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