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