Cover
Cover - shares | 3 Months Ended | |
Mar. 31, 2024 | May 14, 2024 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Mar. 31, 2024 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2024 | |
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 | 144-10 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 | 48,826,864 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2024 | Dec. 31, 2023 |
Current Assets: | ||
Cash | $ 1,693 | $ 36,466 |
Prepaid expenses | 28,772 | 22,120 |
Due from affiliates | 9,570 | 9,570 |
Total Current Assets | 40,035 | 68,156 |
Property and equipment, net | 39,389 | 42,970 |
Goodwill | 1,312,482 | 1,312,482 |
Total Assets | 1,391,906 | 1,423,608 |
Current Liabilities: | ||
Accounts payable and accrued liabilities | 915,920 | 804,623 |
Notes payable related parties and accrued interest-current | 2,058,845 | 1,946,315 |
Notes payable unrelated party and accrued interest-current | 600,892 | 594,161 |
Total Current Liabilities | 3,575,657 | 3,345,099 |
Long-Term Liabilities: | ||
Deferred tax liabilities -long-term | 320,329 | 320,329 |
Total Long-Term Liabilities | 320,329 | 320,329 |
Total Liabilities | 3,895,986 | 3,665,428 |
Stockholders’ Equity: | ||
Common Stock, par value $.0001 per share, authorized 295,000,000 shares, issued and outstanding 48,826,864 shares at March 31, 2024 and December 31, 2023. | 4,884 | 4,884 |
Additional paid-in capital | 8,550,510 | 8,550,510 |
Accumulated deficit | (11,059,476) | (10,797,216) |
Total Stockholders’ Deficit | (2,504,080) | (2,241,820) |
Total Liabilities and Stockholders’ Deficit | 1,391,906 | 1,423,608 |
Series B Preferred Stock [Member] | ||
Stockholders’ Equity: | ||
Preferred Stock, Series C, par value $1.00 per share, authorized 67 shares, issued and outstanding -0- shares | 2 | 2 |
Total Stockholders’ Deficit | 2 | 2 |
Series C Preferred Stock [Member] | ||
Stockholders’ Equity: | ||
Preferred Stock, Series C, par value $1.00 per share, authorized 67 shares, issued and outstanding -0- shares | ||
Total Stockholders’ Deficit |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2024 | Dec. 31, 2023 |
Series B Preferred Stock [Member] | ||
Preferred Stock, Par or Stated Value Per Share | $ 0.0001 | $ 0.0001 |
Preferred Stock, Shares Authorized | 5,000,000 | 5,000,000 |
Preferred Stock, Shares Issued | 15,000 | 15,000 |
Preferred Stock, Shares Outstanding | 15,000 | 15,000 |
Series C Preferred Stock [Member] | ||
Preferred Stock, Par or Stated 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 OPERATION - USD ($) | 3 Months Ended | |
Mar. 31, 2024 | Mar. 31, 2023 | |
Income Statement [Abstract] | ||
Revenues, net | $ 5,450 | $ 5,552 |
Cost of sales | (2,351) | |
Gross Profit | 5,450 | 3,201 |
Operating Expenses: | ||
Sales and marketing | 9,591 | 18,781 |
Compensation | 82,970 | 137,783 |
Professional fees | 116,983 | 142,433 |
Product development | 33,725 | |
Other general and administrative | 28,891 | 114,721 |
Total Operating Expenses | 238,435 | 447,443 |
Operating Loss | (232,985) | (444,242) |
Other Income (Expenses): | ||
Other income | 4 | |
Interest expense, net | (29,263) | (22,433) |
Total Other Income (Expenses), net | (29,259) | (22,433) |
Loss Before Income Taxes | (262,244) | (466,675) |
Income Tax (Benefit) Expense | 16 | |
Net Loss | $ (262,260) | $ (466,675) |
Net Loss per Common Share | ||
Basic and Diluted | $ (0.01) | $ (0.01) |
Weighted Average Shares Outstanding | ||
Basic and Diluted | 48,826,864 | 48,826,864 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY - USD ($) | Series B Preferred Stock [Member] | Series C Preferred Stock [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] | Retained Earnings [Member] | Total |
Beginning balance, value at Dec. 31, 2022 | $ 2 | $ 4,884 | $ 8,550,510 | $ (9,100,777) | $ (545,381) | |
Begining balance at Dec. 31, 2022 | 15,000 | 48,826,864 | ||||
Net Loss | (466,675) | |||||
Ending balance, value at Mar. 31, 2023 | $ 2 | $ 4,884 | 8,550,510 | (9,567,452) | (1,012,056) | |
Ending balance at Mar. 31, 2023 | 15,000 | 48,826,864 | ||||
Beginning balance, value at Dec. 31, 2022 | $ 2 | $ 4,884 | 8,550,510 | (9,100,777) | (545,381) | |
Begining balance at Dec. 31, 2022 | 15,000 | 48,826,864 | ||||
Net Loss | (466,675) | (466,675) | ||||
Ending balance, value at Dec. 31, 2023 | $ 2 | $ 4,884 | 8,550,510 | (10,797,216) | (2,241,820) | |
Ending balance at Dec. 31, 2023 | 15,000 | 48,826,864 | ||||
Net Loss | (262,260) | (262,260) | ||||
Ending balance, value at Mar. 31, 2024 | $ 2 | $ 4,884 | $ 8,550,510 | $ (11,059,476) | $ (2,504,080) | |
Ending balance at Mar. 31, 2024 | 15,000 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 3 Months Ended | |
Mar. 31, 2024 | Mar. 31, 2023 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net Loss | $ (262,260) | $ (466,675) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation | 3,581 | |
Noncash lease expense | 16,922 | |
Accrued interest added to notes payable related and unrelated parties | 29,261 | 21,785 |
(Increase) decrease in accounts receivable, net | 5,564 | |
(Increase) decrease in inventories | 8,261 | |
Decrease in prepaid expenses | (6,652) | 1,553 |
Decrease in deposits | 11,148 | |
Increase in accounts payable and accrued liabilities | 111,297 | 158,830 |
Decrease in operating lease liabilities | (18,603) | |
Net cash used in operating activities | (124,773) | (261,215) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from notes payable related parties | 90,000 | 224,150 |
Net cash provided by financing activities | 90,000 | 224,150 |
Net Decrease in Cash | (34,773) | (37,065) |
Cash at Beginning of Period | 36,466 | 61,463 |
Cash at End of Period | 1,693 | 24,398 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||
Interest cash paid | ||
Income taxes paid |
ORGANIZATION AND SUMMARY OF SIG
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2024 | |
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, 2024, and results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2024 and 2023. 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 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, 2023 (the “2023 Annual Report”) filed with the SEC on March 29, 2024. 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. 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. As of March 31, 2024, the Company had negative working capital of $ 3,535,622 11,059,476 1,693 2,659,737 320,329 262,260 124,773 These liquidity conditions raise substantial doubt about the Company’s ability to continue as a going concern. We are seeking alternative sources of liquidity, including but not limited to debt or equity funding through issuance of securities, or other alternative financing measures. However, instability in, or tightening of the capital markets, could adversely affect our ability to access the capital markets on terms acceptable to us. An economic recession or a slow recovery could adversely affect our business and liquidity. The lack of operating income from products and the financial condition of the Company are also hindering efforts to locate working capital funding. The Company is also pursuing a merger or acquisition with a private operating company as a means of improving the financial condition and prospects of the Company, but the Company has not located a potential candidate as of the date of this Form 10-Q. There can be no assurance that the Company will be able to locate and consummate any transaction to improve its liquidity condition. Certain directors have provided necessary funding including a working capital line to support the Company’s cash needs through this period of revenue development, but this funding is limited in amount and frequency. Unless the Company succeeds in raising additional capital or successfully increases cash generated from operations, or finds and consummates an alternative transaction to improve its financial condition, management believes there is substantial doubt about the Company’s ability to continue as a going concern and meet its obligations over the next twelve months from the filing date of this Form 10-Q. Nature of Business The Company has its principal executive offices in Deerfield Beach, Florida. On April 13, 2012, the Company established a wholly owned subsidiary in Hong Kong, named Capstone International Hong Kong Ltd (“CIHK”) which provides support services such as engineering, new product development, product sourcing, factory certification and compliance, product price negotiating, product testing and quality control and ocean freight logistics for the Company’s other subsidiaries. With the shift of manufacturing to Thailand from China, the CIHK operation was downsized and dormant as of March 2022. From 2007 until 2022, the Company, through Capstone Industries, Inc “CAPI”, was 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 Lighting Products are targeted for applications such as home indoor and outdoor lighting and have different functionalities to meet consumer’s needs. Over the last few years there has been significant LED price erosion, which has commoditized LED consumer products. The LED category has matured and is no longer the innovative “must have” consumer product as in previous years. As such, the Company entered into another home goods product segment by developing a smart interactive mirror (“Smart Mirror”) for residential use. The Company planned for the Smart Mirror product launch in 2021, but its release to the retail market was delayed until March 2022 due to product development delays at the Company’s suppliers, resulting from the impact of COVID-19. The development of the Smart Mirrors was part of the Company’s strategic effort to find new product lines to replace the Lighting Products. The Smart Mirrors have not provided sufficient sustained revenues to support the Company operations. The Company’s products have been typically manufactured in Thailand and China by contract manufacturing companies. As of the date of these consolidated financial statements, the Company’s future product development effort is focused on the development of a “Connected Surfaces” portfolio. The Connected Surfaces portfolio is designed to tap into consumer’s ever-expanding Internet of Things, wireless connected lifestyles prevalent today. The Company has finalized development of a kitchen appliance, the “Connected Chef”, which is a purpose-built tablet with an integrated platform for cooking accessories, i.e.: cutting board, and designed to safely deliver and access content on mobile and web based platforms. The Connected Chef is not yet in production and has not produced any pre-production sales orders or revenues as of the three months ended March 31, 2024. The Company would have to raise funding to pay for the production and acquisition of inventory for any Connected Chef orders, which funding may not be possible to raise in light of the financial condition of the Company. The Company’s operations consist of one reportable segment for financial reporting purposes: Consumer Home Goods. Inventories The Company’s inventory, which consisted of finished Thin Cast Smart Mirror products for resale to consumers by Capstone, was 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. During the fourth quarter of 2023, Management reviewed the valuation of inventory on hand and decided to write off all Smart Mirror inventory as of December 31, 2023, resulting in a $ 133,775 0 Goodwill On September 13, 2006, the Company entered into a Stock Purchase Agreement with Capstone Industries, Inc., a Florida corporation (“CAPI”). 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 CAPI’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. The Company will then perform a one-step quantitative impairment text, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). Goodwill is not amortized. The Company estimates the fair value of its single reporting unit relative to the Company’s market capitalization. There was no impairment charge for the period ended March 31, 2024 or March 31, 2023. 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, 2024 and 2023. 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. As of March 31, 2024 and 2023, the total number of potentially dilutive common stock equivalents excluded from the diluted earnings per share calculation was 408,288 options, 199,733 warrants and 15,000 of preferred B-1 stock convertible into 999,900 shares of common stock for 2024 and 608,288 options, 199,733 warrants and 15,000 of preferred B-1 stock convertible into 999,900 shares of common stock for 2023. Revenue Recognition The Company has generated revenue from developing, marketing and selling consumer products through national and regional retailers. The Company’s products are targeted for applications such as home indoor and outdoor lighting as well as Internet-of-Thing devices and will have different functionalities. Capstone currently operates in the consumer electronic products category in the Unites States and in specific overseas markets. These products may be offered either under the Capstone brand or a private brand. The Company does not have a product line that is generating revenues as of the date of the filing of this Form 10-Q. 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 recognized lighting 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. Marketing allowances include the cost of underwriting an in-store instant rebate coupon or a target markdown allowance on a specific product. The Company retains these allowances for a period of 3 to 5 years in the event the customer chargebacks for a promotional allowance against an open invoice or submits an invoice for their claim. Cash discounts represent discounts offered to the retailer off outstanding accounts receivable in order to initiate early payment. These allowances are evaluated when our relationship with a customer is terminated, or we cease selling a specific product to a customer and may be released as other income if deemed not required. Direct-to-consumer orders for the Connected Surfaces Smart Mirrors are sold initially through e-commerce platforms. The Company also sells the Connected Surfaces Smart Mirror program through independent retailers. The Company will only bill the customer and recognize revenue upon the customer obtaining control of the Smart Mirror order which generally occurs upon delivery. 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 expenses. 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 For the Three Months Ended Revenues % of Revenue Revenues % of Revenue Smart Mirror Products- U.S. 5,450 100 % 5,552 100 % Total Net Revenue $ 5,450 100 % $ 5,552 100 % We provide our wholesale 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. Smart Mirror customer orders were shipped within one to two days of receipt. Revenue was recorded upon processing of the sale with a third-party merchant processor such as Stripe or Amazon Pay. Lighting Product customer 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 Smart Mirror customers were charged when executing the e-commerce purchase. We do not have extended payment terms for our Smart Mirror customers. Our Lighting Product payment terms varied by the type of customer, the customer’s credit standing, the location where the product will be picked up from and for international customers and which country their corporate office is located. The time between invoicing date and when payment is due may vary between 30 days and 90 days depending on the customer type. 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. Warranties For the LED product line, 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. For the 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. 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. The Company accrued warranty liability of $0 as of March 31, 2024 and $347 as of March 31, 2023. Sales and Marketing Sales and marketing costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in sales and marketing expenses. Sales and marketing expenses were $9,591 and $8,699 for the three months ended March 31, 2024, and 2023. Due to declining revenues, and the end of the LED product line as a revenue source, the Company reduced advertising and promotion expenses in 2024. Product Development Our research and development team located in Thailand working with our designated 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. For the three months ended March 31, 2024, and 2023, product development expenses were $0 and $33,725, respectively. The first quarter 2023 expenses were related to the development of the Connected Chef, expanding the Connected Surfaces product portfolio. Accounts Payable and Accrued Liabilities The following table summarizes the components of accounts payable and accrued liabilities as of March 31, 2024, and December 31, 2023, respectively: Schedule of Components of Accounts Payable and Accrued Liabilities March 31, December 31, 2024 2023 Accounts payable $ 29,243 $ 69,267 Accrued warranty reserve — 1,200 Accrued compensation and deferred wages customer deposits. 857,763 734,156 Customer deposits and other liabilties 28,914 — Total $ 915,920 $ 804,623 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 740 Income Taxes The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Tax regulations within each jurisdiction are subject to the interpretation of the relaxed tax laws and regulations and require significant judgement to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities generally for a period of 3 years from the later of each return due date or date filed. 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 each of the three months ended March 31, 2024, and 2023 was $0. 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. Adoption of New Accounting Standards In June 2016, the FASB issued Accounting Standards Update (“ASU) 2016-13, “ Financial Instruments – Credit Losses In November 2023, the FASB issued Accounting Standards Update 2023-07 – Segment Reporting (Topic ASC 280) Improvements to Reportable Segment Disclosures. The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. The enhancements under this update require disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker ("CODM") and included within each reported measure of segment profit or loss, require disclosure of other segment items other segment items Recently Issued Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued Accounting Standards Update 2023-09 – Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 will become effective beginning of our 2025 fiscal year. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect that this guidance will have a material impact upon our financial position and results of operations. 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 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 financials properly reflect the change. |
CONCENTRATIONS OF CREDIT RISK A
CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE | 3 Months Ended |
Mar. 31, 2024 | |
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 (“FDIC) 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, 2024 and December 31, 2023, the Company had approximately $0, respectively, in excess of FDIC insurance limits. Accounts Receivable The Company grants credit to its customers, located throughout the United States and their international locations. The Company typically does not require collateral from national retail 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. Stripe is the company that processes online payments for our e-commerce website. We should receive payment from them within 3 days of the product shipment. If the product is shipped through Amazon online platform, 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 did not have any major customers during the three months ended March 31, 2024 and 2023. Major Vendors The Company did not have any major vendors during the three months ended March 31, 2024 and 2023. |
NOTES PAYABLE TO RELATED AND UN
NOTES PAYABLE TO RELATED AND UNRELATED PARTIES | 3 Months Ended |
Mar. 31, 2024 | |
Debt Disclosure [Abstract] | |
NOTES PAYABLE TO RELATED AND UNRELATED PARTIES | NOTE 3 – NOTES PAYABLE TO RELATED AND UNRELATED PARTIES Purchase Funding Agreement with Directors and Unrelated Party 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 Stewart Wallach and Jeffrey 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 with an original maturity of April 2023. Under this agreement the interest terms are 5% based on a 365- day year. The note payable is due on September 13, 2024. As of March 31, 2024, the principal outstanding and accrued interest is $1,020,000 and $125,055, respectively. Working Capital Loan with Directors and Unrelated Party On May 1, 2022, the Company negotiated three $200,000 working capital funding agreements, to provide $600,000 in 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 Stewart Wallach (through Group Nexus, a company controlled by Mr. Wallach), Jeffrey Postal, and Mouhaned Khoury, a natural person. The term of each agreement is 18 months with principal accruing a simple interest rate of 5 percent per annum, maturing November 1, 2024. These loans may be prepaid in full or partially without any penalty. As of March 31, 2024, the principal outstanding and accrued interest is $600,000 and $57,619, respectively. On October 13, 2022, the Company negotiated a $50,000 Working Capital Funding agreement with Director Jeffrey Postal, a director, to provide funding for daily operations. The term of this agreement is 18 months and principal accrues simple interest at a rate of 5 percent per annum, maturing November 1, 2024. As of March 31, 2024, the principal outstanding and accrued interest is $50,000 and $3,664, respectively. On December 1, 2022, the Company negotiated a $50,000 Working Capital Funding agreement with Jeffrey Postal, a director, to provide funding for daily operations. The term of this agreement is 18 months and principal accrues simple interest at a rate of 5 percent per annum, maturing June 1, 2024. The loan may be prepaid in full or partially without any penalty. As of March 31, 2024, the principal outstanding and accrued interest is $50,000 and $3,336, respectively. On January 3, 2023, the Company negotiated a $40,000 Working Capital Funding agreement with Director Stewart Wallach (through Group Nexus, a company controlled by Mr. Wallach), to provide funding for daily operations. Principal accrues simple interest at a rate of 5 percent per annum, maturing June 15, 2024. The loan may be prepaid in full or partially without any penalty. As of March 31, 2024, the principal outstanding and accrued interest is $40,000 and $2,482, respectively. On March 27, 2023, the Company negotiated a Working Capital Funding agreement with Director Stewart Wallach to provide funding for daily operations. Total funding under the agreement amounted to $632,500 as of March 31, 2024. Principal accrues simple interest at a rate of 5 percent per annum, maturing June 15, 2024. The loan may be prepaid in full or partially without any penalty. See Note 6. As of March 31, 2024, the principal outstanding and accrued interest is $632,500 and $24,561, respectively. On January 16, 2024, the Company negotiated a Working Capital Funding agreement with Director Jeffrey Postal to provide $50,000 in funding for daily operations. accrues simple interest at a rate of 5 percent per annum, maturing August 15, 2024. The loan may be prepaid in full or partially without any penalty. As of March 31, 2024, the principal outstanding and accrued interest is $50,000 and $521, respectively. As of March 31, 2024 and December 31, 2023, the Company had a total of $2,442,500 and $2,352,000, of outstanding principal respectively, on the above referenced funding agreements, which includes accrued interest of $217,237 and $187,974, respectively. The outstanding principal balances and accrued interest has been presented on the condensed and consolidated balance sheet as follows: Schedule for notes payable to related party Notes Payable March 31, 2024 December 31, 2023 Current portion of notes payable and accrued interest, related parties $ 2,058,843 $ 1,946,315 Current portion of notes payable and accrued interest, unrelated parties 600,892 594,161 Total notes payable principal and accrued interest 2,659,739 2,540,476 Less accrued interest (217,237 ) (187,974 ) Total notes payable $ 2,442,498 $ 2,352,502 Management believes that without additional capital or increased cash generated from operations, there is substantial doubt about the Company’s ability to continue as a going concern and meet its obligations over the next twelve months from the filing date of this report. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2024 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 4– COMMITMENTS AND CONTINGENCIES Operating Leases The Company had operating lease agreements for its principal executive offices in Fort Lauderdale, Florida that expired June 30, 2023. The Company’s principal executive office were located at 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. The Company did not renew the expiring operating lease. On July 1, 2023, the Company commenced an office space license to use designated office space at #144-V, 10 Fairway Drive, Suite 1000, Deerfield Beach, Florida 33441. The short-term lease is a month-to-month agreement for professional office space for a monthly fee of $75 with a security deposit of $75. The agreement may be terminated by the Company or the licensor of the office space upon a written notice provided thirty (30) days in advance. 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, 2024 and 2023, amounted to $ 958 54,867 Employment Agreements On February 5, 2023, 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, 2023 and ends February 5, 2025. 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. Beginning in 2020 and through 2024, executive salaries and consulting fees have been deferred from time to time to conserve cash flow. Deferrals amounted to $857,762 and $734,156, as of March 31, 2024 and December 31, 2023, respectively, and are included in accounts payable and accrued liabilities. There is a provision in Mr. Wallach’s employment agreement, if his employment is terminated by death or disability or without cause, the Company is obligated to pay to his estate or him, 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 he was earning as of the date of termination and (b) the sum of “merit” based bonuses earned by the him 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 Mr. Wallach, from the effective Termination date, will be paid out 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 his health and dental insurance benefits for 6 months starting at the Executives date of termination. If he had family health coverage at the time of termination, the additional family premium obligation would remain theirs and will be reduced against his severance package. The employment agreements have an anti-competition provision for 18 months after the end of employment. The Company did not accrue for benefits owed at the time of death or disability as it is not probable as of the period ended December 31, 2023. The following table summarizes potential payments upon termination of employment : Summary of Potential Payments upon Termination of Employment Salary Bonus Gross up Benefit Grand Total Stewart Wallach $ 301,521 $ — $ 12,600 $ 6,600 $ 320,721 Directors Compensation On July 5, 2022, the Board voted to suspend granting compensation to the independent directors for the remainder of the fiscal year 2022. There have been no payments to the Board of Directors during the period ended March 31, 2024. |
STOCK TRANSACTIONS
STOCK TRANSACTIONS | 3 Months Ended |
Mar. 31, 2024 | |
Equity [Abstract] | |
STOCK TRANSACTIONS | NOTE 5 - 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 to purchase start up inventory for the Company’s Smart Mirror product line, as well as 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 issuance of the securities was made in reliance upon Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act. 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. As of March 31, 2024 and December 31, 2023, the Company had 199,733 warrants outstanding. Series B-1 Preferred Stock On June 7, 2016, the Company authorized 3,333,333 of the 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 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 7,500 shares of B-1 Convertible Preferred Stock 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. The B-1 shares have a liquidation preference of $1.00 per share or $15,000 as of March 31, 2024. 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. As of March 31, 2024, there were 408,288 stock options outstanding and vested held by directors of the Company. The stock options have a weighted average exercise price of $0.456 and have a weighted average contractual term remaining of 0.88 years. During the three months ended March 31, 2024, there were no stock option grants, exercises, or forfeitures and no stock based compensation expense. 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 outstanding common stock. 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 shares at prevailing market prices, subject to the terms of the Purchase Plan. On May 31, 2019, the Company’s Board of Directors the maximum amount of aggregate funding available for possible stock repurchases under the stock repurchase program remained at $1,000,000 during the renewal period. During May and June 2022, the Company repurchased 66,167 shares of the Company’s outstanding common stock in the open market. The total purchase cost was $11,662. On July 7, 2022, the Board of Directors resolved to discontinue the stock purchase agreement. As of March 31, 2024, a total of 816,167 shares of the Company’s common stock has been repurchased since the plan was incepted at a total cost of $119,402. The cost of the repurchased shares were recorded as a reduction of additional paid-in capital. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2024 | |
Subsequent Events | |
SUBSEQUENT EVENTS | NOTE 6 - SUBSEQUENT EVENTS Extension of Working Capital Notes Payable On April 30, 2024, the $600,000 Working Capital Funding Agreement note payable with three note holders was amended, extending the maturity date from May 1, 2024 to November 1, 2024. All other terms remain unchanged (see Note 3). |
ORGANIZATION AND SUMMARY OF S_2
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2024 | |
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, 2024, and results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2024 and 2023. 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 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, 2023 (the “2023 Annual Report”) filed with the SEC on March 29, 2024. 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. |
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. As of March 31, 2024, the Company had negative working capital of $ 3,535,622 11,059,476 1,693 2,659,737 320,329 262,260 124,773 These liquidity conditions raise substantial doubt about the Company’s ability to continue as a going concern. We are seeking alternative sources of liquidity, including but not limited to debt or equity funding through issuance of securities, or other alternative financing measures. However, instability in, or tightening of the capital markets, could adversely affect our ability to access the capital markets on terms acceptable to us. An economic recession or a slow recovery could adversely affect our business and liquidity. The lack of operating income from products and the financial condition of the Company are also hindering efforts to locate working capital funding. The Company is also pursuing a merger or acquisition with a private operating company as a means of improving the financial condition and prospects of the Company, but the Company has not located a potential candidate as of the date of this Form 10-Q. There can be no assurance that the Company will be able to locate and consummate any transaction to improve its liquidity condition. Certain directors have provided necessary funding including a working capital line to support the Company’s cash needs through this period of revenue development, but this funding is limited in amount and frequency. Unless the Company succeeds in raising additional capital or successfully increases cash generated from operations, or finds and consummates an alternative transaction to improve its financial condition, management believes there is substantial doubt about the Company’s ability to continue as a going concern and meet its obligations over the next twelve months from the filing date of this Form 10-Q. |
Nature of Business | Nature of Business The Company has its principal executive offices in Deerfield Beach, Florida. On April 13, 2012, the Company established a wholly owned subsidiary in Hong Kong, named Capstone International Hong Kong Ltd (“CIHK”) which provides support services such as engineering, new product development, product sourcing, factory certification and compliance, product price negotiating, product testing and quality control and ocean freight logistics for the Company’s other subsidiaries. With the shift of manufacturing to Thailand from China, the CIHK operation was downsized and dormant as of March 2022. From 2007 until 2022, the Company, through Capstone Industries, Inc “CAPI”, was 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 Lighting Products are targeted for applications such as home indoor and outdoor lighting and have different functionalities to meet consumer’s needs. Over the last few years there has been significant LED price erosion, which has commoditized LED consumer products. The LED category has matured and is no longer the innovative “must have” consumer product as in previous years. As such, the Company entered into another home goods product segment by developing a smart interactive mirror (“Smart Mirror”) for residential use. The Company planned for the Smart Mirror product launch in 2021, but its release to the retail market was delayed until March 2022 due to product development delays at the Company’s suppliers, resulting from the impact of COVID-19. The development of the Smart Mirrors was part of the Company’s strategic effort to find new product lines to replace the Lighting Products. The Smart Mirrors have not provided sufficient sustained revenues to support the Company operations. The Company’s products have been typically manufactured in Thailand and China by contract manufacturing companies. As of the date of these consolidated financial statements, the Company’s future product development effort is focused on the development of a “Connected Surfaces” portfolio. The Connected Surfaces portfolio is designed to tap into consumer’s ever-expanding Internet of Things, wireless connected lifestyles prevalent today. The Company has finalized development of a kitchen appliance, the “Connected Chef”, which is a purpose-built tablet with an integrated platform for cooking accessories, i.e.: cutting board, and designed to safely deliver and access content on mobile and web based platforms. The Connected Chef is not yet in production and has not produced any pre-production sales orders or revenues as of the three months ended March 31, 2024. The Company would have to raise funding to pay for the production and acquisition of inventory for any Connected Chef orders, which funding may not be possible to raise in light of the financial condition of the Company. The Company’s operations consist of one reportable segment for financial reporting purposes: Consumer Home Goods. |
Inventories | Inventories The Company’s inventory, which consisted of finished Thin Cast Smart Mirror products for resale to consumers by Capstone, was 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. During the fourth quarter of 2023, Management reviewed the valuation of inventory on hand and decided to write off all Smart Mirror inventory as of December 31, 2023, resulting in a $ 133,775 0 |
Goodwill | Goodwill On September 13, 2006, the Company entered into a Stock Purchase Agreement with Capstone Industries, Inc., a Florida corporation (“CAPI”). 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 CAPI’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. The Company will then perform a one-step quantitative impairment text, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). Goodwill is not amortized. The Company estimates the fair value of its single reporting unit relative to the Company’s market capitalization. There was no impairment charge for the period ended March 31, 2024 or March 31, 2023. |
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, 2024 and 2023. 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. As of March 31, 2024 and 2023, the total number of potentially dilutive common stock equivalents excluded from the diluted earnings per share calculation was 408,288 options, 199,733 warrants and 15,000 of preferred B-1 stock convertible into 999,900 shares of common stock for 2024 and 608,288 options, 199,733 warrants and 15,000 of preferred B-1 stock convertible into 999,900 shares of common stock for 2023. |
Revenue Recognition | Revenue Recognition The Company has generated revenue from developing, marketing and selling consumer products through national and regional retailers. The Company’s products are targeted for applications such as home indoor and outdoor lighting as well as Internet-of-Thing devices and will have different functionalities. Capstone currently operates in the consumer electronic products category in the Unites States and in specific overseas markets. These products may be offered either under the Capstone brand or a private brand. The Company does not have a product line that is generating revenues as of the date of the filing of this Form 10-Q. 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 recognized lighting 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. Marketing allowances include the cost of underwriting an in-store instant rebate coupon or a target markdown allowance on a specific product. The Company retains these allowances for a period of 3 to 5 years in the event the customer chargebacks for a promotional allowance against an open invoice or submits an invoice for their claim. Cash discounts represent discounts offered to the retailer off outstanding accounts receivable in order to initiate early payment. These allowances are evaluated when our relationship with a customer is terminated, or we cease selling a specific product to a customer and may be released as other income if deemed not required. Direct-to-consumer orders for the Connected Surfaces Smart Mirrors are sold initially through e-commerce platforms. The Company also sells the Connected Surfaces Smart Mirror program through independent retailers. The Company will only bill the customer and recognize revenue upon the customer obtaining control of the Smart Mirror order which generally occurs upon delivery. 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 expenses. 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 For the Three Months Ended Revenues % of Revenue Revenues % of Revenue Smart Mirror Products- U.S. 5,450 100 % 5,552 100 % Total Net Revenue $ 5,450 100 % $ 5,552 100 % We provide our wholesale 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. Smart Mirror customer orders were shipped within one to two days of receipt. Revenue was recorded upon processing of the sale with a third-party merchant processor such as Stripe or Amazon Pay. Lighting Product customer 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 Smart Mirror customers were charged when executing the e-commerce purchase. We do not have extended payment terms for our Smart Mirror customers. Our Lighting Product payment terms varied by the type of customer, the customer’s credit standing, the location where the product will be picked up from and for international customers and which country their corporate office is located. The time between invoicing date and when payment is due may vary between 30 days and 90 days depending on the customer type. 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. |
Warranties | Warranties For the LED product line, 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. For the 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. 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. The Company accrued warranty liability of $0 as of March 31, 2024 and $347 as of March 31, 2023. |
Sales and Marketing | Sales and Marketing Sales and marketing costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in sales and marketing expenses. Sales and marketing expenses were $9,591 and $8,699 for the three months ended March 31, 2024, and 2023. Due to declining revenues, and the end of the LED product line as a revenue source, the Company reduced advertising and promotion expenses in 2024. |
Product Development | Product Development Our research and development team located in Thailand working with our designated 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. For the three months ended March 31, 2024, and 2023, product development expenses were $0 and $33,725, respectively. The first quarter 2023 expenses were related to the development of the Connected Chef, expanding the Connected Surfaces product portfolio. |
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, 2024, and December 31, 2023, respectively: Schedule of Components of Accounts Payable and Accrued Liabilities March 31, December 31, 2024 2023 Accounts payable $ 29,243 $ 69,267 Accrued warranty reserve — 1,200 Accrued compensation and deferred wages customer deposits. 857,763 734,156 Customer deposits and other liabilties 28,914 — Total $ 915,920 $ 804,623 |
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 740 Income Taxes The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Tax regulations within each jurisdiction are subject to the interpretation of the relaxed tax laws and regulations and require significant judgement to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities generally for a period of 3 years from the later of each return due date or date filed. 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 each of the three months ended March 31, 2024, and 2023 was $0. |
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. |
Adoption of New Accounting Standards | Adoption of New Accounting Standards In June 2016, the FASB issued Accounting Standards Update (“ASU) 2016-13, “ Financial Instruments – Credit Losses In November 2023, the FASB issued Accounting Standards Update 2023-07 – Segment Reporting (Topic ASC 280) Improvements to Reportable Segment Disclosures. The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. The enhancements under this update require disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker ("CODM") and included within each reported measure of segment profit or loss, require disclosure of other segment items other segment items |
Recently Issued Accounting Pronouncements Not Yet Adopted | Recently Issued Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued Accounting Standards Update 2023-09 – Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 will become effective beginning of our 2025 fiscal year. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect that this guidance will have a material impact upon our financial position and results of operations. 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 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 financials properly reflect the change. |
ORGANIZATION AND SUMMARY OF S_3
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended |
Mar. 31, 2024 | |
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 For the Three Months Ended Revenues % of Revenue Revenues % of Revenue Smart Mirror Products- U.S. 5,450 100 % 5,552 100 % Total Net Revenue $ 5,450 100 % $ 5,552 100 % |
Schedule of Components of Accounts Payable and Accrued Liabilities | Schedule of Components of Accounts Payable and Accrued Liabilities March 31, December 31, 2024 2023 Accounts payable $ 29,243 $ 69,267 Accrued warranty reserve — 1,200 Accrued compensation and deferred wages customer deposits. 857,763 734,156 Customer deposits and other liabilties 28,914 — Total $ 915,920 $ 804,623 |
NOTES PAYABLE TO RELATED AND _2
NOTES PAYABLE TO RELATED AND UNRELATED PARTIES (Tables) | 3 Months Ended |
Mar. 31, 2024 | |
Debt Disclosure [Abstract] | |
Schedule for notes payable to related party | Schedule for notes payable to related party Notes Payable March 31, 2024 December 31, 2023 Current portion of notes payable and accrued interest, related parties $ 2,058,843 $ 1,946,315 Current portion of notes payable and accrued interest, unrelated parties 600,892 594,161 Total notes payable principal and accrued interest 2,659,739 2,540,476 Less accrued interest (217,237 ) (187,974 ) Total notes payable $ 2,442,498 $ 2,352,502 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 3 Months Ended |
Mar. 31, 2024 | |
Commitments and Contingencies Disclosure [Abstract] | |
Summary of Potential Payments upon Termination of Employment | Summary of Potential Payments upon Termination of Employment Salary Bonus Gross up Benefit Grand Total Stewart Wallach $ 301,521 $ — $ 12,600 $ 6,600 $ 320,721 |
ORGANIZATION AND SUMMARY OF S_4
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2024 | Mar. 31, 2023 | |
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 5,450 | $ 5,552 |
Capstone Brand [Member] | ||
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 5,450 | $ 5,552 |
Concentration Risk, Percentage | 100% | 100% |
Smart Mirror Products U S [Member] | Capstone Brand [Member] | ||
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
Total Revenue | $ 5,450 | $ 5,552 |
Concentration Risk, Percentage | 100% | 100% |
ORGANIZATION AND SUMMARY OF S_5
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) | Mar. 31, 2024 | Dec. 31, 2023 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Accounts payable | $ 29,243 | $ 69,267 |
Accrued warranty reserve | 1,200 | |
Accrued compensation and deferred wages customer deposits. | 857,763 | 734,156 |
Customer deposits and other liabilties | 28,914 | |
Total | $ 915,920 | $ 804,623 |
ORGANIZATION AND SUMMARY OF S_6
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2024 | Mar. 31, 2023 | Dec. 31, 2023 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Working capital deficit | $ 3,535,622 | ||
Accumulated deficit | 11,059,476 | $ 10,797,216 | |
Cash | 1,693 | 36,466 | |
Short term note payable | 2,659,737 | ||
Deferred tax liability | 320,329 | ||
Net loss | 262,260 | $ 466,675 | 466,675 |
Net cash used in operating activity | 124,773 | $ 261,215 | |
Inventory | $ 0 | $ 133,775 |
NOTES PAYABLE TO RELATED AND _3
NOTES PAYABLE TO RELATED AND UNRELATED PARTIES (Details) - USD ($) | Mar. 31, 2024 | Dec. 31, 2023 |
Debt Disclosure [Abstract] | ||
Current portion of notes payable and accrued interest, related parties | $ 2,058,843 | $ 1,946,315 |
Current portion of notes payable and accrued interest, unrelated parties | 600,892 | 594,161 |
Total notes payable principal and accrued interest | 2,659,739 | 2,540,476 |
Less accrued interest | (217,237) | (187,974) |
Total notes payable | $ 2,442,498 | $ 2,352,502 |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Details) - Stewart Wallach [Member] | Mar. 31, 2024 USD ($) |
Defined Benefit Plan Disclosure [Line Items] | |
Salary Severance | $ 301,521 |
Bonus Severance | |
Gross up Taxes | 12,600 |
Benefit Compensation | 6,600 |
Grand Total | $ 320,721 |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2024 | Mar. 31, 2023 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Rent expense | $ 958 | $ 54,867 |