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, 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 March 31, 1997 was 5,229,643 shares.
<PAGE>
WHITESTONE INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -- March 31, 1997 2
Consolidated Statement of Operations --Three months ended March 31,
1997 and 1996 and cumulative period December 7, 1995 (inception)
to March 31, 1997 3
Consolidated Statement of Cash Flows -- Three months ended March 31,
1997 and 1996 and cumulative period December 7, 1995 (inception)
to March 31, 1997 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
MARCH 31, 1997
(Unaudited)
ASSETS
PATENTS $ 13,704
------------
$ 13,704
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 89,049
Bank debt 67,254
Stockholder's loan 162,689
------------
TOTAL CURRENT LIABILITIES 318,992
------------
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, 5,899,643 shares issued, 5,229,643 shares
outstanding and 670,000 shares in treasury 590
Additional paid-in capital 2,242,926
Accumulated deficit (2,548,904)
------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (305,288)
------------
$ 13,704
============
See notes to consolidated financial statements
2
<PAGE>
WHITESTONE INDUSTRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
December 7,
1995 Three months ended March 31,
(Inception) to ----------------------------
March 31, 1997 1997 1996
-------------- ------------ ----------
REVENUES:
Sales $ -- $ -- $ --
Other 107,545 -- --
---------- ---------- ----------
Total revenues 107,545 -- --
COSTS AND EXPENSES:
General and administrative 485,792 5,168 122,023
Direct expenses 10,140 -- --
Payroll 122,750 -- --
Research and development 252,820 -- 84,670
Amortization of unearned
consulting fees 162,500 -- 40,625
---------- ---------- ----------
Total costs and expenses 1,034,002 5,168 247,318
NET LOSS (926,457) (5,168) (247,318)
========== ========== ==========
LOSS PER COMMON SHARE:
Continuing operations $ (0.22) $ (0.00) $ (0.07)
---------- ---------- ----------
NET LOSS PER COMMON SHARE: $ (0.22) $ (0.00) $ (0.07)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,239,175 5,229,643 3,470,476
========== ========== ==========
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 Three months ended March 31,
(Inception) ----------------------------
to March 31, 1997 1997 1996
----------------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Loss from continuing operations $ (926,457) $(5,168) $(247,318)
Amortization of unearned
consulting fees 162,500 -- 40,625
Common stock issued for services 171,200 -- --
Changes in assets and liabilities:
(Increase) decrease in
prepaid expenses -- -- --
(Increase) in patents (13,704) -- (13,704)
Increase (decrease) in
accounts payable 89,049 4,904 307,816
---------- ------- ---------
NET CASH PROVIDED BY (USED IN)
CONTINUING OPERATIONS (517,412) (264) 87,419
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- -- (270,000)
Increase in organization costs -- -- --
---------- ------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES -- -- (270,000)
---------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 287,470 -- 187,485
Stockholder's loan 162,688 264 --
Bank debt 67,254 -- --
---------- ------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 517,412 264 187,485
---------- ------- ---------
NET INCREASE (DECREASE) IN CASH -- -- 4,904
CASH AT BEGINNING OF PERIOD -- -- 1,134
---------- ------- ---------
CASH AT END OF PERIOD $ -- $ -- $ 6,038
========== ======= =========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
WHITESTONE INDUSTRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1996.
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 - 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 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>
NOTE 4 - SUBSEQUENT EVENTS
A. 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 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.
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.
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, 1997 compared to the three months ended March
31, 1996
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 sales revenues from its new activities as of March 31, 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 quarter ended March 31, 1997, the only cost
incurred was general and administrative costs in the amount of $5,168.
Liquidity and Capital Resources
As of March 31, 1997, the Company had current liabilities of $318,992 and no
current assets.
The Company has funded its development stage activities to date primarily
through the sale of common stock and from bank debt and loans from 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. 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: Donald Yu
------------------- -------------------------------------
President and Chief Executive Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<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> 442,980
<BONDS> 0
0
100
<COMMON> 490
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 455,684
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 934,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (934,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (934,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (934,821)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
