorized number of
shares of Common Stock. The Company is effecting the Reverse Split and
name change in connection with the stock exchange agreement
("Agreement") entered into with Proformix, Inc. and Royal Capital,
Inc. whereby the Company will acquire all or substantially all of the
outstanding shares of Proformix, Inc. by exchanging one share of
Common Stock for every 3.4676 shares of Proformix, Inc. common stock.
The primary reason for the Reverse Split is to reflect the relative
contribution of Proformix, Inc., a viable business, which is being
acquired by the Company. In order to consummate this acquisition, the
Company must recapitalize and the Board believes that this
recapitalization and acquisition will ultimately provide for greater
shareholder value. Moreover, it is necessary in order to convey to the
present Proformix, Inc. shareholders additional shares constituting
control of the Company.
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
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: July 18, 1997 By: /s/ Donald Yu
-------------------------------------
President and Chief Executive Officer
9
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
100
<COMMON> 4
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (12,060)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,060)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
