CAPSTONE COMPANIES INC

Previous wording

The challenge facing the Company is to establish a new profitable product line, whether the Connected Chef or another product line, before the cost of marketing and penetrating a new product market company impose unsustainable financial burdens and losses on the Company.

Current wording

The challenge facing the Company is acquire a new business line, or to establish a new profitable product line, whether the Connected Chef or another product line, before the cost of marketing and penetrating a new product market company impose unsustainable financial burdens and losses on the Company.

Previous wording

The Company is a “penny stock” company under Commission rules and the public stock market price for our common stock is impacted by the lack of significant institutional investor and primary market maker support. Investment in our common stock is highly risky and should only be considered by investors who can afford to lose their investment and do not require on demand liquidity. Potential investors should carefully consider risk factors in our SEC filings. The Company’s common stock lacks the primary market maker and institutional investor support to protect the public market from being unpredictable and volatile. Investors may not have liquidity or desired liquidity in our common stock as an investment.

Current wording

The Company is a “penny stock” company under Commission rules and the public stock market price for our common stock is impacted by the lack of significant institutional investor and primary market maker support. Investment in our common stock is highly risky and should only be considered by investors who can afford to lose their investment and do not require on demand liquidity. Potential investors should carefully consider risk factors in our SEC filings. The Company’s common stock lacks the primary market maker and institutional investor support to protect the public market from being unpredictable and volatile. Investors may not have liquidity or desired liquidity in our common stock as an investment. With the lack of any revenues and active business line, any investment in the Company’s common stock would be highly risky.

Previous wording

Capstone Companies, Inc. (“Company” or “CAPC”) is a public holding company organized under the laws of the State of Florida. The Company is a designer, manufacturer and marketer of consumer inspired products that simplify daily living through technology. Over the past decade, the Company’s various product lines have been distributed globally including consumer markets in Australia, Japan, Korea, North America, South America, and the United Kingdom. The primary operating subsidiary is Capstone Industries, Inc. (“CAPI”), a Florida corporation located at the principal executive offices of the Company. Capstone International Hong Kong, Ltd., or “CIHK”, was established to expand the Company’s product development, engineering, and factory resource capabilities. With the 2021 shift of manufacturing to Thailand from China, the CIHK operation was dormant. The Company has a history of exploiting technologies in areas of induction charging, power failure control, security and home LED lighting products and most recently has entered the electronics market with its introduction of Capstone’s Connected Chef a purpose-built kitchen tablet with an accessory platform to accommodate food prep accessories such as a cutting board. The Connected Chef has Google mobile services allowing for pre-installation of specific Google applications including Playstore, voice assistant, YouTube to name those highly recognized.

Current wording

Capstone Companies, Inc. (“Company” or “CAPC”) is a public holding company organized under the laws of the State of Florida. The Company is a designer, manufacturer and marketer of consumer inspired products that simplify daily living through technology. Over the past decade, the Company’s various product lines have been distributed globally including consumer markets in Australia, Japan, Korea, North America, South America, and the United Kingdom. The primary operating subsidiary is Capstone Industries, Inc. (“CAPI”), a Florida corporation located at the principal executive offices of the Company. Capstone International Hong Kong, Ltd., or “CIHK”, was established to expand the Company’s product development, engineering, and factory resource capabilities. With the 2021 shift of manufacturing to Thailand from China, the CIHK operation was dormant.

Previous wording

The Company’s focus through 2017 was the integration of LEDs into most commonly used consumer lighting products in today’s home. The LED category has matured and is no longer the innovative “must have” consumer product as in previous years, as such, revenues for the LED product line have declined significantly in 2023. The Connected Surfaces is the Company’s effort to establish business in an emerging segment that is intended for future revenue growth. The smart home segment is the umbrella category in which we intend to participate with the Connected Surfaces program. The Connected Surfaces products have not enjoyed significant sales in 2023 – either online or through efforts to sell in bulk to brick-and-mortar, “big box” retailers. The Smart Mirror product line had limited sales for 2023, and all inventory was expensed as of December 31, 2023.

Current wording

The Company’s focus through 2017 was the integration of LEDs into most commonly used consumer lighting products in today’s home. The LED category has matured and is no longer the innovative “must have” consumer product as in previous years, as such, revenues for the LED product line have declined significantly in 2023. The Connected Surfaces is the Company’s effort to establish business in an emerging segment that is intended for future revenue growth. The smart home segment is the umbrella category in which we intend to participate with the Connected Surfaces program. The Connected Surfaces products did not achieve significant sales in 2023 – either online or through efforts to sell in bulk to brick-and-mortar, “big box” retailers and all inventory was expensed as of December 31, 2023.

Previous wording

The Connected Chef, a purpose-built kitchen tablet with an accessory platform to accommodate food prep accessories such as a cutting board. The Connected Chef has Google mobile service allowing for pre-installation of specific Google applications including Playstore, voice assistant, and YouTube. The Connected Chef was ready for formal introduction in quarter four of 2023, and Management is actively marketing the Connected Chef tablet to appliance manufacturers and distributors, but the product has no purchase commitments from retailers as of the date of the filing of this Form 10-Q. Further, the Company will have to raise funding to fund production costs and inventory acquisitions, which funding may not be available to the Company.

Current wording

The Connected Chef, is a purpose-built kitchen tablet with an accessory platform to accommodate food prep accessories such as a cutting board. The Connected Chef has Google mobile service allowing for pre-installation of specific Google applications including Playstore, voice assistant, and YouTube. The Connected Chef was ready for formal introduction in quarter four of 2023, and the Company has actively marketing the Connected Chef tablet to appliance manufacturers and distributors, but the product has no purchase commitments from retailers as of the date of the filing of this Form 10-Q. Due to the lack of orders and funding, the Connected Chef is not in production. Further, the Company will have to raise funding to fund production costs and inventory acquisitions, which funding may not be available to the Company and has not been obtained as of June 30, 2024.

Previous wording

The Company will require third party funding to cover operating overhead and to resume efforts to fund its marketing and product launch campaigns. The future growth will be directly impacted by the level of exposure, messaging and distribution capabilities. Certain members of the Company’s management (“Corporate Insiders and Directors”) have provided short-term funding to support the Company’s basic operational funding needs, but there is no guarantee that this funding will continue or be adequate to fund operations or Connected Chef program marketing and inventory as well as possible enhancements in functions demanded by the consumers.

Current wording

The Company will require third party funding to cover operating overhead and to resume any future efforts to fund its marketing and product launch campaigns. Any future revenue or growth from a new product line, if any, will be directly impacted by the level of exposure, messaging and distribution capabilities as well as the Company’s ability to fund production, inventory and shipment. Certain members of the Company’s management (“Corporate Insiders and Directors”) have provided short-term funding to support the Company’s basic operational funding needs, but there is no guarantee that this funding will continue or be adequate to fund operations or fund any continued Connected Chef program marketing and any production and inventory if sales are pre-production orders are obtained. Funding would also be required to fund any modifications or enhancements to a new product line to meet consumer demand.

Previous wording

Our business operations and financial performance for the three months ended March 31, 2024 continued to be adversely impacted the poor sales of the Smart Mirrors. For the three months ended March 31, 2024 and 2023, the Company reported a $102 or 2% decrease in net revenue from $5,552 in 2023 to $5,450 in 2023. The net loss for the three months ended March 31, 2024 and 2023 was $262,260 as compared to $466,675 in 2023. During the three months ended March 31, 2024 and 2023 the Company used in operating activities approximately $125,000 of cash in 2024 and $261,000 in 2023. The decrease in net cash used in operations primarily relates to decrease in right of use operating lease expense for the non-renewal of the office lease, and decreases in inventory, accounts payable balances during 2024.

Current wording

For the six months ended June 30, 2024 and 2023, the Company reported a $111,000 or 346% increase in net revenue from $32,000 in 2023 to $143,000 in 2023. The increase in revenue period to period is due to a liquidation sale of the Smart Mirrors for $80,000. The net loss for the six months ended June 30, 2024 and 2023 was $386,000 as compared to $792,000 in 2023. During the six months ended June 30, 2024 and 2023 the Company used in operating activities approximately $109,000 of cash in 2024 and $390,000 in 2023. The decrease in net cash used in operations primarily relates to decrease in right of use operating lease expense for the non-renewal of the office lease, and decreases in inventory, accounts payable balances during 2024 as the company has moved to a remote work environment and decreased overhead costs significantly. See Note 1.

Previous wording

As of March 31, 2024, the Company has negative working capital of approximately $3,535,000 and an accumulated deficit of $11,060,000. The Company’s cash balance decreased by approximately $35,000 from $36,000 as of December 31, 2023 to $2,000 as of March 31, 2024. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Current wording

As of June 30, 2024, the Company has negative working capital of approximately $3,656,000 and an accumulated deficit of $11,183,000. The Company’s cash balance decreased by approximately $20,000 from $36,000 as of December 31, 2023 to $16,000 as of June 30, 2024. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Previous wording

The Company’s looking forward strategy is focused on developing a new Connected Surfaces product, the Connected Chef, that can generate sufficient revenues to sustain the Company’s operations or alternatively, locate a new business line that can accomplish sustainability of operations. These efforts will depend on having adequate working capital from funding to establish a new product line or business line and adequate cash flow from product sales. We may be unable to achieve sufficient working capital when and, in the amounts, required to meet operational needs and overhead or to pursue or establish a new product lines or a new business line or new business line. We have not achieved adequate funding as of the date of the filing of this Form 10-Q report and we may be unable to achieve sufficient working capital when and, in the amounts, required to meet operational needs and overhead. The lack of adequate, timely and affordable funding may undermine the efforts of the Company to establish a revenue stream from the Connected Chef product line and efforts to sustain Company operations.

Current wording

The Company’s looking forward strategy is focused on developing a new Connected Surfaces product, the Connected Chef, that can generate sufficient revenues to sustain the Company’s operations or alternatively, locate a new business line that can accomplish sustainability of operations. These efforts will depend on having adequate working capital from funding to establish a new product line or acquire a new business line and adequate cash flow from product sales or the new business line. We may be unable to achieve sufficient working capital when and, in the amounts, required to meet operational needs and overhead or to pursue or establish a new product lines or a new business line. We have not achieved adequate funding as of the date of the filing of this Form 10-Q report and we may be unable to achieve sufficient working capital when and, in the amounts, required to meet operational needs and overhead. The lack of adequate, timely and affordable funding may undermine the efforts of the Company to establish a revenue stream from the Connected Chef product line or continue operations while seeking to develop or acquire a new business line, and efforts to sustain Company operations.

Previous wording

As a consumer product company, the Company competes in competitive consumer market channels that can be affected by volatility from a number of general business and economic factors such as, consumer confidence and preferences, employment levels, new technologies, credit availability, costs and barriers of producing products from foreign original equipment manufacturers (“OEMs”) and commodity costs. Demand for the Company’s products is highly dependent on economic drivers such as consumer spending and discretionary income. The Company faces competition from numerous competitors in the consumer product industry, foreign and domestic, and some of those competitors have substantially greater market share, brand recognition, distribution and financial and technical resources than the Company. The Company’s strategy has been to develop well designed and made products that appeal to a niche market. The Company also relies on the production and engineering resources and technical expertise of its contract manufacturers to compensate for a lack of those resources internally. The lack of working capital hinders the ability of the Company to leverage the development, design and production capabilities of OEMs.

Current wording

As a consumer product company, the Company competes in competitive consumer market channels that can be affected by volatility from a number of general business and economic factors such as, consumer confidence and preferences, employment levels, new technologies, credit availability, costs and barriers of producing products from foreign original equipment manufacturers (“OEMs”) and commodity costs. Demand for the Company’s products is highly dependent on economic drivers such as consumer spending and discretionary income. The Company faces competition from numerous competitors in the consumer product industry, foreign and domestic, and some of those competitors have substantially greater market share, brand recognition, distribution and financial and technical resources than the Company. The Company’s strategy has historically been to develop well designed and made products that appeal to a niche market. When the Company is producing and promoting a product line, the Company relied on the production and engineering resources and technical expertise of its contract manufacturers to compensate for a lack of those resources internally. The lack of working capital hinders the ability of the Company to leverage the development, design and production capabilities of OEMs.

Previous wording

Due to working capital constraints, and results from prior e-commerce marketing efforts, the Company is not investing any significant funds in e-commerce marketing and promotion efforts and is re-evaluating the potential of e-commerce efforts to generate significant revenues. The Company is intending to focus on direct sales or a licensing agreement with appliance manufacturers and distributors with the Connected Chef product line.

Current wording

Due to working capital constraints, and results from prior e-commerce marketing efforts, the Company is not investing any significant funds in e-commerce marketing and promotion efforts and is re-evaluating the potential of e-commerce efforts to generate significant revenues. The Company is focusing on direct sales or a licensing agreement with appliance manufacturers and distributors with the Connected Chef product line.

Previous wording

The Company’s existing product roadmap outlines a plan for an additional product launch in Q2 of 2024, branded the “Connected Chef”, a kitchen appliance item, which is a purpose-built tablet integrated into a multi-purpose cutting board and designed to safely deliver and access content on mobile and web based platforms a kitchen utility item. The Company received Google Mobile Service (“GMS”) approval during 2023 which allows the tablet integrated in the Connected Chef to operate the Android Operating System and pre-install Google’s proprietary applications such as Chrome, Drive, Gmail, Playstore, Youtube directly through the Connected Chef tablet (“Google” is a trademark of Google LLC, a subsidiary of Alphabet, Inc., a SEC reporting company). Youtube food videos have reportedly generated nearly 51 billion views. Rather than using and sharing recipes on one’s smartphone in the kitchen, recipes can be looked up directly using the users preferred search engine (like, Chrome). With access to content online with millions of cooking and food related websites and videos as well as tutorials and cooking classes all in one place the Connected chef™ becomes a digital recipe bookshelf. The Connected Chef™ also provides a cleaner and safer appliance in the cooking area. A smartphone is covered in germs as it is carried everywhere throughout the day, a smartphone has 25,127 bacteria per square inch. Smartphones harbor more than 3 times the number of germs than doorknobs, 8643 bacteria per sq inch. The Connected Chef is designed to become an anchor in the digital kitchen. The design is aimed at tastefully styled and coupled with excellent quality in order to appeal to the discerning eye while maintaining affordability for mainstream use.

Current wording

The Company’s existing product roadmap outlines a plan for an additional product launch at the end of 2024, branded the “Connected Chef”, a kitchen appliance item, which is a purpose-built tablet integrated into a multi-purpose cutting board and designed to safely deliver and access content on mobile and web-based platforms a kitchen utility item. The Company received Google Mobile Service (“GMS”) approval during 2023 which allows the tablet integrated in the Connected Chef to operate the Android Operating System and pre-install Google’s proprietary applications such as Chrome, Drive, Gmail, Playstore, Youtube directly through the Connected Chef tablet (“Google” is a trademark of Google LLC, a subsidiary of Alphabet, Inc., a SEC reporting company). Rather than using and sharing recipes on one’s smartphone in the kitchen, recipes can be looked up directly using the users preferred search engine (like, Chrome). With access to content online with millions of cooking and food related websites and videos as well as tutorials and cooking classes all in one place the Connected chef™ becomes a digital recipe bookshelf. The Connected Chef™ also provides a cleaner and safer appliance in the cooking area. The Connected Chef is designed to become an anchor in the digital kitchen. The design is aimed at tastefully styled and coupled with excellent quality in order to appeal to the discerning eye while maintaining affordability for mainstream use.

Previous wording

The Company believes the Connected Chef program could leverage existing relationships with its traditional retail partners and collectively contribute organic growth for the Company, as well as serving as a basis for partnering with appliance manufacturers and distributors. The ability of the Company to promote any of its Connected Surface products and any new, related “connected” consumer products will depend on securing adequate, affordable and timely funding from lenders and investors. As of the date of the filing of this Form 10-Q report, the Company has not secured that funding. Chief Executive Officer and Director Stewart Wallach has been providing interim financing of basic operations while the Company pursues other financing options for new product development and marketing.

Current wording

The Company believes the Connected Chef program could leverage existing relationships with its traditional retail partners and collectively contribute organic growth for the Company, as well as serving as a basis for partnering with appliance manufacturers and distributors. The ability of the Company to promote any of its Connected Surface products and any new, related “connected” consumer products will depend on securing adequate, affordable and timely funding from lenders and investors. As of the date of the filing of this Form 10-Q report, the Company has not secured that funding and the Connected Chef is not in production and has no pre-production orders. Chief Executive Officer and Director Stewart Wallach has been providing interim financing of basic operations while the Company pursues other financing options for new product development and marketing and sustaining Company operations.

Previous wording

Prior to the maturing of the LED product line in 2021-2022, Capstone believes that the following competitive strengths have traditionally served to support its business strategies:

Current wording

The Company does not have a product line in production and generating revenues as of June 30, 2024. Prior to the maturing of the LED product line in 2021-2022, Capstone believes that the following competitive strengths have traditionally served to support its business strategies:

Previous wording

Product Quality*:*With prior product lines, the Company has achieved high quality in product’s design and utility through a combination of sourcing quality components, stringent manufacturing quality control and conducting rigorous third-party testing. To deliver cost-competitive products without compromising quality standards, we leveraged purchasing volume and capitalize on strategic vendor relationships. If the Company can obtain the necessary funding to launch the Connected Chef product line, the Company believes that its traditional operating strengths will continue to benefit a new product line based on past performance. This assumption may prove misplaced when and if the Company achieves sufficient working capital to extensively market and produce the Connected Chef. The Company has no marketing studies to support an assumption about the appeal to consumers of the Connected Chef as a viable product line. Positive responses to the concept of the Connected Chef have come from a limited number of potential retail purchasers and strategic partners.

Current wording

Product Quality*:*With prior product lines, the Company has achieved high quality in product’s design and utility through a combination of sourcing quality components, stringent manufacturing quality control and conducting rigorous third-party testing. To deliver cost-competitive products without compromising quality standards, we leveraged purchasing volume and capitalize on strategic vendor relationships. If the Company can obtain the necessary funding to launch the Connected Chef product line, the Company believes that its traditional operating strengths will continue to benefit a new product line based on past performance. This assumption may prove misplaced when and if the Company achieves sufficient working capital to extensively market and produce the Connected Chef. The Company has no marketing studies to support an assumption about the appeal to consumers of the Connected Chef as a viable product line.

Previous wording

The Company lacks a product line generating revenues sufficient to sustain operations. The Company’s lack of a product line generating sufficient revenue to support operations and lack of sufficient working capital funding have delayed the extensive marketing, beyond marketing efforts of Management, of its new proposed product line, The Connected Chef.

Current wording

The Company lacks a product line generating revenues sufficient to sustain operations. The Company’s lack of a product line generating sufficient revenue to support operations and lack of sufficient working capital funding have delayed the extensive marketing, beyond marketing efforts of Management, of its new proposed product line, The Connected Chef. The Company anticipates that it may need to locate third party funding to replace or supplement the funding being provided by the Company’s chief executive officer in order to sustain operations through fiscal year 2024.

Previous wording

The product launch of the Smart Mirrors did not meet projected revenue goals for 2023 or the first quarter of 2024. The Company’s investment in e-commerce marketing did not produce desired sales or market penetration for Connected Surfaces Smart Mirror. These factors coupled with a lack of bulk orders from Big Box retailers left the Company without a viable product line and a revenue generating source sufficient to sustain the Company.

Current wording

The product launch of the Smart Mirrors did not meet projected revenue goals for 2023 or the first half of 2024 and has since been discontinued with the remaining inventory sold in a liquidation sale during the second quarter of 2024. The Company’s investment in e-commerce marketing did not produce desired sales or market penetration for Connected Surfaces Smart Mirror. These factors coupled with a lack of bulk orders from Big Box retailers left the Company without a viable product line and a revenue generating source sufficient to sustain the Company.

Previous wording

Capstone’s international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies. Should the increased U.S. tariffs imposed on Chinese manufactured goods remain it may increase the cost of electronic components used in our products.

Current wording

If production of products is resumed, then Capstone’s international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies. Should the increased U.S. tariffs imposed on Chinese manufactured goods remain it may increase the cost of electronic components used in our products.

Previous wording

Current product lines under development as of this Form 10-K report are as follows:

Current wording

Current product lines under development as of this Form 10-Q report are as follows:

Previous wording

Over the past ten years, the Company has established product distribution relationships with numerous leading international, national and regional retailers, including but not limited to: Amazon, Costco Wholesale, Sam’s Club-Walmart, the Container Store and Firefly Buys. These distribution channels may sell the Company’s products through the internet as well as through retail storefronts and catalogs/mail order. The Company is actively marketing the Connected Chef to appliance manufacturers and distributors, though no letter of intent or deal terms have been executed as of the date of this Form 10-K filing. The Company believes it has developed the scale, manufacturing efficiencies, and design expertise that serves as the foundation for aggressive pursuit of niche product opportunities in our largest consumer domestic and international markets. The Company may have to pursue a different market segment if it cannot secure adequate orders from these traditional distribution channels. With the growth of e-commerce, the Company lacks an effective e-commerce capability. Reliance on sales to brick-and-mortar retailers may not produce sufficient orders to allow the Company to become profitable or sustain operations, especially if the Company’s product line is deemed by retailers to be not appealing or in demand with consumers. The Company has a very limited product line and lacks different product lines to offer in lieu of unsuccessful, existing product lines to retailers.

Current wording

Over the past ten years, the Company has established product distribution relationships with numerous leading international, national and regional retailers, including but not limited to: Amazon, Costco Wholesale, Sam’s Club-Walmart, the Container Store and Firefly Buys. These distribution channels may sell the Company’s products through the internet as well as through retail storefronts and catalogs/mail order. The Company is actively marketing the Connected Chef to appliance manufacturers and distributors, though no letter of intent or deal terms have been executed as of the date of this Form 10-Q filing. The Company believes it has developed the scale, manufacturing efficiencies, and design expertise that serves as the foundation for aggressive pursuit of niche product opportunities in our largest consumer domestic and international markets. The Company may have to pursue a different market segment if it cannot secure adequate orders from these traditional distribution channels. With the growth of e-commerce, the Company lacks an effective e-commerce capability. Reliance on sales to brick-and-mortar retailers may not produce sufficient orders to allow the Company to become profitable or sustain operations, especially if the Company’s product line is deemed by retailers to be not appealing or in demand with consumers. The Company has a very limited product line and lacks different product lines to offer in lieu of unsuccessful, existing product lines to retailers.

Previous wording

We use direct sales by our Chief Executive Officer and sales agents to sell our products, which effort includes direct sales to Big Box and home-goods chain retailers. Company’s e-commerce initiatives have not provided significant sales as of first quarter of 2024.

Current wording

We use direct sales by our Chief Executive Officer and sales agents to sell our products, which effort includes direct sales aimed to Big Box and home-goods chain retailers. Company’s e-commerce initiatives have not provided significant sales as of the six months ended June 30, 2024.

Previous wording

Our sales within the U.S. are primarily made by our in-house sales team and our independent sales agencies. Our independent sales agencies are paid a commission based upon sales made in their respective territories. Our sales agencies are recruited, trained and monitored by us directly. We will utilize an agency as needed to help us provide service to our retail customers as required. The sales agency agreements are generally one (1) year agreements, which automatically renew on an annual basis, unless terminated by either party on 30 days’ prior notice. Our international sales to divisions of U.S. based retailers are made by our in-house sales team.

Current wording

Historically, and when we had a product line in production, our sales within the U.S. are primarily made by our in-house sales team and our independent sales agencies. Our independent sales agencies are paid a commission based upon sales made in their respective territories. Our sales agencies are recruited, trained and monitored by us directly. We will utilize an agency as needed to help us provide service to our retail customers as required. The sales agency agreements are generally one (1) year agreements, which automatically renew on an annual basis, unless terminated by either party on 30 days’ prior notice. Our international sales to divisions of U.S. based retailers are made by our in-house sales team.

Previous wording

We have utilized social media platforms and online advertising campaigns to further grow the Company’s online presence. In addition to Facebook, Instagram, Pinterest and LinkedIn, The Company has launched a You Tube channel to host Smart Mirror videos and established a Twitter account. Our Social Media marketing has not resulted in any significant sales of products. We have not been and may not be able to effectively compete in e-commerce and Social Media marketing and sales. The Company has a Social Media presence on the following Social Media platforms, however the Company is not emphasizing Social Media marketing in 2024:

Current wording

We have utilized social media platforms and online advertising campaigns to further grow the Company’s online presence. In addition to Facebook, Instagram, Pinterest and LinkedIn, The Company has launched a You Tube channel to host Smart Mirror videos and established a X account. Our Social Media marketing has not resulted in any significant sales of products. We have not been and may not be able to effectively compete in e-commerce and Social Media marketing and sales. The Company has a Social Media presence on the following Social Media platforms, however the Company is not emphasizing Social Media marketing in 2024 due lack of results and lack of funding to pursue active Social Media marketing:

Previous wording

The Company’s research and development operations based in Florida and Thailand design and engineer many of the Company’s products, with collaboration from its third-party manufacturing partners, software developers and Capstone U.S. engineering advisers. The Company outsources the manufacture and assembly of our products to a select group of OEM manufacturers overseas. Our research and development focus includes efforts to:

Current wording

For products in development or production, the Company’s research and development operations based in Florida and Thailand design and engineer many of the Company’s products, with collaboration from its third-party manufacturing partners, software developers and Capstone U.S. engineering advisers. The Company outsources the manufacture and assembly of our products to a select group of OEM manufacturers overseas. Our research and development focus typically and in 2023 included efforts to:

Previous wording

To successfully implement Capstone’s business strategy, the Company must continually improve its current products and develop new product segments with innovative imbedded technologies to meet consumer’s growing expectations. The Connected Surfaces product development is our current effort to achieve those expectations. The continuation of Company’s declining business and financial performance may significantly hinder or undermine efforts to establish a profitable Connected Surface product line capable of sustaining operations. Establishing the Connected Surfaces product line as a viable revenue source is essential to sustaining the Company as a consumer product company. The Company will need adequate funding to sustain that business line and operations.

Current wording

To successfully implement Capstone’s business strategy for products in production, the Company must continually improve its current products and develop new product segments with innovative imbedded technologies to meet consumer’s growing expectations. The Connected Surfaces product development is our most recent effort to achieve those expectations. The continuation of Company’s declining business and financial performance has significantly hindered or undermined efforts to establish a profitable Connected Surface product line capable of sustaining operations. Establishing the Connected Surfaces product line as a viable revenue source was intended to sustain the Company as a consumer product company, but it has not done so as of June 30, 2024. The Company will need adequate funding to establish sustain that business line and sustain corporate operations.

Previous wording

The principal raw materials currently used by CAPI are sourced in Thailand and China, as the Company orders product exclusively through contract manufacturers in the region. These contract manufacturers purchase components based on the Company’s specifications and provide the necessary facilities and labor to manufacture the Company’s products. Capstone allocates the production of specific products to the contract manufacturer the Company believes is more experienced to produce the specific product and whose facility is located in the country that most benefits from the U.S. Tariff regulations. To ensure the consistent quality of Capstone’s products, quality control procedures have been incorporated at each stage of the manufacturing process, ranging from the inspection of raw materials through production and delivery to the customer. These procedures are additional to the manufacturers internal quality control procedures and performed by Quality Assurance personnel.

Current wording

For products being produced, the principal raw materials currently used by CAPI are sourced in Thailand and China, as the Company orders product exclusively through contract manufacturers in the region. These contract manufacturers purchase components based on the Company’s specifications and provide the necessary facilities and labor to manufacture the Company’s products. Capstone allocates the production of specific products to the contract manufacturer the Company believes is more experienced to produce the specific product and whose facility is located in the country that most benefits from the U.S. Tariff regulations. To ensure the consistent quality of Capstone’s products, quality control procedures have been incorporated at each stage of the manufacturing process, ranging from the inspection of raw materials through production and delivery to the customer. These procedures are additional to the manufacturers internal quality control procedures and performed by Quality Assurance personnel.

Previous wording

For the e-commerce and direct to consumer marketplace, the Company has developed a new website with full shopping cart capabilities. The Company has negotiated contracts for secured credit card processing capability, state sales tax compliance services and order fulfillment and logistics services, at a very competitive rate.

Current wording

For the e-commerce and direct to consumer marketplace, the Company has developed a new website with full shopping cart capabilities. The Company has negotiated contracts for secured credit card processing capability, state sales tax compliance services and order fulfillment and logistics services, at a very competitive rate. These efforts did not result in any significant product sales in first two fiscal quarters of fiscal year 2024.

Previous wording

We believe that there have been no significant changes to our critical accounting policies during the three months ended March 31, 2024, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report.

Current wording

We believe that there have been no significant changes to our critical accounting policies during the six months ended June 30, 2024, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report.

Previous wording

Our cost of goods sold consists primarily of purchased products from contract manufacturers and when applicable associated duties and inbound freight. In addition, our cost of goods sold also includes reserves for potential warranty claims and freight allowances. On December 31, 2023, we expensed all remaining Smart Mirror inventory one hand. As a result, the $5,450 of revenues occurring in 2024 did not have cost of goods sold associated with them.

Current wording

Our cost of goods sold consists primarily of purchased products from contract manufacturers and when applicable associated duties and inbound freight. In addition, our cost of goods sold also includes reserves for potential warranty claims and freight allowances. On December 31, 2023, we expensed for obsolescence all remaining Smart Mirror inventory one hand. As a result, the $86,289 of revenues derived from the e-commerce sales and the liquidation sale of the remaining inventory of Smart Mirrors for the six months ending June 30, 2024 did not have cost of goods sold associated with them.

Previous wording

Operating expenses include sales and marketing expenses, consisting of sales representative’s commissions, advertising and trade show expense and costs related to employee’s compensation. In addition, operating expense include charges relating to product development, office and warehousing, accounting, legal, insurance and stock-based compensation.

Current wording

Operating expenses include sales and marketing expenses, consisting of sales representative’s commissions, advertising expense and costs related to employee’s compensation. In addition, operating expense include charges relating to product development, office and warehousing, accounting, legal, insurance and stock-based compensation.

Previous wording

Our business operations and financial performance for the quarter ended March 31, 2024, reflected slow e-commerce sales for the Smart Mirror. Executive management are actively pursuing appliance manufacturers and distributors for the new Connected Chef product, but the product has no purchase commitments from retailers as of the date of this Form 10-Q. Further, the Company will have to raise funding to fund production costs, which funding may not be available to the Company.

Current wording

Our business operations and financial performance for the six months ended June 30, 2024, reflected slow e-commerce sales for the Smart Mirror with all of the inventory sold in a liquidation event during the second quarter. Executive management are actively pursuing appliance manufacturers and distributors for the new Connected Chef product, but the product has no purchase commitments from retailers as of the date of this Form 10-Q. Further, the Company will have to raise funding to fund production costs, which funding may not be available to the Company.

Previous wording

Net revenues for the three months ended March 31, 2024, were $5,450, a decrease of $102 or 2% from $5,552 in the same period 2023.

Current wording

Net revenues for the three months ended June 30, 2024, were $137,000, an increase of $111,000 or 417% from $26,000 in the same period 2023.

Previous wording

Gross profit for the three months ended March 31, 2024, and 2023, was $5,450 and $3,201, respectively, a decrease of $2,249 from the previous year. Gross Profit as a percent of revenue was 100% in the first quarter 2024 as compared to 50% in the same quarter 2023, due to the Smart Mirror inventory expensed in total as of December 31, 2023.

Current wording

Gross profit (loss) for the three months ended June 30, 2024, and 2023, was approximately $100,000 and ($7,000), respectively, an increase of $107,000 from the previous year. Gross Profit as a percent of revenue was 73% in the six months ended June 30, 2024 as compared to (26%) in the same period of 2023, due to the Smart Mirror inventory expensed as of December 31, 2023.

Previous wording

The Company made concerted efforts to reduce operating expenses in the first quarter of 2024 in accordance with the low Smart Mirror e-commerce sales, as denoted further. Last year’s poor performance of e-commerce sales for the Smart Mirror proved to Executive Management that e-commerce was not the ideal market for the Smart Mirror product. Focus of sales and marketing efforts are with appliance manufacturers and distributors for the new

Current wording

The Company made concerted efforts to reduce operating expenses in the first half of 2024 in accordance with the liquidation of the Smart Mirror inventory, as denoted further. Last year’s poor performance of e-commerce sales for the Smart Mirror proved to Executive Management that e-commerce was not the ideal market for the Smart Mirror product. Focus of sales and marketing efforts are with appliance manufacturers and distributors for the new

Previous wording

For the three months ended March 31, 2024, and 2023, sales and marketing expenses were approximately $10,000 and $19,000, respectively, a decrease of $9,000 or 50%. The Company made concerted efforts to reduce operating expenses in accordance with the low Smart Mirror e-commerce sales.

Current wording

For the six months ended June 30, 2024, and 2023, sales and marketing expenses were approximately $17,000 and $56,000, respectively, a decrease of $39,000 or 69%. The Company made concerted efforts to reduce operating expenses in accordance with the low Smart Mirror e-commerce sales.

Previous wording

For the three months ended March 31, 2024, and 2023, compensation expenses were approximately $83,000 and $138,000 respectively, a decrease of $55,000 or 40%. The Company has reduced workforce to essential employees as it works to launch the Connected Chef.

Current wording

For the six months ended June 30, 2024, and 2023, compensation expenses were approximately $153,000 and $261,000 respectively, a decrease of $108,000 or 41%. The Company has reduced workforce to essential employees as it works to launch the Connected Chef.

Previous wording

For the three months ended March 31, 2024, and 2023, professional fees were approximately $117,000 and $142,000 respectively, a decrease of $25,000 or 18%.

Current wording

For the three months ended June 30, 2024, and 2023, professional fees were approximately $77,000 and $85,000 respectively, a decrease of $8,000 or 10%.

Previous wording

For the three months ended March 31, 2024, product development expenses were approximately $0 as compared to $34,000 in 2023, a reduction of $34,000 or 100%. During the first quarter 2023, fees were incurred testing and certification of the Connected Chef which were not incurred first quarter 2024.

Current wording

For the six months ended June 30, 2024, product development expenses were approximately $2,000 as compared to $51,000 in 2023, a reduction of $49,000 or 96%. During the first six months of 2023, fees were incurred testing and certification of the Connected Chef which were not incurred first six months of 2024.

Previous wording

For the three months ended March 31, 2024, other general and administrative expenses were approximately $29,000 as compared to $115,000 in 2023 for a reduction of $86,000 or 75%. Rent expense, operating overhead and travel costs were reduced as part of the reduction in nonessential expenses during 2024.

Current wording

For the six months ended June 30, 2024, other general and administrative expenses were approximately $64,000 as compared to $208,000 in 2023 for a reduction of $144,000 or 69%. Rent expense, operating overhead and travel costs were reduced as part of the reduction in nonessential expenses during 2024.

Previous wording

For the three months ended March 31, 2024, and 2023, total operating expenses were approximately $238,000 and $447,000, respectively, a decrease of approximately $209,000 or 47%.

Current wording

For the three months ended June 30, 2024, and 2023, total operating expenses were approximately $193,000 and $358,000, respectively, a decrease of approximately $165,000 or 46%.