CAPSTONE COMPANIES, INC.

Previous wording

Described below and throughout this Form 10-K report are certain factors and risks that the Company’s management believes are applicable to the Company’s business and the industries in which it operates. If any of the described events occur, the Company’s business, results of operations, financial condition, liquidity, or access to funding could be materially adversely affected. When stated below that a risk or factor may have a material adverse effect on the Company business, it means that such risk may have one or more of these effects. There may be additional risks that are not presently material or known. There are also risks within the economy, the industry, and the capital markets that could have a material adverse effect on the Company, including those associated with an economic recession, inflation, a global economic slowdown, political instability, government regulation (including tax regulation), employee attraction and retention, and customers’ inability or refusal to pay for the products and services provided by the company. There are also risks associated with the occurrence of extraordinary events, such as terrorist attacks or natural disasters (such as tsunamis, hurricanes, tornadoes, and floods) and pandemics or epidemics. These risks and factors affect businesses generally, including the Company, its customers and suppliers and, as a result, are not discussed in detail below, but are applicable to the Company. As a “penny stock” without primary market maker support, any investment in our Common Stock is highly risky and should only be considered by investors who can afford to lose their entire investment and do not require immediate liquidity. These risk factors are not the only risks that we or our subsidiaries may face. Additional risks and uncertainties not presently known to us or not currently believed to be important also may adversely affect our business.

Current wording

Described below and throughout this Form 10-K report are certain factors and risks that the Company’s management believes are applicable to the Company’s business and the industries in which it operates. If any of the described events occur, the Company’s business, results of operations, financial condition, liquidity, or access to funding could be materially adversely affected. When stated below that a risk or factor may have a material adverse effect on the Company business, it means that such risk may have one or more of these effects. There may be additional risks that are not presently material or known. There are also risks within the economy, the industry, and the capital markets that could have a material adverse effect on the Company, including those associated with an economic recession, inflation, a global economic slowdown, political instability, government regulation (including tax regulation), employee attraction and retention, and customers’ inability or refusal to pay for the products and services provided by the company. There are also risks associated with the occurrence of extraordinary events, such as war, terrorist attacks or natural disasters (such as tsunamis, hurricanes, tornadoes, and floods) and pandemics or epidemics. These risks and factors affect businesses generally, including the Company, its customers and suppliers and, as a result, are not discussed in detail below, but are applicable to the Company. As a “penny stock” without primary market maker support, and our public auditors expressing substantial doubt about our ability to continue as a going concern any investment in our Common Stock is highly risky and should only be considered by investors who can afford to lose their entire investment. These risk factors are not the only risks that we may face. Additional risks and uncertainties not presently known to us or not currently believed to be important also may adversely affect our business.

Previous wording

The declining revenues in 2023 and 2022 of our primary business line of LED lighting products ceasing to be a revenue source in 2023, and the Connected Surfaces product line not becoming a replacement revenue source have resulted in significant operating losses and imposed a need to sustain operations with outside funding of working capital. If the Company cannot obtain adequate, affordable funding, whether equity or debt, as needed, the Company will have difficulty sustaining the Company as a going concern.

Current wording

The declining revenues in 2024 and 2023 of our business line of LED lighting products and the lack of a sufficient revenue generating operation in 2024 have resulted in significant operating losses and imposed a need to sustain operations with outside funding of working capital. If the Company cannot obtain adequate, affordable funding, whether equity or debt, as needed, the Company will have difficulty sustaining the Company as a going concern.

Previous wording

Cash flow from operations was and is not sufficient to sustain operations and support optimal marketing efforts of Connected Surfaces Smart Mirror product line as a primary revenue source. In order to attempt to secure adequate working capital in 2023, we took the actions detailed below. These actions are not deemed sufficient to meet all expected working capital needs for 2024 for a full implementation of our plan to establish the Connected Surfaces product lines as viable product lines and to meet general operating overhead needs. We anticipate the need to raise working capital funding to meet our funding needs in 2024 and supplement any cash flow from operations. Because of the low market price and liquidity of our Common Stock, our declining financial performance, lack of hard assets required for asset based loans, and our transition from a declining product line and primary source to a new, unproven product line, we may be unable to raise necessary, affordable and timely working capital in 2024 and that failure could be fatal to our ability to sustain the Company as an operating company.

Current wording

Cash flow from operations was and is not sufficient to sustain operations and fully fund its HFS business and Connected Chef licensing program. In order to attempt to secure adequate working capital in 2024, we took the actions detailed below. These actions are not deemed sufficient to meet all expected working capital needs for 2025 or to license the Connected Chef or complete a business combination or purchase a new revenue generating product line. We anticipate the need to raise working capital funding to meet our funding needs in 2025 as we do not have any cash flow from operations. Because of the low market price and liquidity of our Common Stock, our declining financial performance, lack of hard assets required for asset based loans, and our transition from a declining product line and primary source to a new, unproven product line, we may be unable to raise necessary, affordable and timely working capital in 2025 and that failure could be fatal to our ability to sustain the Company as an operating company.

Previous wording

During the year ended December 31, 2023, the Company used cash in operations of approximately $614,527 and generated net operating losses of approximately $1,634,000. As of December 31, 2023, the Company has working capital deficit of $3,279,303 and an accumulated deficit of $10,797,216. The Company’s cash balance decreased approximately $25,000 from $61,463 as of December 31, 2022 to $36,466 as of December 31, 2023. Although we have cash on hand, the Company does not have sufficient cash on hand to finance its plan of operations for the next 12 months from the filing of this report and we will need to seek additional capital through debt and/or equity financing to fully fund operational overhead and fully fund the effort to launch the Connected Chef product line as the primary revenue source in 2024. While certain directors have provided working capital funding to the Company in the past, including 2023, there is no guarantee, and none can be given that these insiders will do so when and as required by the Company in 2024.

Current wording

During the year ended December 31, 2024, the Company used cash in operations of $289,548 and generated net operating losses of $995,815. As of December 31, 2024, the Company has working capital deficit of $144,755 and an accumulated deficit of $11,784,360. The Company’s cash balance decreased approximately $20,000 from $36,466 as of December 31, 2023, to $15,850 as of December 31, 2024. Although we have cash on hand, the Company does not have sufficient cash on hand to finance its plan of operations for the next 12 months from the filing of this report and we will need to seek additional capital through debt and/or equity financing to fully fund operational overhead and fully fund the effort to license the Connected Chef product line or establish the HFS business as the primary revenue source in 2025. While certain directors have provided working capital funding to the Company in the past, including 2024, there is no guarantee, and none can be given that these insiders will do so when and as required by the Company in 2025.

Previous wording

The Company does not have an alternative product line to replace the Connected Chef product line in 2024. If the Connected Chef product line does not become a viable revenue source in 2024, the Company will need funding to sustain operations and efforts to establish the Connected Chef product line as a viable revenue source. The Company has not received pre-production orders for the Connected Chef product line and the Company lacks the working capital to extensively market the Connected Chef, which is not in production.

Current wording

If the HFS business does not produce revenues in 2025, and if the Connected Chef licensing program does not become a viable revenue source in 2025, the Company will need additional third-party funding to sustain operations and efforts to establish the HFS program and the Connected Chef licensing program as a viable revenue sources. The Company has not yet received pre-production orders for the Connected Chef product line under its licensing program and has not yet acquired or internally developed a HFS operation. The Company currently lacks the working capital to extensively market the Connected Chef licensing program or fully implement the HFS program. Company has no consumer products in active production as of the date of the filing of this Form 10-K report.

Previous wording

The Company does not have an alternative product line to the Connected Surfaces Connected Chef product line and would be unable to develop an alternative in 2024 due to a lack of adequate working capital. The financial condition of the Company has caused the Company to seek to effect an extraordinary corporate transaction to protect shareholder value and sustain the Company as an operating company. This effort is being pursued in conjunction with efforts to secure pre-production orders for the Connected Chef. An extraordinary corporate transaction could include a merger or sale of the Company or reorganization of the Company under bankruptcy protection or otherwise or could result in the liquidation of the current business and efforts to fund a new business line in 2024 if adequate, affordable funding is available. The Company may be unable to effect, if necessary, an extraordinary corporate transaction or obtain significant funding for a new product line in 2024 to sustain the Company as an operating company. Reorganization under the protection of the bankruptcy code is one possible extraordinary corporate transaction if the Connected Chef product lines does not become a viable revenue source and other extraordinary corporate transactions are not possible. While the Company is continuing efforts to establish the Connected Chef product line as a viable revenue source, the Company is exploring possible alternative new business lines, which alternative business lines could be internally developed with sufficient funding or acquired in a merger or asset acquisition. If the Company receives a pre-production bulk order for the Connected Chef, the Company would have to raise working capital to fund production and the Company may be unable to raise that funding on affordable terms or at all.

Current wording

In 2024, the Company did not have an alternative consumer product line to the Connected Chef product line and would be unable to develop an alternative in 2025 due to a lack of adequate working capital. The Company has not raised the working capital to acquire or launch a HFS operation as of the date of the filing of this Form 10-K report. Absent adequate working capital funding in 2025, and a lack of revenue from the Connected Chef licensing program, the financial condition of the Company may at some point force the Company to seek to effect an extraordinary corporate transaction to protect shareholder value and sustain the Company as an operating company. An extraordinary corporate transaction could include a merger or sale of the Company or reorganization of the Company under bankruptcy protection. The Company may be unable to effect, if necessary, an extraordinary corporate transaction or obtain significant funding for a new product line in 2025 to sustain the Company as an operating company. Reorganization under the protection of the bankruptcy code is one possible extraordinary corporate transaction if the Connected Chef licensing program and HFS business do not become a viable revenue sources and other extraordinary corporate transactions are not possible. While the Connected Chef licensing program is intended to remove the burden of funding production of products for licensees or licensors, if the Company has to fund a pre-production bulk order for the Connected Chef under the licensing program, the Company will have to raise working capital to fund production and the Company may be unable to raise that funding on affordable terms or at all.

Previous wording

We operate the executive operations with a relatively small number of personnel. Company has not developed personnel to readily replace key personnel. The loss of key personnel, being Stewart Wallach, Company’s Chief Executive Officer, would severely harm the business. As of December 31, 2022, James McClinton, our Chief Financial Officer for over 30 years, elected to retire. The Company hired Dana Eschenburg Perez, as an external consultant as of January 1, 2023 to perform the functions of Chief Financial Officer. We do not have key man life insurance.

Current wording

We operate the executive operations with a relatively small number of personnel. Company has not developed personnel to readily replace key personnel. The loss of key personnel, being Alexander Jacobs, the Company’s newly appointed Chief Executive Officer, would severely harm the business. The Company hired Dana Eschenburg Perez, as an external consultant as of January 1, 2023, to perform the functions of Chief Financial Officer. We do not have key man life insurance.

Previous wording

Our personnel are focused on executive management or marketing. Our marketing is supplemented by contractor sales agencies, and we have a relatively small research and development capability overseas. We rely on OEMs for certain technical development and design, and we have no current plans to develop an in-house technical development staff. The loss of an OEM would disrupt our business operations if we could not find a suitable replacement in short order. Company evaluates potential OEM’s from time to time to identify possible alternative production and technical development resources. If our operations grow, we may have to increase the number of our personnel in the future to handle any growth or expansion of product lines or product categories. Our ability to find and retain qualified personnel when needed by our growth or existing operations will be an important factor in determining our success in coping with any growth or efficiently handling existing operational burdens.

Current wording

Our personnel are focused on executive management or marketing. Our marketing is supplemented from time to time by contractor sales agencies, and we have a relatively small research and development capability overseas. We rely on original equipment or contract manufacturers (“OEMs”) for certain technical development and design, and we have no current plans to develop an in-house technical development staff. The loss of an OEM would disrupt our Connected Chef licensing program if we or the licensee could not find a suitable replacement in short order. Company evaluates potential OEM’s from time to time to identify possible alternative production and technical development resources. If our operations grow, we may have to increase the number of our personnel in the future to handle any growth or expansion. Our ability to find and retain qualified personnel when needed by our growth or existing operations will be an important factor in determining our success in coping with any growth or efficiently handling existing operational burdens.

Previous wording

During a downturn in the economy, or periods of increased inflation, consumer purchases of discretionary items are usually affected, which could materially harm our sales, profitability and financial condition and our prospects for growth. Historic inflation in 2022 has created uncertainty about consumer confidence and its impact on demand for our products in 2023.

Current wording

During a downturn in the economy, or periods of increased inflation, consumer purchases of discretionary items are usually affected, which could materially harm the prospects and performance of the Connected Chef licensing business. Historic inflation in 2022 through 2024 has created uncertainty about consumer confidence and its impact on demand for our products in 2024. Inflation remains a concern in 2025 due to U.S. imposition of tariffs on China and major trading partners of the U.S.

Previous wording

Many of our products may be considered discretionary items for consumers, including the Connected Chef. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, unemployment, the hyper-inflation affecting the U.S. in 2023, the availability of consumer credit and consumer confidence in future economic conditions. Uncertainty in U.S. economic conditions continues, particularly considering the impacts rising inflation, and trends in consumer discretionary spending remain unpredictable. Historically, consumer purchases of discretionary items tend to decline during recessionary periods periods of high inflation, when disposable income is lower or during other periods of economic instability or uncertainty, which may lead to declines in sales and slow our long-term growth expectations. Any near or long-term downturn in the U.S. market in which we sell most of our products, or other key markets, may materially harm our sales, profitability and financial condition and our prospects for growth. The “Big Box” retailers that are the traditional buyers of our products would be less inclined to purchase our products, including the Connected Chef, if economic concerns (including inflation concerns) are predicted to reduce consumer purchases of discretionary items. Continued inflationary pressure on essentials, like food prices, will reduce consumer purchases of discretionary items.

Current wording

Our sole consumer product, the Connected Chef, may be considered discretionary purchase for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, unemployment, current inflationary or recession concerns among consumers, the availability of consumer credit and consumer confidence in future economic conditions. Further, the HFS business may be deemed a non-essential expense by consumers that is also affected by economic and inflationary concerns and events. Uncertainty by consumers about current or future U.S. economic conditions, including inflationary and recession concerns, trends in consumer discretionary spending remain unpredictable. Historically, consumer purchases of discretionary items tend to decline during recessionary periods of high inflation or uncertain economic conditions or trends, when disposable income is lower or anticipated to be lower, which may lead to declines in sales and slow our long-term growth expectations. Any near or long-term downturn in the U.S. economy may adversely impact our HFS business development and Connected Chef licensing program. Continued inflationary pressure on essentials, like food and transportation prices, will reduce consumer purchases of discretionary items.

Previous wording

In the consumer lighting market, which is a maturing market for us, we compete with companies that manufacture and sell traditional lighting products and we compete with companies that make smart mirrors for residential use, we compete with companies that have greater market share, name recognition and technical resources than we do. Competitors continue to offer new products with aggressive pricing. Aggressive pricing actions by our competitors in our businesses could reduce margins if we are not able to reduce costs at an equal or greater rate than the sales price decline.

Current wording

In the HFS industry markets and consumer products markets, we compete with or will compete with companies that have greater financial and funding resources, personnel resources, market share, name recognition and technical resources than we do. Competitors may and do offer new products or services with aggressive pricing. Aggressive pricing actions by our competitors could reduce margins if we are not able to reduce costs at an equal or greater rate than the sales price decline. Our Company may lack the financial resources to be able to withstand predatory pricing from competitors.

Previous wording

With the increased demand for consumer smart products, including the Connected Surfaces, which is the focus of our business, we will continue to face increased competition in the future across our businesses. If the investment in capacity exceeds the growth in demand the electronic consumer market is likely to become more competitive with additional pricing pressures. With the emerging and evolving smart mirror market, we face growing competition and rapidly changing product technology and functionalities.

Current wording

With the increased demand for consumer smart products, which product category includes the Connected Chef, of which, licensing is the focus of this business segment in 2024 and 2025, we will continue to face increased extensive competition in the future. If the investment in capacity exceeds the growth in demand the electronic consumer market is likely to become more competitive with additional pricing pressures. With the emerging and evolving smart mirror market, we face growing competition and rapidly changing product technology and functionalities. The rapidly increasing number of competitors nationwide in the HFS industry and possible consolidation of those competitors into regional or national companies presents a significant challenge to our company in efforts to penetrate the market in 2025.

Previous wording

As competition increases in smart products, including connected surfaces, we need to continue to develop new products that meet or exceed the needs of our customers. Adequate, affordable and available funding is key to our ability to compete in the smart mirror markets. Competitors may also try to align with some of our strategic customers. This could lead to lower prices for our products, reduced demand for our products and a corresponding reduction in our ability to recover development, engineering and manufacturing costs. Any of these developments could have an adverse effect on our business, results of operations or financial condition.

Current wording

Competitors may try to align with some of our licensees or licensors in our Connected Chef business or target Company relationships with licensees and licensors. This could lead to lower prices for our products, reduced demand for our products and a corresponding reduction in our ability to recover development, engineering and manufacturing costs. Any of these developments could have an adverse effect on our business, results of operations or financial condition.

Previous wording

If our products fail to perform or fail to meet customer requirements or expectations, we could incur significant additional costs, including costs associated with the recall of those items.

Current wording

If our products or services fail to perform or fail to meet customer requirements or expectations, we could incur significant additional costs, including costs associated with the recall of those items.

Previous wording

The manufacturing of our products involves complex processes. We do not have sufficient consumer experience with our products to determine the extent of any customer service problems or product returns and defects and those factors impact on revenues. Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards, we may be required to replace or rework the products. In some cases, our products may contain undetected defects that only become evident after shipment and used by consumers. Even if our products meet standard specifications, our customers may attempt to use our products in applications for which they were not designed resulting in product failures and creating customer satisfaction issues. For a small company, identifying and meeting consumer demand and product quality standards are critical to our business and financial performance.

Current wording

If our products or services do not meet consumer expectations or preferences, we may be required to replace or rework the products or revise our service offerings. In some cases, our products may contain undetected defects that only become evident after shipment and used by consumers, or our realization of customer dissatisfaction with or waning interest in our services may only come after a significant loss of our customer base. Even if our Connected Chef product does meet standard specifications, the products’ customers may attempt to use our products in applications for which they were not designed resulting in product failures and creating customer satisfaction issues. For a small company, identifying and meeting consumer demand and product and service quality standards are critical to our business and financial performance in both the Connected Chef business and HFS business. We may lack the financial or other resources in both industries to respond in a timely manner or at all to changing consumer tastes or preferences.

Previous wording

If failures or defects occur, they could result in significant losses or product recalls due to:

Current wording

We may remain liable for product defects or failures in the Connected Chef business in certain licensing arrangements. If such failures or defects occur and the Company has responsibility or liability for those failures or defects, then they could result in significant losses or product recalls due to:

Previous wording

For any products being sold and purchased by consumers, a significant product recall could also result in adverse publicity, damage to our reputation and a loss of customer or consumer confidence in our products and could substantially undermine or delay any success in the critical Connected Surfaces product launch. Further, while we believe that product liability for consumer electronic products is not significant or widespread, we could face product liability lawsuits or regulatory proceedings by the Consumer Product Safety Commission (CPSC) and could suffer losses from a significant product liability judgment or adverse CPSC finding against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard to the public. We provide warranty periods of 1 year on our products. Although we believe our warranty reserves are appropriate, we are making projections about the future reliability of new products and technologies, and we may experience increased variability in warranty claims. Increased warranty claims could result in significant losses due to a rise in warranty expense and costs associated with customer support.

Current wording

For any products being sold and purchased by consumers, a significant product recall could also result in possible adverse publicity, damage to our reputation and a loss of customer or consumer confidence in our products and could substantially undermine or delay any success in the Connected Chef product licensing. Further, while we believe that product liability for consumer electronic products is not significant or widespread, we could face product liability lawsuits or regulatory proceedings by the Consumer Product Safety Commission (CPSC), if it remains in existence or continues to fully function under the current downsizing of the Federal Government, and could suffer losses from a significant product liability judgment or adverse CPSC finding against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard to the public.

Previous wording

If we do not accurately predict consumer demand for products, we may be unable to produce products that are in demand and our financial performance will suffer.

Current wording

If we do not accurately predict consumer demand for products and services, we may be unable to produce products or offer services that are in demand and our financial performance will suffer.

Previous wording

Factors that could affect our ability to accurately forecast demand for our products include:

Current wording

Factors that could affect our ability to accurately forecast demand for our products or services include:

Previous wording

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices or in less preferred distribution channels, which could have an adverse effect on gross margin. In addition, if we underestimate the demand for our products, our manufacturers may not be able to produce products to meet our customer requirements, and this could result in delays in the shipment of our products and our ability to recognize revenue, lost sales, as well as damage to our reputation and retailer and distributor relationships.

Current wording

While the Connected Chef licensing program does not anticipate maintenance of inventory by the Company, if the Company does maintain inventory levels in excess of customer or licensee/licensor demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices or in less preferred distribution channels, which could have an adverse effect on gross margin. In addition, if we or licensees of the Connected Chef licensing program underestimate the demand for our products, our contract manufacturers may not be able to produce products to meet our licensees’, licensors’ or customers’ requirements, and this could result in delays in the shipment of our products and our ability to recognize revenue, lost sales, as well as damage to our reputation and retailer and distributor relationships.

Previous wording

The consumer electronics industry is subject to significant pricing pressure caused by many factors, including technological advancements, intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products and changes in consumer demand.

Current wording

The consumer product industry is subject to significant pricing pressure caused by many factors, including technological advancements, intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products and changes in consumer demand, and increasing need to exploit e-commerce and Social Media.

Previous wording

Fluctuations in the cost of products could negatively affect our operating results.

Current wording

Fluctuations in the cost of Connected Chef products could negatively affect our operating results.

Previous wording

The components used by our suppliers and manufacturers are made of raw materials that may be subject to significant price fluctuations or shortages that could materially adversely affect our cost of goods sold. In addition, certain of our manufacturers are subject to government regulations related to wage rates, and therefore the labor costs to produce our products may fluctuate. The cost of transporting our products for distribution and sale is also subject to fluctuation. Because our products are manufactured abroad, our products must be transported by third parties over large geographical distances, increased demand for freight services at a time of reduced ocean freight capacity, can significantly increase costs. Manufacturing delays or unexpected transportation delays, can also cause us to rely more heavily on airfreight to achieve timely delivery to our customers, which significantly increases freight costs. Any of these fluctuations may increase our cost of products and have an adverse effect on our profit margins, results of operations and financial condition.

Current wording

The components used by our suppliers and contract manufacturers for the Connected Chef product will be made of raw materials that may be subject to significant price fluctuations or shortages that could materially adversely affect our cost of goods sold. In addition, certain of our contract manufacturers may be subject to government regulations related to wage rates, and therefore the labor costs to produce our products may fluctuate. The cost of transporting our products for distribution and sale is also subject to fluctuation. Because the Connected Chef product will be manufactured abroad, any Connected Chef products must be transported by third parties over large geographical distances, increased demand for freight services at a time of reduced ocean freight capacity, can significantly increase costs. Manufacturing delays or unexpected transportation delays can also cause us to rely more heavily on airfreight to achieve timely delivery to our customers, which significantly increases freight costs. Any of these fluctuations may increase the cost of products and have an adverse effect on our profit margins, results of operations and financial condition.

Previous wording

Litigation between competitors over intellectual property rights can be a common business practice in an industry as a means to protect or gain market share. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant legal expense and divert the efforts of our technical personnel and management, even if the litigation results in a determination favorable to us. In the event of an adverse result in such litigation, we could be required to:

Current wording

Litigation between competitors over intellectual property rights can be a common business practice in an industry like the consumer product industry as a means to protect or gain market share. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant legal expense and divert the efforts of our, or our licensee’s or licensor’s, technical personnel and management, even if the litigation results in a determination favorable to us or them. In the event of an adverse result in such litigation, we could be required to:

Previous wording

There can be no assurance that third parties will not attempt to assert infringement claims against us with respect to our products. Additionally, if an infringement claim against the Company or its customers is successful, the Company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The payment of any such damages or royalties may significantly increase the Company’s operating expenses and materially harm the company’s operating results and financial condition. Further, royalty or license arrangements may not be available at all, which would then require the company to stop selling certain products or using certain technologies, which could negatively affect the company’s ability to compete effectively. We do not have reserves for litigation or insurance for infringement litigation costs. This kind of litigation is typically very expensive to litigate, and we may lack the funds to aggressively litigate infringement claims against us or against competitors, which could lead to a materially adverse impact on our business.

Current wording

There can be no assurance that third parties will not attempt to assert infringement claims against us with respect to our consumer products. Additionally, if an infringement claims against the Company or its customers is successful, the Company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The payment of any such damages or royalties may significantly increase the Company’s operating expenses and materially harm the company’s operating results and financial condition. Further, royalty or license arrangements may not be available at all, which would then require the company to stop selling certain products or using certain technologies, which could negatively affect the company’s ability to compete effectively. We do not have reserves for litigation or insurance for infringement litigation costs. This kind of litigation is typically very expensive to litigate, and we may lack the funds to aggressively litigate infringement claims against us or against competitors, which could lead to a materially adverse impact on our business.

Previous wording

Our operations in foreign countries expose us to certain risks inherent in doing business internationally, which may adversely affect our business, results of operations or financial condition.

Current wording

Our Connected Chef licensing program may result in our conducting business*** in foreign countries and that would expose us to certain risks inherent in doing business internationally, which may adversely affect our business, results of operations or financial condition.***

Previous wording

We have revenue, operations and contract manufacturing arrangements in overseas that expose us to certain risks. Fluctuations in exchange rates may affect our revenue, expenses and results of operations as well as the value of our assets and liabilities as reflected in our financial statements. We are also subject to other types of risks, including the following:

Current wording

If we have revenues, operations and contract manufacturing arrangements or licensing arrangements overseas, then that may expose us to certain risks. Fluctuations in exchange rates may affect our revenue, expenses and results of operations as well as the value of our assets and liabilities as reflected in our financial statements. We are also subject to other types of risks, including the following:

Previous wording

Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors may have a material adverse effect on our business in the future or may require us to significantly modify our current business practices. Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could also result in an adverse effect on our business and results of operations.

Current wording

Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors may have a material adverse effect on our business conducted overseas in the future or may require us to significantly modify our current business practices. Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could also result in an adverse effect on our business and results of operations. We do not have extensive prior experience in conducting business in Thailand, which is the location of our prior consumer product development and production (supplemented by contractors in China). This lack of experience may delay accomplishing our business milestones for development or production of consumer product produced by our Thailand OEMs under our Connected Chef licensing program.

Previous wording

All of our manufacturers are located outside of the United States in 2023. As a result, we are subject to risks associated with doing business abroad, including:

Current wording

If we are subject to risks associated with doing business abroad in the consumer product segment, then those risks include:

Previous wording

These risks could negatively affect the ability of our manufacturers to produce or deliver our products or procure materials and increase our cost of doing business generally, any of which could have an adverse effect on our results of operations, cash flows and financial condition. If one or more of these factors, make it undesirable or impractical for us to conduct business in a particular country our business could be adversely affected.

Current wording

These risks could negatively affect the ability of our contract manufacturers to produce or deliver our products or procure materials and increase our cost of doing business generally, any of which could have an adverse effect on our results of operations, cash flows and financial condition. If one or more of these factors, make it undesirable or impractical for us to conduct business in a particular country our business could be adversely affected.

Previous wording

Our current short-term debt level as of December 31, 2023 and 2022 was $2,540,476 and $620,137, respectively.

Current wording

Our current short-term debt level as of December 31, 2024, and 2023 was $180,760 and $2,540,476, respectively.

Previous wording

The Company will need additional outside working capital funding in fiscal year 2024 to support the Company’s operations and develop and market the Connected Chef product line.

Current wording

The Company will need additional outside working capital funding in fiscal year 2025 to support the Company’s operations.

Previous wording

Since we are transitioning our product focus to Connected Surfaces products past financial performance is not indicative of any future growth or future financial performance. We will have to establish our Connected Surfaces product line in the face of extensive competition as an entirely new segment within the Smart Home category.

Current wording

Since we have transitioned our consumer product business to the licensing of the Connected Chef product, past financial performance is not indicative of any future growth or future financial performance. We will have to establish our Connected Chef licensing program and product line in the face of extensive competition as an entirely new segment within the Smart Home category and establish the HFS business in the face of extensive and growing competition.

Previous wording

All our sales in 2023 were transacted in U.S. dollars. The weakening of the U.S. dollar relative to foreign currencies can negatively impact our operating profits, through higher unit costs. However, as the Company volumes increase, the leveraged buying power has enabled the Company to minimize the impact on costs. Changes in currency exchange rates may also affect the relative prices at which we and our competitors sell products in the same market. There can be no assurance that the U.S. dollar foreign exchange rates will be stable in the future or that fluctuations in such rates will not have a material adverse effect on our business, results of operations, or financial condition.

Current wording

All our sales in 2024 were transacted in U.S. dollars. The weakening of the U.S. dollar relative to foreign currencies can negatively impact our operating profits, through higher unit costs. Changes in currency exchange rates may also affect the relative prices at which we and our competitors sell products in the same market. There can be no assurance that the U.S. dollar foreign exchange rates will be stable in the future or that fluctuations in such rates will not have a material adverse effect on our business, results of operations, or financial condition.

Previous wording

The Company’s Common Stock is subject to possible volatile trading, including rapid increases and decreases in market price due to trading in the open market. Company’s declining business and financial condition has depressed the already low market price and trading of the Company’s Common Stock in 2023. The Company’s Common Stock lacks the primary market makers and institutional investors who can protect the market price from volatility in trading and market price. Company does not have any research analyst issuing recommendations. The common stock is also a “penny stock” under SEC rules and suffers the limitations and burdens in trading of penny stocks. This lack of market support and penny stock status means that trading, especially by day traders, can cause a rapid increase or decrease in market price of the common stock and makes any investment in the common stock extremely risky and unsuitable for investors who cannot withstand the loss of their entire investment and requires liquidity in the investment. An investment in the Common Stock remains an extremely risky investment that is not suitable for investors who cannot afford the loss of investment and can withstand or tolerate a lack of liquidity.

Current wording

The Company’s Common Stock is subject to possible volatile trading, including rapid increases and decreases in market price due to trading in the open market. Company’s declining business and financial condition has depressed the already low market price and trading of the Company’s Common Stock in 2024. The Company’s Common Stock lacks the primary market makers and institutional investors who can protect the market price from volatility in trading and market price. Company does not have any research analyst issuing recommendations. The Common Stock is also a “penny stock” under SEC rules and suffers the limitations and burdens in trading of penny stocks. This lack of market support and penny stock status means that trading, especially by day traders, can cause a rapid increase or decrease in market price of the Common Stock and makes any investment in the Common Stock extremely risky and unsuitable for investors who cannot withstand the loss of their entire investment and requires on demand liquidity in the investment. An investment in the Common Stock remains an extremely risky investment that is not suitable for investors who cannot afford the loss of investment and can withstand or tolerate a possible lack of liquidity.

Previous wording

We are also a former shell company under current SEC rules and interpretations thereof. As such, our stock transfer agent requires a legal opinion as well as other paperwork to lift restrictive legends from stock certificates for non-affiliated as well as affiliated shareholders. The restrictive legends can only be lifted for at most a 90-day period for sales under Rule 144 for affiliated and non-affiliated shareholders. Further, our stock transfer agent will not permanently remove restrictive legends on stock certificates held by shareholders. absent registration of the shareholder’s shares of common stock under the Securities Act. This status may make our common stock even more unappealing to investors and potential purchasers and more difficult to sell or trade. “Affiliated shareholders” are generally Company officers, directors, and holders of more than 10% of the issued shares of the Common Stock.

Current wording

We were a former shell company (under current SEC rules and interpretations thereof) during the early 1990’s. As such, our stock transfer agent requires a legal opinion as well as other paperwork to lift restrictive legends from stock certificates for non-affiliated as well as affiliated shareholders. The restrictive legends can only be lifted for at most a 90-day period for sales under Rule 144 for affiliated and non-affiliated shareholders. Further, our stock transfer agent will not permanently remove restrictive legends on stock certificates held by shareholders. absent registration of the shareholder’s shares of common stock under the Securities Act. This status may make our common stock even more unappealing to investors and potential purchasers and more difficult to sell or trade. “Affiliated shareholders” are generally Company officers, directors, and holders of more than 10% of the issued shares of the Common Stock.

Previous wording

Further, our common stock is quoted on The OTC Markets Group, Inc. QB venture market. Many brokerage houses will not accept OTC stocks for deposit or for trading due to the compliance burdens and reduced financial benefits of trading in OTC stocks. Some shareholders may hold paper stock certificates and experience difficulty in finding a broker who will accept such stock or experience difficulty in meeting the requirements for deposit of such stock in a brokerage account. These difficulties further decreases the appeal of our common stock to investors.

Current wording

Further, our Common Stock is quoted on The OTC Markets Group, Inc. QB venture market. Many brokerage houses will not accept OTC stocks for deposit or for trading due to the compliance burdens and reduced financial benefits of trading in OTC stocks. Some shareholders may hold paper stock certificates and experience difficulty in finding a broker who will accept such stock or experience difficulty in meeting the requirements for deposit of such stock in a brokerage account. These difficulties further decrease the appeal of our Common Stock to investors.

Previous wording

Certain of our officers and directors beneficially own approximately 40% of our outstanding common stock as of the date hereof. Assuming support from public shareholders with a sufficient voting power, then our officers and directors will be able to exercise control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions, and they will have significant control over our management and policies. The directors elected by these stockholders will be able to influence decisions affecting our capital structure significantly. This control may have the effect of delaying or preventing changes in control or changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in their best interest. For example, our controlling stockholders will be able to control the sale or other disposition of our operating businesses and subsidiaries to another entity.

Current wording

A current director and a former director of the Company beneficially own approximately 40% of our outstanding common stock as of the date hereof. Assuming support from public shareholders with a sufficient voting power, and the if the current director and former director vote the same, then they will be able to exercise control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions, and they will, if the vote as a group, have significant control over our management and policies. The directors elected by these stockholders may be able to influence decisions affecting our capital structure significantly. This potential control may have the effect of delaying or preventing changes in control or changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in their best interest. For example, if the director and former director vote the same and are joined by public shareholders to the extent necessary to control more than 50% of the vote, then these shareholders could block a sale or other disposition of the Company to another entity. As of the date of the filing of this Form 10-K report, four of the five directors are not deemed to be affiliates of the director and former director and the Company is not aware of any agreement by the director and former director to vote a group.

Previous wording

The Company’s operations are subject to disruption from natural or human causes beyond its control, including physical risks from hurricanes, severe storms, floods and other forms of severe weather, accidents, fires, earthquakes, terrorist acts and epidemic or pandemic diseases such as the COVID-19 or variants of that virus, any of which could result in suspension of operations or harm to people or the environment. While all of the Company’s corporate operations are located in the United States, the Company participates in a Chinese and Thailand product supply chain, and if a disease spreads sufficiently to cause a pandemic (or to cause the fear of a pandemic to rise) or governments regulate or restrict the flow of labor or products or impede the travel of Company personnel, the Company’s ability to conduct normal business operations could be impacted which could adversely affect the Company’s results of operations and liquidity. Most of the Company products are sourced and made in China and Thailand and an increased or prolonged disruption could substantially and adversely impact the Company’s production of products. Currently, the Company’s Chinese and Thailand suppliers have reopened and building to full production capabilities.

Current wording

The Company’s operations, whether in consumer products or HFS business, are subject to disruption from natural or human causes beyond its control, including physical risks from hurricanes, severe storms, floods and other forms of severe weather, accidents, fires, earthquakes, terrorist acts and epidemic or pandemic diseases such as the COVID-19 or variants of that virus, any of which could result in suspension of operations or harm to people or the environment. While all of the Company’s corporate operations are located in the United States, the Company has used and may use Chinese and Thailand contract manufacturers, and if a disease spreads sufficiently to cause a pandemic (or to cause the fear of a pandemic to rise) or governments regulate or restrict the flow of labor or products or impede the travel of Company personnel, the Company’s ability to access these foreign contract manufacturers for its Connected Chef licensing program could be materially and adversely affected. Epidemics and pandemics can cause the failure of companies engaged in businesses, like the HFS business, that are open to and depend on the willingness of the public to use public facilities. Natural disasters can damage or destroy HFS facilities and deprive the operator of revenues as well as imposing potentially significant liabilities.

Previous wording

Our ability to execute on our long-term strategies depends, in part, on successfully executing on strategic growth initiatives in key areas, such as our new Connected Chef product. Our growth in these areas depends on our ability to continue to successfully market these new products to existing customers, grow our e-commerce and mobile application offerings in the U.S. market and continue to successfully increase our product offerings in the Connected Surfaces category. Our long-term strategy depends on our ability to successfully drive expansion of our gross margins, manage our cost structure and drive return on our investments. If we cannot effectively execute our long-term growth strategies while managing costs effectively, our business could be negatively impacted, and we may not achieve our expected results of operations.

Current wording

Our ability to execute on our long-term strategies depends, in part, on successfully executing on strategic growth initiatives in key areas, such as our Connected Chef licensing program and HFS business. Our growth in these areas depends on our ability to successfully implement the HFS business line and license the Connected Chef product. Our long-term strategy depends on our ability to successfully drive expansion of our gross margins, manage our cost structure and drive return on our investments. If we cannot effectively execute our long-term growth strategies while managing costs effectively, our business could be negatively impacted, and we may not achieve our expected results of operations.