Cover
Cover - shares | 3 Months Ended | |
Mar. 31, 2022 | May 02, 2022 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Mar. 31, 2022 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2022 | |
Current Fiscal Year End Date | --12-31 | |
Entity File Number | 000-28831 | |
Entity Registrant Name | CAPSTONE COMPANIES, INC. | |
Entity Central Index Key | 0000814926 | |
Entity Tax Identification Number | 84-1047159 | |
Entity Incorporation, State or Country Code | FL | |
Entity Address, Address Line One | 431 Fairway Drive | |
Entity Address, Address Line Two | Suite 200 | |
Entity Address, City or Town | Deerfield Beach | |
Entity Address, State or Province | FL | |
Entity Address, Postal Zip Code | 33441 | |
City Area Code | (954) | |
Local Phone Number | 252-3440 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 48,893,031 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Mar. 31, 2022 | Dec. 31, 2021 |
Current Assets: | ||
Cash | $ 623,991 | $ 1,277,492 |
Accounts receivable, net | 145,013 | 1,481 |
Inventories | 1,035,196 | 508,920 |
Prepaid expenses | 212,446 | 500,748 |
Employee retention tax refundable | 152,000 | |
Income tax refundable | 53,718 | 284,873 |
Total Current Assets | 2,222,364 | 2,573,514 |
Property and equipment, net | 70,517 | 76,928 |
Operating lease- right of use asset, net | 82,979 | 98,651 |
Deposit | 11,148 | 11,148 |
Goodwill | 1,312,482 | 1,312,482 |
Total Assets | 3,699,490 | 4,072,723 |
Current Liabilities: | ||
Accounts payable and accrued liabilities | 627,492 | 538,551 |
Operating lease- current portion | 71,953 | 70,157 |
Total Current Liabilities | 699,445 | 608,708 |
Long-Term Liabilities: | ||
Operating lease- long-term portion | 18,930 | 37,533 |
Note payable related parties and accrued interest | 1,042,915 | 1,030,340 |
Deferred tax liabilities -long-term | 273,954 | 273,954 |
Total Long-Term Liabilities | 1,335,799 | 1,341,827 |
Total Liabilities | 2,035,244 | 1,950,535 |
Stockholders’ Equity: | ||
Common Stock, par value $.0001 per share, authorized 56,666,667 shares, issued and outstanding 48,893,031 shares at March 31, 2022 and December 31, 2021. | 4,892 | 4,892 |
Additional paid-in capital | 8,557,682 | 8,554,320 |
Accumulated deficit | (6,898,330) | (6,437,026) |
Total Stockholders’ Equity | 1,664,246 | 2,122,188 |
Total Liabilities and Stockholders’ Equity | 3,699,490 | 4,072,723 |
Series A Preferred Stock [Member] | ||
Stockholders’ Equity: | ||
Preferred stock, value, issued | ||
Preferred Stock, Series B [Member] | ||
Stockholders’ Equity: | ||
Preferred stock, value, issued | 2 | 2 |
Series C Preferred Stock [Member] | ||
Stockholders’ Equity: | ||
Preferred stock, value, issued |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares | Mar. 31, 2022 | Dec. 31, 2021 |
Common stock, par value per share | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 56,666,667 | 56,666,667 |
Common stock, shares outstanding | 48,893,031 | 48,893,031 |
Common stock, shares issued | 48,893,031 | 48,893,031 |
Series A Preferred Stock [Member] | ||
Preferred stock, par value per share | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 6,666,667 | 6,666,667 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Preferred Stock, Series B [Member] | ||
Preferred stock, par value per share | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 3,333,333 | 3,333,333 |
Preferred stock, shares issued | 15,000 | 15,000 |
Preferred stock, shares outstanding | 15,000 | 15,000 |
Series C Preferred Stock [Member] | ||
Preferred stock, par value per share | $ 1 | $ 1 |
Preferred stock, shares authorized | 67 | 67 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2022 | Mar. 31, 2021 | |
Income Statement [Abstract] | ||
Revenues, net | $ 262,979 | $ 438,423 |
Cost of sales | (187,063) | (309,776) |
Gross Profit | 75,916 | 128,647 |
Operating Expenses: | ||
Sales and marketing | 132,930 | 4,180 |
Compensation | 196,553 | 352,079 |
Professional fees | 156,462 | 127,224 |
Product development | 51,560 | 26,892 |
Other general and administrative | 140,073 | 103,122 |
Total Operating Expenses | 677,578 | 613,497 |
Operating Loss | (601,662) | (484,850) |
Other income (Expense): | ||
Other Income | 152,000 | |
Interest expense , net | (11,642) | (14,136) |
Total Other Income (Expense), net | 140,358 | (14,136) |
Loss Before Tax Benefit | (461,304) | (498,986) |
Income Tax Expense (Benefit) | ||
Net Loss | $ (461,304) | $ (498,986) |
Net Loss per Common Share | ||
Basic and Diluted | $ (0.01) | $ (0.01) |
Weighted Average Shares Outstanding | ||
Basic and Diluted | 48,893,031 | 46,296,364 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDER'SEQUITY (Unaudited) - USD ($) | Preferred Stock Series A [Member] | Preferred Stock Series B 1 [Member] | Preferred Stock Series C [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] | Retained Earnings [Member] | Total |
Beginning balance, value at Dec. 31, 2020 | $ 4,630 | $ 7,053,328 | $ (4,473,397) | $ 2,584,561 | |||
Beginning balance, shares at Dec. 31, 2020 | 46,296,364 | ||||||
Stock options for compensation | 4,200 | 4,200 | |||||
Stock issued to Directors for loan | $ 2 | 48,994 | 48,996 | ||||
Stock issued to Directors for loan , shares | 15,000 | ||||||
Net Loss | (498,986) | (498,986) | |||||
Ending balance, value at Mar. 31, 2021 | $ 2 | $ 4,630 | 7,106,522 | (4,972,383) | 2,138,771 | ||
Ending balance, shares at Mar. 31, 2021 | 15,000 | 46,296,364 | |||||
Beginning balance, value at Dec. 31, 2021 | $ 2 | $ 4,892 | 8,554,320 | (6,437,026) | 2,122,188 | ||
Beginning balance, shares at Dec. 31, 2021 | 15,000 | 48,893,031 | |||||
Stock options for compensation | 3,362 | 3,362 | |||||
Net Loss | (461,304) | (461,304) | |||||
Ending balance, value at Mar. 31, 2022 | $ 2 | $ 4,892 | $ 8,557,682 | $ (6,898,330) | $ 1,664,246 | ||
Ending balance, shares at Mar. 31, 2022 | 15,000 | 48,893,031 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2022 | Mar. 31, 2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net Loss | $ (461,304) | $ (498,986) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||
Depreciation and amortization | 6,411 | 2,464 |
Stock based compensation expense | 3,362 | 4,200 |
Noncash lease expense | 15,672 | 14,554 |
Non-cash stock issued to Director’s for loan | 24,498 | |
Accrued interest added to note payable related parties | 12,575 | |
Increase in accounts receivable, net | 143,532 | 47,038 |
Increase in inventories | 526,276 | |
Decrease in prepaid expenses | (288,302) | (32,333) |
Increase in accounts payable and accrued liabilities | 88,941 | 145,676 |
Increase employee retention tax refundable | (152,000) | |
Income tax refundable | (231,155) | (575,645) |
Decrease in operating lease liabilities | (16,807) | (15,148) |
Net cash (used in) provided by operating activities | (653,501) | 238,198 |
Net Increase (Decrease) in Cash | (653,501) | 238,198 |
Cash at Beginning of Period | 1,277,492 | 1,223,770 |
Cash at End of Period | 623,991 | 1,461,968 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||
Stocks issued to directors for loan fee | 24,498 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||
Cash paid for interest | ||
Cash paid for income taxes |
ORGANIZATION AND SUMMARY OF SIG
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2022 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for Capstone Companies, Inc. (“CAPC,” “Company,” “we,” “our” or “us”), a Florida corporation and its wholly owned subsidiaries is presented to assist in understanding the Company’s consolidated financial statements. The accounting policies conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied in the preparation of the consolidated financial statements. Organization and Basis of Presentation The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position as of March 31, 2022, and results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2022, and 2021. All material intercompany accounts and transactions are eliminated in consolidation. These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with U.S. GAAP. Certain information and note disclosures have been condensed or omitted in the condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. The condensed unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) filed with the SEC on March 31, 2022. The operating results for any interim period are not necessarily indicative of the operating results to be expected for any other interim period or the full fiscal year. Effects of COVID-19 Pandemic The Company’s top priority has been to take appropriate actions to protect the health and safety of our employees as a result of the COVID-19 pandemic. We have adjusted standard operating procedures within our business operations to ensure the continued safety of our employees and we continually monitor evolving health guidelines to ensure ongoing compliance and protection of our employees. These procedures include expanded and more frequent cleaning within facilities, implementation of appropriate social distancing programs, requiring use of certain personal protective equipment, screening protocols and work from home programs. In response to COVID-19 pandemic and Centers for Disease Control (‘CDC”) guidelines, the Company has practiced the following actions since March 2020: ● Followed the CDC guidelines for social distancing and safe practices. ● Placed restrictions on business travel for our employees. ● Modified our corporate and division office functions to allow employees to work remotely and attend the office on a rotating schedule. As of the filing of this Form 10-Q Report, the Company continues to adhere to local government practices and mandates. With government mandated lockdowns in Thailand and parts of China resulting from the upsurge in various mutant variants, the Company restrictions on business travel remains in effect. While all the above-referenced steps are appropriate considering COVID-19 pandemic, they have impacted the Company’s ability to operate the business in its ordinary and traditional course. Our personnel is limited to management with a limited number of employees in Florida and we rely on contractors and consulting services in Thailand and Hong Kong for production, inventory and distribution of our products. As such, our COVID-19 pandemic measures do not remediate impact of COVID-19 pandemic on all operations affecting our business and financial condition. Our business operations and financial performance for the period ended March 31, 2022, continued to be adversely impacted by COVID-19 pandemic, which, also contributed to the poor performance of our traditional LED product line in 2021 and the lack of revenues from the new Connected Surface products. In Thailand, mutant variants including Delta mutant of COVID-19 pandemic has recently surged which disrupted our overseas OEM’s and delayed some of the Smart Mirror certification testing in 2021. This resulted in shipment delays of the company critical Connected Surface Devices. The Company reported a net loss of approximately $461.3 thousand and $499.0, for the three months ended March 31, 2022 and 2021, respectively. The Smart Mirror inventory started shipping to the U.S. in January 2022. The overall economic indicators have continued to improve since 12-31-2021. With the national vaccination program in place, the consumer confidence index has improved slightly, the number of unemployed has continued to drop down by 431,000 with the unemployment rate now at 3.6%. Retail sales in March increased 0.5% higher than February. But the impact of inflation on consumer prices and their buying patterns will be a factor through 2022. It is projected that the inflation rate will average 7.9% through 2022. Future economic indicators are trending positive, however, as our wholesale business revenue is dependent on customer orders issued many months in advance, the revenue shortfall during the period continued to be driven by the uncertainty felt by retail buyers as to the short and long-term impact on the retail market of COVID-19 and its overall long-term impact on the U.S. economy and in-store retail foot traffic. The Company has been building its infrastructure to transition into the online retail business by developing an e-commerce website and has invested in developing a social media presence over the last year and these systems are ready to launch and ship the Smart Mirror product. During the quarter ended March 31, 2022, the Company introduced the Smart Mirror on its Capstone Connected website. Prior to 2021, the Company’s wholesale business relied on brick-and-mortar retail for sale of its products to consumers and sought to piggyback off retailers’ e-commerce websites as well as dedicated online retailers like Amazon. As the Company focuses its effort on social media driven e-commerce, the Company’s online strategy is projected to deliver future growth and reduce reliance on big box retail. The gross margin is more favorable on the e-commerce business which translates to better returns on lower revenues. The Company does not have extensive experience in conducting its own e-commerce business and the Company’s e-commerce efforts may not produce results that compensate for any lack of robust sales from brick-and-mortar sales. The fact that the COVID-19 pandemic adversely impacted our company at the same time as we were implementing a major shift in product line, from the mature LED products to new Connected Surfaces products, amplified the financial impact of COVID-19 pandemic by disrupting development and production of new Connected Surfaces products in Thailand and China. This delay in launching the new product line coupled with the decline in sales of the LED product line adversely, impacted the Company. Management determined sufficient indicators existed to trigger the performance of an interim goodwill impairment analysis as of March 31, 2022. The analysis concluded that the Company’s fair value of its single reporting unit exceeded the carrying value and a goodwill impairment charge was not required in the quarter ended March 31, 2022, as the fair value of the reporting unit exceeded the carrying amount based on the Company’s market capitalization. The extent to which COVID-19 pandemic will continue to impact the Company’s results will depend primarily on future developments, including the severity and duration of the crisis, the acceptance and effectiveness of the national vaccine inoculation program, potential mutations of COVID-19 pandemic, and the impact of future actions that will be taken to contain COVID-19 pandemic or treat its impact. These future developments are highly uncertain and cannot be predicted with confidence, especially if mutations of the COVID-19 virus become widespread and prove resistant to vaccines. The Delta variant of COVID-19 recent resurgence in Thailand, has caused sporadic regional lockdowns and resulted in delays in finalizing certain Smart Mirror certifications, production of the initial Smart Mirror inventory and a major logistics backlog. The Company has placed and received orders from its manufacturing suppliers for the initial inventory rollout which will now support the 2022 sales program. Liquidity and Going Concern The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The COVID-19 pandemic’s resurgence globally and in many states or emergence of new vaccine-resistant strains of the virus could have a continuing negative impact on the brick-and-mortar retail sector, with consumers’ unwilling to visit retail stores, causing reduced consumer foot traffic and consumer spending. However, with a successful relaunch of the Smart Mirror portfolio using the online retail platform, the Company will not be as dependent on brick-and-mortar and e-commerce sites of Big Box retailers for our revenue streams as in previous years. Our business operations and financial performance for the three months ended March 31, 2022 was adversely impacted by the developments discussed above. For the three months ended March 31, 2022 and 2021, the Company reported a decrease in net revenue from $ 438 263 461 499 654 During the three months ended March 31, 2022 and 2021 the Company used approximately $ 654 238 As of March 31, 2022, the Company had working capital of approximately $ 1.522 6,898,330 624 On April 5, 2021, the Company entered into five separate securities purchase agreements (“SPAs”) whereby the Company privately placed an aggregate of 2,496,667 shares of Common Stock for an aggregate purchase price $1,498,000 (transactions being referred to as the “Private Placement”). The five investors in the Private Placement consisted of four private equity funds nd one individual – all being “accredited investors” (under Rule 501(a) of Regulation D under the Securities Act of 1933, as amended, (“Securities Act”). The $1,498,000 in proceeds from the Private Placement was used mostly to purchase start up a inventory for the Company’s new Smart Mirror product line, and the remainder for advertising and working capital. The Company has been in discussions with alternate funding sources that offer programs that are more in line with the Company’s future business model, particularly a facility that provides funding options that are more suitable for the e-commerce business. The borrowing costs associated with such financing are dependent upon market conditions and our credit rating. We cannot assure that we will be able to negotiate competitive rates, which could increase our cost of borrowing in the future. On July 2, 2021, the Board of Directors (“Board”) resolved that the Company required a purchase order funding facility to procure additional inventory to support the online Smart Mirror business. The Board resolved that certain Directors could negotiate the terms of a Purchase Order Funding Agreement for up to $1,020,000 with Directors S. Wallach, J. Postal and E. Fleisig, a natural person. This agreement was finalized, and the Company received the $1,020,000 funding under this agreement on October 18, 2021. Management is closely monitoring its operations, liquidity, and capital resources and is actively working to minimize the current and future impact of this unprecedented situation. Based on past performances and current expectations, Management believes that with the recent $1,393,000 equity investment and the $1,020,000 purchase order funding facility and now with the recently negotiated $600 thousand working capital line (See Note 7) ,provides adequate liquidity to meet the Company’s cash needs for our daily operations, capital expenditures and procurement of the Smart Mirror inventory for the short-term. However, we will need to continue seeking additional funding through either debt or equity to continue meeting our financial obligations which consist approximately of $700 thousand of accounts payable and accrued expenses as well as a $1,043,000 note payable with related parties and accrued interest that becomes due in April 2023 until we are able to generate sufficient cash flows from the sale of the Smart Mirror inventory. Nature of Business Capstone Companies, Inc. is headquartered in Deerfield Beach, Florida. Since the beginning of fiscal year 2007, the Company through CAPI has been primarily engaged in the business of developing, marketing, and selling home LED products (“Lighting Products”) through national and regional retailers in North America and in certain overseas markets. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities to meet consumer’s needs. The development of the smart interactive mirror or “Smart Mirrors” is part of the Company’s strategic effort to find new product lines to replace or supplement existing products that are nearing or at the end of their product life cycle. These products are offered under the Capstone brand. The Smart Mirror launch was announced in February 2021, but because of operational delays and regional lockdowns resulting from the recent upsurge in the Delta variant of COVID-19 in Thailand, the product started to ship the first quarter 2022. The Company’s products are typically manufactured in Thailand and China by contract manufacturing companies. The Company’s future product development effort is focused on the Smart Mirrors category because the Company believes, based on Company’s management understanding of the industry, the Smart Mirrors have the potential for greater profit margin than the Company’s historical LED consumer products. Technological developments and changes in consumer tastes could alter the perceived potential and future viability of Smart Mirrors as a primary product. Aggressive marketing and pricing by larger competitors in the smart mirror market could also adversely impact the Company’s efforts to establish Smart Mirrors as its core product line. The Company may change its product development strategies and plans as economic conditions and consumer tastes change, which condition and changes may be unforeseeable by the Company or may be beyond the ability of the Company to timely or at all adjust its strategic and product development plans. The Company’s operations consist of one reportable segment for financial reporting purposes: Lighting Products. Accounts Receivable For wholesale product revenue, the Company invoices its customers at the time of shipment for the sales value of the product shipped. Accounts receivables are recognized at the amount expected to be collected and are not subject to any interest or finance charges. The Company does not have any off-balance sheet credit exposure related to any of its customers. Previously in the factoring agreement with Sterling National Bank, accounts receivable served as collateral when the Company borrowed against its credit facilities. With the termination of the factoring agreement, the accounts receivables are unencumbered. As of March 31, 2022, and December 31, 2021, accounts receivable had not been collateralized against debt. Allowance for Doubtful Accounts The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and the Company’s historical payment experience. An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available. As of March 31, 2022, and December 31, 2021, management determined that accounts receivable is fully collectible. As such, management has not recorded an allowance for doubtful accounts. Inventories The Company’s inventory, which consists of finished Thin Cast Smart Mirror products for resale to consumers by Capstone, is recorded at the lower of landed cost (first-in, first-out) or net realizable value. The Company writes down its inventory balances for estimates of excess and obsolete amounts. The Company reduces inventory on hand to its net realizable value on an item-by-item basis when the expected realizable value of a specific inventory item falls below its original cost. Management regularly reviews the Company’s investment in inventories for such declines in value. The write-downs are recognized as a component of cost of sales. As of March 31, 2022, and December 31, 2021, respectively, the inventory was valued at $ 1,035,196 508,920 Prepaid Expenses The Company’s prepaid expenses consist primarily of deposits on inventory purchases for future orders as well as prepaid insurance, trade show and subscription expense. As of March 31, 2022, and December 31, 2021, prepaid expenses were $ 212,446 500,748 Goodwill On September 13, 2006, the Company entered into a Stock Purchase Agreement with Capstone Industries, Inc., a Florida corporation (“Capstone”). Capstone was incorporated in Florida on May 15, 1996 and is engaged primarily in the business of wholesaling technology inspired consumer products to distributors and retailers in the United States. Under the Stock Purchase Agreement, the Company acquired 100% of the issued and outstanding shares of Capstone’s common stock, and recorded goodwill of $1,936,020. Goodwill acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value of the net assets acquired. Goodwill is tested for impairment on December 31 of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the carrying amount exceeds its fair value, an impairment loss is recognized. Goodwill is not amortized. The Company estimates the fair value of its single reporting unit relative to the Company’s market capitalization. As a result of the economic uncertainties caused by the COVID-19 pandemic and decline in revenue during the quarter ended March 31, 2022, management determined sufficient indicators existed to trigger the performance of interim goodwill impairment analysis for the period ended March 31, 2022. The analysis concluded that the Company’s fair value exceeded the carrying value of its single reporting unit and a goodwill impairment charge was not required. The Company estimates the fair value of its single reporting unit relative to the Company’s market capitalization which utilizes level 1 inputs Fair Value Measurement The accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), “Fair Value Measurements and Disclosures” (ASC 820-10) requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are as follows: Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3: Significant unobservable inputs. Earnings Per Common Share Basic earnings per common share is computed by dividing net income(loss) by the weighted average number of shares of Common Stock outstanding as of March 31, 2022, and 2021. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into common stock. For calculation of the diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants using the treasury stock method. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. For the three months ended March 31, 2022, the total number of potentially dilutive common stock equivalents excluded from the diluted earnings per share calculation was 2,079,633 which was comprised of 880,000 stock options, 199,733 warrants and 15,000 of Preferred B-1 stock convertible into 999,900 of common stock, as compared to 990,000 stock options for the three months ended March 31, 2021. Revenue Recognition The Company generates wholesale revenue from developing, marketing, and selling consumer lighting products through national and regional retailers. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities. Capstone currently operates in the consumer lighting products category in the United States and in certain overseas markets. These products may be offered either under the Capstone brand or licensed brands. A sales contract occurs when the customer-retailer submits a purchase order to buy a specific product, a specific quantity, at an agreed-fixed price, within a ship window, from a specific location and on agreed payment terms. The selling price in all of our customers’ orders has been previously negotiated and agreed to including any applicable discount prior to receiving the customer’s purchase order. The stated unit price in the customer’s order has already been determined and is fixed at the time of invoicing. The Company recognizes product revenue when the Company’s performance obligations as per the terms in the customers purchase order have been fully satisfied, specifically, when the specified product and quantity ordered has been manufactured and shipped pursuant to the customers requested ship window, when the sales price as detailed in the purchase order is fixed, when the product title and risk of loss for that order has passed to the customer, and collection of the invoice is reasonably assured. This means that the product ordered and to be shipped has gone through quality assurance inspection, customs and commercial documentation preparation, the goods have been delivered, title transferred to the customer and confirmed by a signed cargo receipt or bill of lading. Only at the time of shipment when all performance obligations have been satisfied will the judgement be made to invoice the customer and complete the sales contract. As the Company launches the Smart Mirror program ,these orders will be sold through e-commerce. The Company will only bill the customer and recognize revenue upon the customer obtaining control of the Smart Mirror which will generally occur upon delivery. The Company may enter into a licensing agreement with globally recognized companies, that allows the Company to market products under a licensed brand to retailers for a designated period of time, and whereby the Company will pay a royalty fee, typically a percentage of licensed product revenue to the licensor in order to market the licensed product. The Company expenses license royalty fees and sales commissions when incurred and these expenses are recognized during the period the related sale is recorded. These costs are recorded within sales and marketing expense. The following table presents net revenue by geographic location which is recognized at a point in time: Schedule of Net Revenue by Major Source For the Three Months Ended March 31, 2022 For the Three Months Ended March 31, 2021 Revenues % of Revenue Revenues % of Revenue Lighting Products- U.S. $ 202,259 77 % $ 141,900 32 % Lighting Products- International 44,640 17 % 296,523 68 % Smart Mirror Products- U.S. 16,080 6 % — — Total Net Revenue 262,979 100 % 438,423 100 % We provide our customers with limited rights of return for non-conforming product warranty claims. As a policy, the Company does not accept product returns from customers, however occasionally as part of a customers in store test for new product, we may receive back residual inventory. Customer wholesale orders received are not long-term orders and are typically shipped within six months of the order receipt, but certainly within a one-year period. Our payment terms may vary by the type of customer, the customer’s credit standing, the location where the product will be picked up from and for international customers, which country their corporate office is located. The term between invoicing date and when payment is due may vary between 30 days and 90 days depending on the customer type. In order to ensure there are no payment issues, overseas customers or new customers may be required to provide a deposit or full payment before the order is delivered to the customer. The Company selectively supports retailer’s initiatives to maximize sales of the Company’s products on the retail floor or to assist in developing consumer awareness of new products launches, by providing marketing fund allowances to the customer. The Company recognizes these incentives at the time they are offered to the customers and records a credit to their account with an offsetting charge as either a reduction to revenue, increase to cost of sales, or marketing expenses depending on the type of sales incentives. Sales reductions for anticipated discounts, allowances and other deductions are recognized during the period when the related revenue is recorded. The reduction of accrued allowances is included in net revenues and amounted to $1.0 thousand and approximately $7.5 thousand for the three months ended March 31, 2022, and 2021, respectively. Warranties The Company provides the end user with limited rights of return as a consumer assurance warranty on all products sold, stipulating that the product will function properly for the warranty period. The warranty period for all products is one year from the date of consumer purchase. Certain retail customers may receive an off invoice-based discount such as a defective/warranty allowance, that will automatically reduce the unit selling price at the time the order is invoiced. This allowance will be used by the retail customer to defray the cost of any returned units from consumers and therefore negate the need to ship defective units back to the Company. Such allowances are charged to cost of sales at the time the order is invoiced. For those customers that do not receive a discount off-invoice, the Company recognizes a charge to cost of sales for anticipated non-conforming returns based upon an analysis of historical product warranty claims and other relevant data. We evaluate our warranty reserves based on various factors including historical warranty claims assumptions about frequency of warranty claims, and assumptions about the frequency of product failures derived from our reliability estimates. Actual product failure rates that materially differ from our estimates could have a significant impact on our operating results. Product warranty reserves are reviewed each quarter and recognized at the time we recognize revenue. For the new online Smart Mirror customers the product has a One Year Limited Warranty. The purchaser must register the product within 30 days from date of purchase with specific product information to activate the warranty. Capstone warrants the product to be free from defects in workmanship and materials for the warranty period. If the product fails during normal and proper use within the warranty period, Capstone at its discretion, will repair or replace the defective parts of the product, or the product itself. Advertising and Promotion Advertising and promotion costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in sales and marketing expenses. Advertising and promotion expense was $ 121,375 4,010 Product Development Our research and development consultants located in Hong Kong working with our designated contractor factories, are responsible for the design, development, testing, and certification of new product releases. Our engineering efforts support product development across all products, as well as product testing for specific overseas markets. All research and development costs are charged to results of operations as incurred. With the reduction of revenue resulting from the impact of the COVID-19 pandemic and combined with the transfer of manufacturing to Thailand, the CIHK operation was closed down in March 2022 and will remain in a dormant status. Two key management were retained as consultants to support product development and sales operations. Product development expenses were $ 51,560 26,892 Shipping and Handling The Company’s shipping and handling costs are included in sales and marketing expenses and are recognized as an expense during the period in which they are incurred and amounted to $ 7,185 170 Accounts Payable and Accrued Liabilities The following table summarizes the components of accounts payable and accrued liabilities as of March 31, 2022 and December 31, 2021 , respectively. Schedule of Components of Accounts Payable and Accrued Liabilities March 31, December 31, 2022 2021 Accounts payable $ 393,199 $ 126,281 Accrued warranty reserve 46,322 46,322 Accrued compensation and deferred wages, marketing allowances, customer deposits. 187,971 365,948 Total $ 627,492 $ 538,551 Income Taxes The Company is subject to income taxes in the U.S. federal jurisdiction, various state jurisdictions and certain other jurisdictions. The Company accounts for income taxes under the provisions of ASC 740 Income Taxes On March 27, 2020, the CARES Act was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be recorded as a component of income tax expense. Stock Based Compensation The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation- Stock Compensation Stock-based compensation expense recognized during the three months ended March 31, 2022, and 2021 was $ 3,362 4,200 Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, periodic impairment tests, product warranty obligations, valuation of inventories, tax related contingencies, valuation of stock-based compensation, other contingencies and litigation, among others. The Company generally bases its estimates on historical experience, agreed obligations, and on various other assumptions that are believed to be |
CONCENTRATIONS OF CREDIT RISK A
CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE | 3 Months Ended |
Mar. 31, 2022 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE | NOTE 2 - CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Cash The Company at times has cash with its financial institution in excess of Federal Deposit Insurance Corporation (“FIDC”) insurance limits. The Company places its cash with high credit quality financial institutions which minimize the risk of loss. To date, the Company has not experienced any such losses. As of March 31, 2022 and December 31, 2021, the Company had approximately $ 0 471.5 Accounts Receivable The Company grants credit to its customers, substantially all of whom are retail establishments located throughout the United States and their international locations. The Company typically does not require collateral from customers. Credit risk is limited due to the financial strength of the customers comprising the Company’s customer base and their dispersion across different geographical regions. The Company monitors exposure of credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. As the Company’s ecommerce revenue starts to increase the makeup of the accounts receivable change significantly. Stripe is the company that processes online payments for our website, we should receive payment from them within 3 days of the product shipment. If the product is shipped through Amazon it could take between 20 and 30 days for collection. Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Major Customers The Company had two customers who comprised 77 17 47 32 17 68 As of March 31, 2022, approximately $ 145 1 As the Company increases its ecommerce business, rather than having hundreds of individual consumer customers we will have those companies that we have selected to process our orders such as Stripe, Amazon or Wayfair. Major Vendors The Company had two vendors from which it purchased 72 23 47 31 As of March 31, 2022, approximately $ 176 45 92 73 |
NOTES PAYABLE
NOTES PAYABLE | 3 Months Ended |
Mar. 31, 2022 | |
Debt Disclosure [Abstract] | |
NOTES PAYABLE | NOTE 3 – NOTES PAYABLE The Company has been in discussions with alternate sources of funding, that could provide funding options that are more suitable to the e-commerce business model that the Company is transitioning into. The borrowing costs associated with such financing, are dependent upon market conditions and our credit rating. We cannot assure that we will be able to negotiate competitive rates, which could increase our cost of borrowing in the future or that we will secure affordable funding. See Note 4 - Note Payable with Related Parties. |
NOTES AND LOANS PAYABLE TO RELA
NOTES AND LOANS PAYABLE TO RELATED PARTIES | 3 Months Ended |
Mar. 31, 2022 | |
Related Party Transactions [Abstract] | |
NOTES AND LOANS PAYABLE TO RELATED PARTIES | NOTE 4 – NOTES AND LOANS PAYABLE TO RELATED PARTIES On January 4, 2021, the Company entered a $750,000 working capital loan agreement with Directors, Stewart Wallach and Jeffrey Postal. The short-term facility ended June 30, 2021. In consideration for the Lenders providing the loan under this Agreement and agreeing to a below market rate of interest, and as payment of a finance fee for the loan on an unsecured basis, the Company issued to the Lenders the following securities 7,500 shares of the Company’s Series B-1 Convertible Preferred Stock (“Preferred Shares”) issued to each Lender. The Preferred Shares shall have the appropriate restrictive legends. Each Preferred Share converts into 66.66 shares of Common Stock at option of Lender . The Preferred Shares and any shares of Common Stock issued under the loan agreement are “restricted” securities under Rule 144 of the Securities Act of 1933, as amended. The Preferred Shares have no further rights, preferences, or privileges. The fair value of the Preferred Shares was determined to be $48,996 based on the number of shares of Common Stock to be issued upon conversion and the market price of the Common Stock on the date the working capital loan agreement was executed. The Company amortized the $48,996 Finance Fee into interest expense over the six months of the agreement. The Finance Fee was recognized as expense and included in interest expense on the consolidated statements of operations. On July 2, 2021, the Board of Directors (“Board”) resolved that the Company required a purchase order funding facility to procure additional inventory to support the online Smart Mirror business. The Board resolved that certain Directors could negotiate the terms of a Purchase Order Funding Agreement for up to $1,020,000 with Directors S. Wallach and J. Postal and E. Fleisig, a natural person who is not affiliated with the Company. This agreement was finalized on October 18, 2021, and the Company received the funding of $1,020,000 on October 18, 2021 which is due 18 months from receipt of the funds. Under this agreement the interest terms are 5% based on a 365- day year. This agreement shall continue in full force for 18 months from the start date. On March 31, 2022, the note payable of $1,042,915 includes accrued interest of $22,915. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 5– COMMITMENTS AND CONTINGENCIES Operating Leases The Company had operating lease agreements for offices in Fort Lauderdale, Florida expiring at June 2023. The Company’s principal executive office is located at 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. Effective November 1, 2019, the Company entered a new prime operating lease with the landlord “431 Fairway Associates, LLC” ending June 30, 2023, for the Company’s executive offices located on the second floor of 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441 with an annualized base rent of $70,104 and with a base rental adjustment of 3% commencing July 1, 2020 and on July 1 st The Company’s rent expense is recorded on a straight-line basis over the term of the lease. The rent expense for the three months ended March 31, 2022, and 2021 amounted to $38,898 and $35,600,including the common area maintenance charges. At the commencement date of the new office lease, the Company recorded a right-of-use asset and lease liability under ASU 2016-02, Topic 842. Schedule of Right Of Use Asset and Lease Liability Supplemental balance sheet information related to leases as of March 31, 2022 is as follows: Assets Operating lease - right-of-use asset $ 231,077 Accumulated amortization $ ( 148,098 ) Operating lease - right - of -use asset , net $ 82,979 Liabilities Current Current portion of operating lease $ 71,953 Noncurrent Operating lease liability, net of current portion $ 18,930 Supplemental statement of operations information related to leases for the period ended March 31, 2022, is as follows: Operating lease expense as a component of other general and administrative expenses $ 16,807 Supplemental cash flow information related to leases for the period ended March 31, 2022, is as follows: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow paid for operating lease $ 18,594 Lease term and Discount Rate Weighted average remaining lease term (months) Operating lease 15 Weighted average Discount Rate Operating lease 7 % Scheduled maturities of operating lease liabilities outstanding as of March 31, 2022 are as follows: Scheduled Maturities of Operating Lease Liabilities Outstanding Year Operating 2022 $ 56,898 2023 38,304 Total Minimum Future Payments 95,202 Less: Imputed Interest 4,319 Present Value of Lease Liabilities $ 90,883 Consulting Agreements On July 1, 2015, the Company entered into a consulting agreement with George Wolf, whereby Mr. Wolf was paid $10,500 per month through December 31, 2015 increasing to $12,500 per month from January 1, 2016 through December 31, 2017. On January 1, 2018, the agreement was further amended, whereby Mr. Wolf was paid $13,750 per month from January 1, 2018 through December 31, 2018 and was further amended at various periods to be paid at the same rate through December 31, 2021. On January 1, 2022, the sales operations consulting agreement with George Wolf, was further extended, whereby Mr. Wolf will be paid $13,750 per month from January 1, 2022 through December 31, 2022. Effective September 1, 2020 through March 31, 2021, payment for fifty percent or $6,875 of the monthly consulting fee or approximately $48,125 for the effective period, was deferred until 2022. As of March 31, 2022 and December 31, 2021, the amount due to Mr. Wolf for deferred consulting fees was $48,125 and $48,125, respectively, which is included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets. Effective April 1, 2021, the sales operations consulting fee with Mr. Wolf was restored to the contract amount of $13,750 per month. The consulting agreement can be terminated upon 30 days’ notice by either party. The Company may, in its sole discretion at any time convert Mr. Wolf to a full-time Executive status. The annual salary and term of employment would be equal to that outlined in the consulting agreement. Employment Agreements On February 5, 2020, the Company entered into a new Employment Agreement with Stewart Wallach, whereby Mr. Wallach will be paid $301,521 per annum. The initial term of this new agreement began February 5, 2020 and ends February 5, 2023. The parties may extend the employment period of this agreement by mutual consent with approval of the Company’s Board of Directors, but the extension may not exceed two years in length. On February 5, 2020, the Company entered into an Employment Agreement with James McClinton, whereby Mr. McClinton was paid $191,442 per annum. The term of agreement began February 5, 2020 and ended February 5, 2022. Effective September 1, 2020, through March 31, 2021, payments equivalent to fifty percent of both Mr. Wallach and Mr. McClinton’s salary were deferred to be repaid in the future. As of December 31, 2021, $86,977 and $20,616 respectively, have been deferred until later in 2022. As of March 31, 2022, total wages deferred for Mr. Wallach were approximately $86,977 and $0 for Mr. McClinton. On February 6, 2022, the Company entered into an Employment Agreement with James McClinton (Chief Financial Officer and Director), whereby Mr. McClinton will be paid $736.41 per day. The term of this new agreement began February 6, 2022 and ends August 30, 2022. There is a provision in Mr. Wallach’s employment agreement, if the officer’s employment is terminated by death or disability or without cause, the Company is obligated to pay to the officer’s estate or the officer, an amount equal to accrued and unpaid base salary as well as all accrued but unused vacation days through the date of termination. The Company will also pay sum payments equal to the sum of twelve (12) months base salary at the rate the Executive was earning as of the date of termination and (b) the sum of “merit” based bonuses earned by the Executive during the prior calendar year of his termination. Any payments owed by the Company shall be paid from a normal payroll account on a bi-weekly basis in accordance with the normal payroll policies of the Company. The amount owed by the Company to the Executive, from the effective Termination date, will be payout bi-weekly over the course of the year but at no time will be no more than twenty (26) installments. The Company will also continue to pay the Executive’s health and dental insurance benefits for 6 months starting at the Executives date of termination. If the Executive had family health coverage at the time of termination, the additional family premium obligation would remain theirs and will be reduced against the Executive’s severance package. The employment agreements have an anti-competition provision for 18 months after the end of employment. On March 4, 2022,with the pending closure of the CIHK operation, the Company entered a consulting agreement with Fayyyaz Fakhruddin Bootwala (Frank),who previously was a direct employee as the Business Development and Product Manager. Frank will continue to perform similar duties but as an independent contractor. The agreement will end February 28, 2023, which term maybe extended by mutual agreement between the consultant and Company on an agreed upon schedule with prior written notice. Notwithstanding the foregoing , the Agreement may be terminated by either party at any time after the initial 60 day term, upon 30 days prior written notice. The consulting fee in consideration for these services will be $6,119.00 USD paid in arrears monthly on receipt of invoice. On March 4, 2022, with the pending closure of the CIHK operation, the Company entered a consulting agreement with Yee Moi Choi (Johnny),who previously was a direct employee as the Logistics Manager. Johnny will continue to perform similar duties but as an independent contractor. The agreement will end February 28, 2023, which term maybe extended by mutual agreement between the consultant and Company on an agreed upon schedule with prior written notice. Notwithstanding the foregoing , the Agreement may be terminated by either party at any time after the initial 60 day term, upon 30 days prior written notice. The consulting fee in consideration for these services will be $4,127.00 USD paid in arrears monthly on receipt of invoice. Director Appointment George Wolf was appointed as a director on January 13, 2022 and waived any compensation as a director for 2022. Directors Compensation On May 31, 2019, the Company approved that effective on June 1, 2019, each independent director, namely Jeffrey Guzy and Jeffrey Postal, would each receive $750 per calendar month, as a Form 1099 compensation, for their continued services as directors of the Company. This compensation would be in addition to the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee. On May 31, 2019, the Company also approved that the independent directors would be offered effective from June 1, 2019, the opportunity to participate as a non-employee in the Company’s Health Benefit Plan, subject to compliance with all plan participation requirements and on acceptance into the plan the director will be responsible to pay 100% of their plan’s participation cost. On June 10, 2020, the Company approved that effective on August 1, 2020, until August 1, 2021, each independent director, namely Jeffrey Guzy and Jeffrey Postal, would each receive $750 per calendar month, as a Form 1099 compensation, for their continued services as directors of the Company. This compensation would be in addition to the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee. On May 6, 2021, the Company approved the following basic compensation arrangement for independent directors of the Company, effective August 6, 2021 and ending August 5, 2022: A total compensation value of $15,000 per annum, payable $750 monthly cash, compensation or $9,000 or (60% of total value) and remainder $6,000 payable in non-qualified stock options vesting as of August 6, 2022 and with an exercise price equal to market price of common stock as of August 6, 2021, less 20% (discount). See Note 6 – Stock Transactions for further disclosures. |
STOCK TRANSACTIONS
STOCK TRANSACTIONS | 3 Months Ended |
Mar. 31, 2022 | |
Equity [Abstract] | |
STOCK TRANSACTIONS | NOTE 6 - STOCK TRANSACTIONS Stock Purchase Agreements On April 5, 2021, the Company entered into a Private Equity Placement with five separate securities purchase agreements (“SPAs”) whereby the Company privately placed an aggregate of 2,496,667 shares (“Shares”) of its common stock, $0.0001 par value per share, (“common stock”) for an aggregate purchase price $1,498,000. The five unrelated investors in the Private Placement consisted of four private equity funds and one individual – all being “accredited investors” (under Rule 501(a) of Regulation D under the Securities Act of 1933, as amended, (“Securities Act”). The $1,498,000 in proceeds from the Private Placement was used mostly to purchase start up inventory for the Company’s new Smart Mirror product line, and the remainder for advertising and working capital. Under the SPA, each investor is granted five-year piggyback, ‘best efforts’ registration rights with no penalties. The Shares are ‘restricted securities” under Rule 144 of the Securities Act and are subject to a minimum six month hold period. Based on representations made to the Company, the five investors do not constitute a “group” under 17 C.F.R. 240.13d-3 and have purchased the Shares solely as an investment for each investor’s own account. No individual investor owns more than 2% of the issued and outstanding shares of common stock. The Private Placement was required to raise needed working capital to purchase U.S. domestic inventory, to support the Company’s new Smart Mirror product line that initially was to be sold online in the second quarter 2021. The Company engaged Wilmington Capital Securities, LLC, a FINRA and SEC registered broker to act as a placement agent to assist to raise capital through a private placement from one or more accredited investors. As compensation for their services Wilmington was paid 7% of the gross proceeds or $104,860 as a placement fee. The placement fee was offset against the $1,498,000 gross proceeds and the net amount of $1,393,140. This increased the Company’s additional paid in capital as presented on the accompanying condensed consolidated statement of stockholders’ equity statement as of March 31, 2022. In addition, the Company issued to Wilmington as consideration for their placement fee services, warrants equal to 8% of the shares issued or 199,733 warrants. The warrants can be exercised for five years from date of issuance, exercisable at a price per share equal to 110% or $0.66 of the price per share paid by the investors. Warrants On April 28, 2021, Company issued common stock warrants to purchase 199,733 shares of common stock at an exercise price of $0.66 and exercisable for five years from the issuance date. The warrants were issued to Wilmington Capital Securities, LLC, a FINRA and SEC registered broker under a financial services and placement agreement with a broker-dealer in connection with the Company’s placement of $1.4 million of restricted shares of common stock to five investors on April 5, 2021. The issuance of these warrants were made an exemption from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act. The estimated fair value of these warrants since issued as issuance costs, had no impact on the Company’s condensed consolidated financial statements as of March 31, 2022. As of March 31, 2022, and 2021, the Company had 199,733 0 Series “B-1” Preferred Stock In 2009, the Company authorized 2,108,313 shares of Series B-1 preferred stock (“B-1”). The B-1 preferred stock are convertible into common shares, at a rate of 66.66 of common stock for each share of B-1 convertible preferred stock. The par value of the B-1 preferred shares is $0.0001. The B-1 shares shall not be entitled to any dividends and have no voting rights. In the event of a liquidation, the B-1 holders are entitled to distribution prior to common stockholders but not before any other preferred stockholders. On June 7, 2016, the Company authorized 3,333,333 of the B-1 preferred stock. The B-1 shares have a liquidation preference of $1.0 per share or $15,000 as of September 30, 2021. On January 4, 2021, the Company entered a $750,000 working capital loan agreement with Directors, Stewart Wallach and Jeffrey Postal (“Lenders”). In consideration for the Lenders allowing for loan advances under the loan agreement, a below market rate of interest and the loan made on an unsecured basis, as payment of a finance fee for the loan, the Company issued a total of seven thousand five hundred shares of Company’s Series B-1 Convertible Preferred Stock, $0.0001 par value per share, (“Preferred Shares”) to each of the Lenders. Each preferred share converts into 66.66 shares of common stock at option of Lender. The Preferred Shares and any shares of common stock issued under the loan agreement are “restricted” securities under Rule 144 of the Securities Act of 1933, as amended (See Note 4). Options In 2005, the Company authorized the 2005 Equity Plan that made available shares of common stock for issuance through awards of options, restricted stock, stock bonuses, stock appreciation rights and restricted stock units. On May 2, 2017, the Company’s Board of Directors amended the Company’s 2005 Equity Incentive Plan to extend the Plan’s expiration date from December 31, 2016 to December 31, 2021. On May 31, 2019, the Company granted 100,000 stock options each to two directors of the Company for their participation as members of the Audit Committee and Nominating and Compensation Committee, and 10,000 stock options to the Company Secretary. The Director options have a strike price of $.435 with an effective date of August 6, 2019 and will vest on August 5, 2020 and have a term of 5 years. The Company Secretary options have a strike price of $.435 with an effective date of August 6, 2019 and vested on August 5, 2020 and have a term of 10 years. On July 15, 2021, Jeffrey Guzy a Company director, exercised a previously granted non-qualified stock option and purchased 100,000 shares of Company common stock for an aggregate purchase price of $43,500 or a per share price of $.435. The shares are restricted shares under federal securities laws and were acquired by independent Director Guzy. The proceeds will be used by the Company for general working capital to support the rollout of the Smart Mirror product line. As of March 31, 2022, there were 880,000 0.435 2.40 Stock options were issued under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act of 1933. The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the stock options granted. The expected dividend yield is based upon the fact that the Company has not historically paid dividends and does not expect to pay dividends in the near future. For the three months ended March 31, 2022 and 2021, the Company recognized stock-based compensation expense of $3,362 and $4,200, respectively, related to these stock options. Such amounts are included in compensation expense in the accompanying consolidated statements of operations. A further compensation expense expected to be approximately $5 thousand will be recognized for these options through July 2022. Adoption of Stock Repurchase Plan On August 23, 2016, the Company’s Board of Directors authorized the Company to implement a stock repurchase plan for up to $750,000 worth of shares of the Company’s outstanding common stock. The stock purchases can be made in the open market, structured repurchase programs, or in privately negotiated transactions. The Company has no obligation to repurchase shares under the authorization, and the timing, actual number and value of the shares which are repurchased will be at the discretion of management and will depend on several factors including the price of the Company’s common stock, market conditions, corporate developments, and the Company’s financial condition. The repurchase plan may be discontinued at any time at the Company’s discretion. On December 19, 2018, Company entered a Purchase Plan pursuant to Rule 10b5-1 under the Exchange Act, with Wilson Davis & Co., Inc., a registered broker-dealer. Under the Purchase Plan, Wilson Davis & Co., Inc will make periodic purchases of up to an aggregate of 750,000 shares at prevailing market prices, subject to the terms of the Purchase Plan. On June 10, 2020, the Company’s Board of Directors approved a further extension of the Company’s stock repurchase plan through August 31, 2021. Since the Board of Director approval there have been no further repurchase of the Company’s common stock during 2020 and further Stock repurchases have been placed on hold in order to conserve cash during the COVID-19 pandemic. On May 6, 2021, the Company’s Board of Directors approved a further extension of Rule 10b-5, the Company’s stock purchase agreement with Wilson-Davis & Company, Inc. through August 31, 2022. The cap on shares of common stock eligible for purchase under the agreement is set at 750,000 shares. Since the Board of Director approval last year, there have been no further repurchase of the Company’s common stock during 2020-2022. Further Stock repurchases will be dependent on the Company’ future liquidity position. As of March 31, 2022, and December 31, 2021, a total of 750,000 107,740 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2022 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 7- SUBSEQUENT EVENTS Public Relations Effective May 1 st Working Capital Funding The Company has been in discussions with alternate funding sources that offer various programs. The borrowing costs associated with such financing are dependent upon market conditions and our credit rating. On May 1, 2022 the Company negotiated three $200,000 each, working capital funding agreements, to provide funding for daily operations. The Board resolved that certain Directors could negotiate the terms of a Working Capital Funding Agreement for up to a total of $600,000, with Directors S. Wallach (Group Nexus), J. Postal and Mouhaned Khoury, a natural person. On May 1 st |
ORGANIZATION AND SUMMARY OF S_2
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2022 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Basis of Presentation | Organization and Basis of Presentation The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position as of March 31, 2022, and results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2022, and 2021. All material intercompany accounts and transactions are eliminated in consolidation. These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with U.S. GAAP. Certain information and note disclosures have been condensed or omitted in the condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. The condensed unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) filed with the SEC on March 31, 2022. The operating results for any interim period are not necessarily indicative of the operating results to be expected for any other interim period or the full fiscal year. |
Effects of COVID-19 Pandemic | Effects of COVID-19 Pandemic The Company’s top priority has been to take appropriate actions to protect the health and safety of our employees as a result of the COVID-19 pandemic. We have adjusted standard operating procedures within our business operations to ensure the continued safety of our employees and we continually monitor evolving health guidelines to ensure ongoing compliance and protection of our employees. These procedures include expanded and more frequent cleaning within facilities, implementation of appropriate social distancing programs, requiring use of certain personal protective equipment, screening protocols and work from home programs. In response to COVID-19 pandemic and Centers for Disease Control (‘CDC”) guidelines, the Company has practiced the following actions since March 2020: ● Followed the CDC guidelines for social distancing and safe practices. ● Placed restrictions on business travel for our employees. ● Modified our corporate and division office functions to allow employees to work remotely and attend the office on a rotating schedule. As of the filing of this Form 10-Q Report, the Company continues to adhere to local government practices and mandates. With government mandated lockdowns in Thailand and parts of China resulting from the upsurge in various mutant variants, the Company restrictions on business travel remains in effect. While all the above-referenced steps are appropriate considering COVID-19 pandemic, they have impacted the Company’s ability to operate the business in its ordinary and traditional course. Our personnel is limited to management with a limited number of employees in Florida and we rely on contractors and consulting services in Thailand and Hong Kong for production, inventory and distribution of our products. As such, our COVID-19 pandemic measures do not remediate impact of COVID-19 pandemic on all operations affecting our business and financial condition. Our business operations and financial performance for the period ended March 31, 2022, continued to be adversely impacted by COVID-19 pandemic, which, also contributed to the poor performance of our traditional LED product line in 2021 and the lack of revenues from the new Connected Surface products. In Thailand, mutant variants including Delta mutant of COVID-19 pandemic has recently surged which disrupted our overseas OEM’s and delayed some of the Smart Mirror certification testing in 2021. This resulted in shipment delays of the company critical Connected Surface Devices. The Company reported a net loss of approximately $461.3 thousand and $499.0, for the three months ended March 31, 2022 and 2021, respectively. The Smart Mirror inventory started shipping to the U.S. in January 2022. The overall economic indicators have continued to improve since 12-31-2021. With the national vaccination program in place, the consumer confidence index has improved slightly, the number of unemployed has continued to drop down by 431,000 with the unemployment rate now at 3.6%. Retail sales in March increased 0.5% higher than February. But the impact of inflation on consumer prices and their buying patterns will be a factor through 2022. It is projected that the inflation rate will average 7.9% through 2022. Future economic indicators are trending positive, however, as our wholesale business revenue is dependent on customer orders issued many months in advance, the revenue shortfall during the period continued to be driven by the uncertainty felt by retail buyers as to the short and long-term impact on the retail market of COVID-19 and its overall long-term impact on the U.S. economy and in-store retail foot traffic. The Company has been building its infrastructure to transition into the online retail business by developing an e-commerce website and has invested in developing a social media presence over the last year and these systems are ready to launch and ship the Smart Mirror product. During the quarter ended March 31, 2022, the Company introduced the Smart Mirror on its Capstone Connected website. Prior to 2021, the Company’s wholesale business relied on brick-and-mortar retail for sale of its products to consumers and sought to piggyback off retailers’ e-commerce websites as well as dedicated online retailers like Amazon. As the Company focuses its effort on social media driven e-commerce, the Company’s online strategy is projected to deliver future growth and reduce reliance on big box retail. The gross margin is more favorable on the e-commerce business which translates to better returns on lower revenues. The Company does not have extensive experience in conducting its own e-commerce business and the Company’s e-commerce efforts may not produce results that compensate for any lack of robust sales from brick-and-mortar sales. The fact that the COVID-19 pandemic adversely impacted our company at the same time as we were implementing a major shift in product line, from the mature LED products to new Connected Surfaces products, amplified the financial impact of COVID-19 pandemic by disrupting development and production of new Connected Surfaces products in Thailand and China. This delay in launching the new product line coupled with the decline in sales of the LED product line adversely, impacted the Company. Management determined sufficient indicators existed to trigger the performance of an interim goodwill impairment analysis as of March 31, 2022. The analysis concluded that the Company’s fair value of its single reporting unit exceeded the carrying value and a goodwill impairment charge was not required in the quarter ended March 31, 2022, as the fair value of the reporting unit exceeded the carrying amount based on the Company’s market capitalization. The extent to which COVID-19 pandemic will continue to impact the Company’s results will depend primarily on future developments, including the severity and duration of the crisis, the acceptance and effectiveness of the national vaccine inoculation program, potential mutations of COVID-19 pandemic, and the impact of future actions that will be taken to contain COVID-19 pandemic or treat its impact. These future developments are highly uncertain and cannot be predicted with confidence, especially if mutations of the COVID-19 virus become widespread and prove resistant to vaccines. The Delta variant of COVID-19 recent resurgence in Thailand, has caused sporadic regional lockdowns and resulted in delays in finalizing certain Smart Mirror certifications, production of the initial Smart Mirror inventory and a major logistics backlog. The Company has placed and received orders from its manufacturing suppliers for the initial inventory rollout which will now support the 2022 sales program. |
Liquidity and Going Concern | Liquidity and Going Concern The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The COVID-19 pandemic’s resurgence globally and in many states or emergence of new vaccine-resistant strains of the virus could have a continuing negative impact on the brick-and-mortar retail sector, with consumers’ unwilling to visit retail stores, causing reduced consumer foot traffic and consumer spending. However, with a successful relaunch of the Smart Mirror portfolio using the online retail platform, the Company will not be as dependent on brick-and-mortar and e-commerce sites of Big Box retailers for our revenue streams as in previous years. Our business operations and financial performance for the three months ended March 31, 2022 was adversely impacted by the developments discussed above. For the three months ended March 31, 2022 and 2021, the Company reported a decrease in net revenue from $ 438 263 461 499 654 During the three months ended March 31, 2022 and 2021 the Company used approximately $ 654 238 As of March 31, 2022, the Company had working capital of approximately $ 1.522 6,898,330 624 On April 5, 2021, the Company entered into five separate securities purchase agreements (“SPAs”) whereby the Company privately placed an aggregate of 2,496,667 shares of Common Stock for an aggregate purchase price $1,498,000 (transactions being referred to as the “Private Placement”). The five investors in the Private Placement consisted of four private equity funds nd one individual – all being “accredited investors” (under Rule 501(a) of Regulation D under the Securities Act of 1933, as amended, (“Securities Act”). The $1,498,000 in proceeds from the Private Placement was used mostly to purchase start up a inventory for the Company’s new Smart Mirror product line, and the remainder for advertising and working capital. The Company has been in discussions with alternate funding sources that offer programs that are more in line with the Company’s future business model, particularly a facility that provides funding options that are more suitable for the e-commerce business. The borrowing costs associated with such financing are dependent upon market conditions and our credit rating. We cannot assure that we will be able to negotiate competitive rates, which could increase our cost of borrowing in the future. On July 2, 2021, the Board of Directors (“Board”) resolved that the Company required a purchase order funding facility to procure additional inventory to support the online Smart Mirror business. The Board resolved that certain Directors could negotiate the terms of a Purchase Order Funding Agreement for up to $1,020,000 with Directors S. Wallach, J. Postal and E. Fleisig, a natural person. This agreement was finalized, and the Company received the $1,020,000 funding under this agreement on October 18, 2021. Management is closely monitoring its operations, liquidity, and capital resources and is actively working to minimize the current and future impact of this unprecedented situation. Based on past performances and current expectations, Management believes that with the recent $1,393,000 equity investment and the $1,020,000 purchase order funding facility and now with the recently negotiated $600 thousand working capital line (See Note 7) ,provides adequate liquidity to meet the Company’s cash needs for our daily operations, capital expenditures and procurement of the Smart Mirror inventory for the short-term. However, we will need to continue seeking additional funding through either debt or equity to continue meeting our financial obligations which consist approximately of $700 thousand of accounts payable and accrued expenses as well as a $1,043,000 note payable with related parties and accrued interest that becomes due in April 2023 until we are able to generate sufficient cash flows from the sale of the Smart Mirror inventory. |
Nature of Business | Nature of Business Capstone Companies, Inc. is headquartered in Deerfield Beach, Florida. Since the beginning of fiscal year 2007, the Company through CAPI has been primarily engaged in the business of developing, marketing, and selling home LED products (“Lighting Products”) through national and regional retailers in North America and in certain overseas markets. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities to meet consumer’s needs. The development of the smart interactive mirror or “Smart Mirrors” is part of the Company’s strategic effort to find new product lines to replace or supplement existing products that are nearing or at the end of their product life cycle. These products are offered under the Capstone brand. The Smart Mirror launch was announced in February 2021, but because of operational delays and regional lockdowns resulting from the recent upsurge in the Delta variant of COVID-19 in Thailand, the product started to ship the first quarter 2022. The Company’s products are typically manufactured in Thailand and China by contract manufacturing companies. The Company’s future product development effort is focused on the Smart Mirrors category because the Company believes, based on Company’s management understanding of the industry, the Smart Mirrors have the potential for greater profit margin than the Company’s historical LED consumer products. Technological developments and changes in consumer tastes could alter the perceived potential and future viability of Smart Mirrors as a primary product. Aggressive marketing and pricing by larger competitors in the smart mirror market could also adversely impact the Company’s efforts to establish Smart Mirrors as its core product line. The Company may change its product development strategies and plans as economic conditions and consumer tastes change, which condition and changes may be unforeseeable by the Company or may be beyond the ability of the Company to timely or at all adjust its strategic and product development plans. The Company’s operations consist of one reportable segment for financial reporting purposes: Lighting Products. |
Accounts Receivable | Accounts Receivable For wholesale product revenue, the Company invoices its customers at the time of shipment for the sales value of the product shipped. Accounts receivables are recognized at the amount expected to be collected and are not subject to any interest or finance charges. The Company does not have any off-balance sheet credit exposure related to any of its customers. Previously in the factoring agreement with Sterling National Bank, accounts receivable served as collateral when the Company borrowed against its credit facilities. With the termination of the factoring agreement, the accounts receivables are unencumbered. As of March 31, 2022, and December 31, 2021, accounts receivable had not been collateralized against debt. |
Allowance for Doubtful Accounts | Allowance for Doubtful Accounts The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and the Company’s historical payment experience. An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available. As of March 31, 2022, and December 31, 2021, management determined that accounts receivable is fully collectible. As such, management has not recorded an allowance for doubtful accounts. |
Inventories | Inventories The Company’s inventory, which consists of finished Thin Cast Smart Mirror products for resale to consumers by Capstone, is recorded at the lower of landed cost (first-in, first-out) or net realizable value. The Company writes down its inventory balances for estimates of excess and obsolete amounts. The Company reduces inventory on hand to its net realizable value on an item-by-item basis when the expected realizable value of a specific inventory item falls below its original cost. Management regularly reviews the Company’s investment in inventories for such declines in value. The write-downs are recognized as a component of cost of sales. As of March 31, 2022, and December 31, 2021, respectively, the inventory was valued at $ 1,035,196 508,920 |
Prepaid Expenses | Prepaid Expenses The Company’s prepaid expenses consist primarily of deposits on inventory purchases for future orders as well as prepaid insurance, trade show and subscription expense. As of March 31, 2022, and December 31, 2021, prepaid expenses were $ 212,446 500,748 |
Goodwill | Goodwill On September 13, 2006, the Company entered into a Stock Purchase Agreement with Capstone Industries, Inc., a Florida corporation (“Capstone”). Capstone was incorporated in Florida on May 15, 1996 and is engaged primarily in the business of wholesaling technology inspired consumer products to distributors and retailers in the United States. Under the Stock Purchase Agreement, the Company acquired 100% of the issued and outstanding shares of Capstone’s common stock, and recorded goodwill of $1,936,020. Goodwill acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value of the net assets acquired. Goodwill is tested for impairment on December 31 of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the carrying amount exceeds its fair value, an impairment loss is recognized. Goodwill is not amortized. The Company estimates the fair value of its single reporting unit relative to the Company’s market capitalization. As a result of the economic uncertainties caused by the COVID-19 pandemic and decline in revenue during the quarter ended March 31, 2022, management determined sufficient indicators existed to trigger the performance of interim goodwill impairment analysis for the period ended March 31, 2022. The analysis concluded that the Company’s fair value exceeded the carrying value of its single reporting unit and a goodwill impairment charge was not required. The Company estimates the fair value of its single reporting unit relative to the Company’s market capitalization which utilizes level 1 inputs |
Fair Value Measurement | Fair Value Measurement The accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), “Fair Value Measurements and Disclosures” (ASC 820-10) requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are as follows: Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3: Significant unobservable inputs. |
Earnings Per Common Share | Earnings Per Common Share Basic earnings per common share is computed by dividing net income(loss) by the weighted average number of shares of Common Stock outstanding as of March 31, 2022, and 2021. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into common stock. For calculation of the diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants using the treasury stock method. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. For the three months ended March 31, 2022, the total number of potentially dilutive common stock equivalents excluded from the diluted earnings per share calculation was 2,079,633 which was comprised of 880,000 stock options, 199,733 warrants and 15,000 of Preferred B-1 stock convertible into 999,900 of common stock, as compared to 990,000 stock options for the three months ended March 31, 2021. |
Revenue Recognition | Revenue Recognition The Company generates wholesale revenue from developing, marketing, and selling consumer lighting products through national and regional retailers. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities. Capstone currently operates in the consumer lighting products category in the United States and in certain overseas markets. These products may be offered either under the Capstone brand or licensed brands. A sales contract occurs when the customer-retailer submits a purchase order to buy a specific product, a specific quantity, at an agreed-fixed price, within a ship window, from a specific location and on agreed payment terms. The selling price in all of our customers’ orders has been previously negotiated and agreed to including any applicable discount prior to receiving the customer’s purchase order. The stated unit price in the customer’s order has already been determined and is fixed at the time of invoicing. The Company recognizes product revenue when the Company’s performance obligations as per the terms in the customers purchase order have been fully satisfied, specifically, when the specified product and quantity ordered has been manufactured and shipped pursuant to the customers requested ship window, when the sales price as detailed in the purchase order is fixed, when the product title and risk of loss for that order has passed to the customer, and collection of the invoice is reasonably assured. This means that the product ordered and to be shipped has gone through quality assurance inspection, customs and commercial documentation preparation, the goods have been delivered, title transferred to the customer and confirmed by a signed cargo receipt or bill of lading. Only at the time of shipment when all performance obligations have been satisfied will the judgement be made to invoice the customer and complete the sales contract. As the Company launches the Smart Mirror program ,these orders will be sold through e-commerce. The Company will only bill the customer and recognize revenue upon the customer obtaining control of the Smart Mirror which will generally occur upon delivery. The Company may enter into a licensing agreement with globally recognized companies, that allows the Company to market products under a licensed brand to retailers for a designated period of time, and whereby the Company will pay a royalty fee, typically a percentage of licensed product revenue to the licensor in order to market the licensed product. The Company expenses license royalty fees and sales commissions when incurred and these expenses are recognized during the period the related sale is recorded. These costs are recorded within sales and marketing expense. The following table presents net revenue by geographic location which is recognized at a point in time: Schedule of Net Revenue by Major Source For the Three Months Ended March 31, 2022 For the Three Months Ended March 31, 2021 Revenues % of Revenue Revenues % of Revenue Lighting Products- U.S. $ 202,259 77 % $ 141,900 32 % Lighting Products- International 44,640 17 % 296,523 68 % Smart Mirror Products- U.S. 16,080 6 % — — Total Net Revenue 262,979 100 % 438,423 100 % We provide our customers with limited rights of return for non-conforming product warranty claims. As a policy, the Company does not accept product returns from customers, however occasionally as part of a customers in store test for new product, we may receive back residual inventory. Customer wholesale orders received are not long-term orders and are typically shipped within six months of the order receipt, but certainly within a one-year period. Our payment terms may vary by the type of customer, the customer’s credit standing, the location where the product will be picked up from and for international customers, which country their corporate office is located. The term between invoicing date and when payment is due may vary between 30 days and 90 days depending on the customer type. In order to ensure there are no payment issues, overseas customers or new customers may be required to provide a deposit or full payment before the order is delivered to the customer. The Company selectively supports retailer’s initiatives to maximize sales of the Company’s products on the retail floor or to assist in developing consumer awareness of new products launches, by providing marketing fund allowances to the customer. The Company recognizes these incentives at the time they are offered to the customers and records a credit to their account with an offsetting charge as either a reduction to revenue, increase to cost of sales, or marketing expenses depending on the type of sales incentives. Sales reductions for anticipated discounts, allowances and other deductions are recognized during the period when the related revenue is recorded. The reduction of accrued allowances is included in net revenues and amounted to $1.0 thousand and approximately $7.5 thousand for the three months ended March 31, 2022, and 2021, respectively. |
Warranties | Warranties The Company provides the end user with limited rights of return as a consumer assurance warranty on all products sold, stipulating that the product will function properly for the warranty period. The warranty period for all products is one year from the date of consumer purchase. Certain retail customers may receive an off invoice-based discount such as a defective/warranty allowance, that will automatically reduce the unit selling price at the time the order is invoiced. This allowance will be used by the retail customer to defray the cost of any returned units from consumers and therefore negate the need to ship defective units back to the Company. Such allowances are charged to cost of sales at the time the order is invoiced. For those customers that do not receive a discount off-invoice, the Company recognizes a charge to cost of sales for anticipated non-conforming returns based upon an analysis of historical product warranty claims and other relevant data. We evaluate our warranty reserves based on various factors including historical warranty claims assumptions about frequency of warranty claims, and assumptions about the frequency of product failures derived from our reliability estimates. Actual product failure rates that materially differ from our estimates could have a significant impact on our operating results. Product warranty reserves are reviewed each quarter and recognized at the time we recognize revenue. For the new online Smart Mirror customers the product has a One Year Limited Warranty. The purchaser must register the product within 30 days from date of purchase with specific product information to activate the warranty. Capstone warrants the product to be free from defects in workmanship and materials for the warranty period. If the product fails during normal and proper use within the warranty period, Capstone at its discretion, will repair or replace the defective parts of the product, or the product itself. |
Advertising and Promotion | Advertising and Promotion Advertising and promotion costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in sales and marketing expenses. Advertising and promotion expense was $ 121,375 4,010 |
Product Development | Product Development Our research and development consultants located in Hong Kong working with our designated contractor factories, are responsible for the design, development, testing, and certification of new product releases. Our engineering efforts support product development across all products, as well as product testing for specific overseas markets. All research and development costs are charged to results of operations as incurred. With the reduction of revenue resulting from the impact of the COVID-19 pandemic and combined with the transfer of manufacturing to Thailand, the CIHK operation was closed down in March 2022 and will remain in a dormant status. Two key management were retained as consultants to support product development and sales operations. Product development expenses were $ 51,560 26,892 |
Shipping and Handling | Shipping and Handling The Company’s shipping and handling costs are included in sales and marketing expenses and are recognized as an expense during the period in which they are incurred and amounted to $ 7,185 170 |
Accounts Payable and Accrued Liabilities | Accounts Payable and Accrued Liabilities The following table summarizes the components of accounts payable and accrued liabilities as of March 31, 2022 and December 31, 2021 , respectively. Schedule of Components of Accounts Payable and Accrued Liabilities March 31, December 31, 2022 2021 Accounts payable $ 393,199 $ 126,281 Accrued warranty reserve 46,322 46,322 Accrued compensation and deferred wages, marketing allowances, customer deposits. 187,971 365,948 Total $ 627,492 $ 538,551 |
Income Taxes | Income Taxes The Company is subject to income taxes in the U.S. federal jurisdiction, various state jurisdictions and certain other jurisdictions. The Company accounts for income taxes under the provisions of ASC 740 Income Taxes On March 27, 2020, the CARES Act was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be recorded as a component of income tax expense. |
Stock Based Compensation | Stock Based Compensation The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation- Stock Compensation Stock-based compensation expense recognized during the three months ended March 31, 2022, and 2021 was $ 3,362 4,200 |
Use of Estimates | Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, periodic impairment tests, product warranty obligations, valuation of inventories, tax related contingencies, valuation of stock-based compensation, other contingencies and litigation, among others. The Company generally bases its estimates on historical experience, agreed obligations, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Historically, past changes to these estimates have not had a material impact on the Company’s financial statements. However, circumstances could change, and actual results could differ materially from those estimates. |
Recent Accounting Standards | Recent Accounting Standards In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “ Financial Instruments – Credit Losses In December 2019, the FASB issued ASU 2019-12, “ Income Taxes (Topic 740)” |
Adoption of New Accounting Standards | Adoption of New Accounting Standards In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – “ Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2018-03 did not have a material effect on the Company’s consolidated financial statements. The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s consolidated financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change. |
ORGANIZATION AND SUMMARY OF S_3
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Schedule of Net Revenue by Major Source | Schedule of Net Revenue by Major Source For the Three Months Ended March 31, 2022 For the Three Months Ended March 31, 2021 Revenues % of Revenue Revenues % of Revenue Lighting Products- U.S. $ 202,259 77 % $ 141,900 32 % Lighting Products- International 44,640 17 % 296,523 68 % Smart Mirror Products- U.S. 16,080 6 % — — Total Net Revenue 262,979 100 % 438,423 100 % |
Schedule of Components of Accounts Payable and Accrued Liabilities | Schedule of Components of Accounts Payable and Accrued Liabilities March 31, December 31, 2022 2021 Accounts payable $ 393,199 $ 126,281 Accrued warranty reserve 46,322 46,322 Accrued compensation and deferred wages, marketing allowances, customer deposits. 187,971 365,948 Total $ 627,492 $ 538,551 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Right Of Use Asset and Lease Liability | Schedule of Right Of Use Asset and Lease Liability Supplemental balance sheet information related to leases as of March 31, 2022 is as follows: Assets Operating lease - right-of-use asset $ 231,077 Accumulated amortization $ ( 148,098 ) Operating lease - right - of -use asset , net $ 82,979 Liabilities Current Current portion of operating lease $ 71,953 Noncurrent Operating lease liability, net of current portion $ 18,930 Supplemental statement of operations information related to leases for the period ended March 31, 2022, is as follows: Operating lease expense as a component of other general and administrative expenses $ 16,807 Supplemental cash flow information related to leases for the period ended March 31, 2022, is as follows: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow paid for operating lease $ 18,594 Lease term and Discount Rate Weighted average remaining lease term (months) Operating lease 15 Weighted average Discount Rate Operating lease 7 % |
Scheduled Maturities of Operating Lease Liabilities Outstanding | Scheduled Maturities of Operating Lease Liabilities Outstanding Year Operating 2022 $ 56,898 2023 38,304 Total Minimum Future Payments 95,202 Less: Imputed Interest 4,319 Present Value of Lease Liabilities $ 90,883 |
ORGANIZATION AND SUMMARY OF S_4
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule Of Net Revenue By Major Source) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2022 | Mar. 31, 2021 | |
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 262,979 | $ 438,423 |
Capstone Brand [Member] | ||
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 262,979 | $ 438,423 |
Percentage of revenue | 100.00% | 100.00% |
Geographic Distribution, Domestic [Member] | Capstone Brand [Member] | ||
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 202,259 | $ 141,900 |
Percentage of revenue | 77.00% | 32.00% |
Geographic Distribution, Foreign [Member] | Capstone Brand [Member] | ||
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 44,640 | $ 296,523 |
Percentage of revenue | 17.00% | 68.00% |
Expenditures | Capstone Brand [Member] | ||
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 16,080 | |
Percentage of revenue | 6.00% |
ORGANIZATION AND SUMMARY OF S_5
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Components Of Accounts Payable) (Details) - USD ($) | Mar. 31, 2022 | Dec. 31, 2021 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Accounts payable | $ 393,199 | $ 126,281 |
Accrued warranty reserve | 46,322 | 46,322 |
Accrued compensation and deferred wages, marketing allowances, customer deposits. | 187,971 | 365,948 |
Total | $ 627,492 | $ 538,551 |
ORGANIZATION AND SUMMARY OF S_6
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2022 | Mar. 31, 2021 | Dec. 31, 2021 | |
Decrease in net revenue | $ 263,000 | $ 438,000 | |
Net loss for the quarter | 461,000 | 499,000 | |
Cash generated from operations | 654,000 | ||
Impairment charge | 654,000 | 238,000 | |
Working capital | 1,522,000 | ||
Accumulated Deficit | 6,898,330 | $ 6,437,026 | |
Cash | 624,000 | ||
Inventories | 1,035,196 | 508,920 | |
Prepaid expenses | 212,446 | $ 500,748 | |
Product development expenses | 51,560 | 26,892 | |
Stock-based compensation expense | 3,362 | 4,200 | |
Selling and Marketing Expense [Member] | |||
Advertising and promotion expense | 121,375 | 4,010 | |
Shipping and handling costs | $ 7,185 | $ 170 |
CONCENTRATIONS OF CREDIT RISK_2
CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2022 | Mar. 31, 2021 | Dec. 31, 2021 | |
Concentration Risk [Line Items] | |||
FIDC insurance limits | $ 0 | $ 471,500 | |
Accounts receivable approximately | 145,000 | 1,000 | |
Accounts payable approximately | $ 176,000 | $ 92,000 | |
Revenue Benchmark [Member] | One Customer [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk percentage | 77.00% | 47.00% | |
Revenue Benchmark [Member] | Two Customer [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk percentage | 17.00% | 32.00% | |
Revenue Benchmark [Member] | Geographic Concentration Risk [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk percentage | 17.00% | 68.00% | |
Cost of Goods and Service Benchmark [Member] | One Vendor [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk percentage | 72.00% | 47.00% | |
Cost of Goods and Service Benchmark [Member] | Two Vendor [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk percentage | 23.00% | 31.00% | |
Liabilities, Total [Member] | Vendor A [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk percentage | 45.00% | 73.00% |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Schedule Of Right Of Use Asset And Lease Liability) (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2022 | Mar. 31, 2021 | Dec. 31, 2021 | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||
Operating lease - right-of-use asset | $ 82,979 | $ 98,651 | |
Current portion of operating lease | 71,953 | 70,157 | |
Operating lease liability, net of current portion | 18,930 | $ 37,533 | |
Operating lease expense as a component of other general and administrative expenses | (16,807) | $ (15,148) | |
Commitments [Member] | |||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||
Operating lease - right-of-use asset | 231,077 | ||
Accumulated amortization | 148,098 | ||
Operating lease - right - of -use asset , net | 82,979 | ||
Current portion of operating lease | 71,953 | ||
Operating lease liability, net of current portion | 18,930 | ||
Operating lease expense as a component of other general and administrative expenses | 16,807 | ||
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow paid for operating lease | $ 18,594 | ||
Weighted average remaining lease term (months) operating lease | 15 years | ||
Operating lease | 7.00% |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES (Scheduled Maturities Of Operating Lease Liabilities Outstanding) (Details) | Mar. 31, 2022USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2022 | $ 56,898 |
2023 | 38,304 |
Total Minimum Future Payments | 95,202 |
Less: Imputed Interest | 4,319 |
Present Value of Lease Liabilities | $ 90,883 |
STOCK TRANSACTIONS (Details Nar
STOCK TRANSACTIONS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2022 | Dec. 31, 2021 | |
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
Warrants outstanding | $ 199,733 | $ 0 |
Stock options vested | 880,000 | |
Weighted average exercise price of options | $ 0.435 | |
Stock Repurchase Plan [Member] | ||
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
Repurchase of shares, shares | 750,000 | |
Repurchase of shares, value | $ 107,740 | |
Equity Option [Member] | ||
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
Stock options outstanding | 880,000 | |
Term of options | 2 years 4 months 24 days |