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 September 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 September 30, 1996 was 4,229,643 shares.
<PAGE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -- September 30, 1996 2
Consolidated Statement of Operations--Three and
nine months ended September 30, 1996 and 1995
and cumulative period December 7,
1995 (inception) to September 30, 1996 3
Consolidated Statement of Cash Flows -- Nine months
ended September 30, 1996 and 1995 and cumulative period
December 7, 1995 (inception) to September 30, 1996 4
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
<PAGE>
WHITESTONE INDUSTRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
ASSETS
PATENTS $ 13,704
-----------
$ 13,704
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Cash - overdraft $ 60,620
Accounts payable 219,936
Bank credit line 36,000
Stockholder's loan 126,424
-----------
TOTAL CURRENT LIABILITIES 442,980
-----------
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, 4,229,643
shares outstanding
and 670,000 shares in treasury 490
Additional paid-in capital 2,168,026
Accumulated deficit (2,557,267)
Unearned consulting fees (40,625)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (429,276)
-----------
$ 13,704
===========
See notes to consolidated financial statements
2
<PAGE>
WHITESTONE INDUSTRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
December 7,
1995
(Inception) to Three Months Ended September 30, Nine Months Ended September 30,
September 30, -------------------------------- -------------------------------
1996 1996 1995 1996 1995
------------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ --
---------- ---------- --------- ----------- -----------
COSTS AND EXPENSES:
General and administrative 337,036 115,655 -- 275,803 --
Direct expenses 10,140 -- -- -- --
Payroll 122,750 33,000 -- 122,750 --
Research and development 246,820 42,775 -- 145,117 --
Non--cash imputed compensation expense 96,200 -- -- 96,200 --
Amortization of unearned consulting fees 121,875 40,625 -- 121,875 --
---------- ---------- --------- ----------- -----------
TOTAL COSTS AND EXPENSES 934,821 232,055 -- 761,745 --
---------- ---------- --------- ----------- -----------
--
LOSS FROM CONTINUING OPERATIONS (934,821) (232,055) -- (761,745) --
LOSS FROM DISCONTINUED OPERATIONS -- -- (6,536) -- (158,689)
---------- ---------- --------- ----------- -----------
NET LOSS $ (934,821) $ (232,055) $ (6,536) $ (761,745) $ (158,689)
========== ========== ========= =========== ===========
LOSS PER COMMON SHARE:
Continuing operations $ (0.25) (0.05) -- $ (0.19) $
Discontinued operations -- -- (0.01) -- (0.12)
---------- ---------- --------- ----------- -----------
NET LOSS PER COMMON SHARE $ (0.25) $ (0.05) $ (0.01) $ (0.19) $ (0.12)
========== ========== ========= =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,779,893 4,229,643 1,300,318 3,988,254 1,300,318
========== ========== ========= =========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
WHITESTONE INDUSTRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
December 7,
1995
(Inception) to Nine Months Ended September 30,
September 30, -------------------------------
1996 1996 1995
-------------- -------------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Loss from continuing operations $(934,821) $(761,745) $ --
Amortization of unearned consulting fees 121,875 121,875 --
Common stock issued for services 96,200 96,200 --
Changes in assets and liabilities:
Decrease in prepaid expenses -- 45,000 --
(Increase) in patents (13,704) (13,704) --
Increase in accounts payable 219,936 100,711 --
--------- --------- ---------
NET CASH (USED IN) CONTINUING OPERATIONS (510,514) (411,663) --
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations -- -- (158,689)
Changes in assets and liabilities of discontinued business -- -- --
--------- --------- ---------
NET CASH (USED IN) DISCONTINUED OPERATIONS -- -- (158,689)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- -- --
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -- -- --
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 287,470 187,485 158,689
Stockholder's loan 126,424 126,424 --
Advances on bank credit line 36,000 36,000 --
Cash overdraft 60,620 60,620 --
--------- --------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 510,514 410,529 158,689
--------- --------- ---------
NET (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
SEPTEMBER 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 to be used in its manufacturing process. The cost of this tooling was
$270,000, none of the cost of which was paid. During the quarter ended September
30, 1996, the Company returned the tooling back to the manufacturer after it
decided not to commence manufacturing. Consequently, the Company reduced its
accounts payable by $270,000 and reversed the recording of the equipment.
NOTE 4 - SUBSEQUENT EVENTS
A. Litigation - 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
5
<PAGE>
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. Change in Control of Company - 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. 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, 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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The three and nine months ended September 30, 1996 compared to the three and
nine months ended September 30, 1995
No true comparison can be made between the periods ended September, 1996 and
September 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 September 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 $42,775 for the
1996 quarter, $145,117 for the nine months and $246,820 since inception. General
and administrative costs totaled $115,655 for the quarter, $275,803 for the nine
months and $337,036 since inception. Payroll, which commenced during the June
1996 quarter, totaled $33,000.
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 $121,875 for
the nine 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 September 30, 1996, the Company had current liabilities of $442,980 and no
current assets.
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 nine months ended September 30, 1996.
Additionally, in April 1996, the Company obtained an overdraft credit line from
its commercial bank totaling $50,000. As of September 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.
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 - 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
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,704
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,704
<CURRENT-LIABILITIES> 318,992
<BONDS> 67,254
0
100
<COMMON> 590
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 332,696
<SALES> 0
<TOTAL-REVENUES> 107,545
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,034,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (926,457)
<INCOME-TAX> 0
<INCOME-CONTINUING> (926,457)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (926,457)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
