CAPSTONE COMPANIES, INC.

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.

Business and Operational Risks

Our auditors have issued a going concern opinion, and we will not be able to achieve our objectives and will have to cease operations if we cannot adequately fund our operations.

Our public auditors issued a going concern opinion in connection with the audit of our annual financial statements for the fiscal year ended December 31, 2024. A going concern opinion means that there is substantial doubt that the company can continue as an ongoing business for the next 12 months. If we are unable to continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. In addition, the inclusion of an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern and our lack of cash resources may materially adversely affect our share price and our ability to raise new capital or to enter into critical contractual relations with third parties. There is no assurance that we will be able to adequately fund our operations in the future.

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.

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.

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.

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.

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.

Our operating results and sustainability as an operating company in the future are substantially dependent on the success of the Connected Chef licensing program and HFS development program in 2025.

There can be no assurance that the Connected Chef licensing program or HFS development program will generate sufficient or any revenues, or any continued revenues to fund ongoing operations of the Company.

Our operations depend on a small number of personnel and the loss of key personnel or the inability to replace or add key personnel could have a significant impact on our ability to grow or sustain operations.

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.

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.

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.

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.

The markets in which we operate are highly competitive and have evolving technical or consumer requirements.

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.

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.

Adequate, affordable and available funding is a key factor in our ability to compete in the HFS industry and consumer products market featuring smart products.

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.

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.

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.

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:

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.

Our results of operations could be materially harmed if we are unable to accurately forecast demand for our products or, for offerings of any HFS operation, demand for services.

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.

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

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.

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.

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

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.

Regulatory and Legal Risks

Our business may be impaired by claims that we infringe the intellectual property rights of others.

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:

The risk of infringement claims may be greater in emerging products and technologies like smart devices.

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.

For*** HFS operations, we will face potential liabilities common to health, fitness and social activities facilities servicing the general public.***

Operating a HFS operation exposes the operator to potential litigation or liabilities resulting customers, visitors or personnel suffering personal injuries, illness, or death on company premises or as a result of company’s services or activities. Other potential liabilities and litigation risks result from or be based upon: discrimination claims from customers or company personnel; violations of health, safety or food codes; sexual harassment or sexual assault suffered by customers, visitors or company personnel on company premises; data security breaches or fraudulent activities associated with our computer systems, including privacy data law violations; conduct by individuals actually or perceived to be affiliated with us or employed by us and that could violate ethical standards or otherwise harm the reputation of our brand; regulatory, investigative or other actions relating to business practices; and other actionable torts common to operating facilities open to the general public.

For*** HFS operations, the high level of competition in the health, fitness and social industry may materially and adversely affect our business.***

Our competition would consist of a large number of companies, including the following providers: other HFS operators; traditional health and fitness clubs; physical fitness and recreational facilities established by non-profit organizations and businesses for their employees; private studios and other boutique fitness offerings; racquet, tennis, pickleball and other athletic clubs; amenity and condominium/apartment clubs; country clubs; online personal training and fitness coaching; delivery of digital fitness content; the home-use fitness equipment industry; local tanning salons; businesses offering similar services; and other businesses that rely on consumer discretionary spending. We may not be able to penetrate the market or, if we establish an operation, be able to compete effectively in the markets in which we operate. Competitors may attempt to undermine our business by pricing that we cannot afford to match, or copy our business model, or portions thereof, and thereby erode our ability to win any market share and gain any brand recognition. Most if not all of our competitors will probably be larger financial and marketing resources than us, have established brand recognition and be able to offer in-demand services or facilities that we cannot afford to offer. Non-profit organizations or local governments in our market may be able to obtain land and construct facilities at a lower cost and collect membership dues and fees without paying taxes, thereby allowing them to charge lower prices. Due to the increased number of low-cost health and fitness and social event alternatives, we may be unable to compete with such alternatives. This competition may limit our ability to attract customers or retain existing customers. We may also lack the funding to offer online customer registration, scheduling and account management, and the lack of such offerings may adversely impact our ability to attract customers or retain existing customers.

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.***

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:

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.

Our financial results and ability to grow our business may be negatively impacted by economic, regulatory and political risks beyond our control.

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

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.

Additional Financial Risk Factors

Our inadequate or expensive funding and financing alternatives.

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

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

Other adverse consequences could include:

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.

Currency fluctuations may significantly increase our expenses and affect the results of operations, especially where the currency is subject to intense political and other outside pressure.

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.

As a public company we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on our internal control over financial reporting. If we identify material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. If we are unable to assert that our internal control over financial reporting is effective, if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, or if we are unable to comply with the requirements of the Sarbanes-Oxley Act in a timely manner, then, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

Risk Factors for our Common Stock

Penny Stock and Volatile Market Price.

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.

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.

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.

No Dividends.

We have not paid, and we do not intend to pay dividends on our Common Stock in the foreseeable future. We currently intend to retain all future earnings, if any, to finance our current and proposed business activities. We may also incur indebtedness in the future that may further prohibit or effectively restrict the payment of cash dividends on our Common Stock.

Our controlling stockholders may take actions that conflict with your interests.

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.

General Risk Factors

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.

We may not successfully execute our long-term strategies, which may negatively impact our results of operations.

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.

If we fail to adequately protect intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.

We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. Our trademarks are of material importance to our business and are among our most important assets. Accordingly, our future success may depend, in part, upon the goodwill associated with our trademarks and brand names. We own a number of patents; patent applications and other technology which we believe are significant to our business.

For any Connected Chef products made in China and Thailand, we would face risks that our proprietary information may not be afforded the same protection in China as it is in countries with well-developed intellectual property laws, and local laws may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights in China, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. We cannot be sure that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that we will not be able to obtain and perfect, or maintain our own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions. We cannot be certain that these rights, if obtained, will not be invalidated, circumvented or challenged in the future, and we could incur significant costs in connection with legal actions to defend our intellectual property rights.

Even if such rights are obtained in the United States, the laws of some of the other countries in which our products are or may be sold do not protect intellectual property rights to the same extent as the laws of the United States. If other parties infringe our intellectual property rights, they may dilute the value of our brands in the marketplace, which could diminish the value that consumers associate with our brands and harm our sales. The failure to perfect or successfully assert our intellectual property rights could make us less competitive and could have a material adverse effect on our business, operating results, and financial condition.

There may be emerging, or new technologies patented by others. These new technologies may be critical to competing in a product niche, especially one like the emerging smart devices in smart home industry. We may be unable to license or affordably license new technologies owned by others and critical to competing in the product niche.

Our results of operations and financial condition could be seriously impacted by security breaches, including cybersecurity incidents.

Failure to effectively prevent, detect and recover from security breaches, including attacks on information technology and infrastructure by hackers; viruses; breaches due to employee error or actions; or other disruptions could result in misuse of our assets, business disruptions, loss of property, and confidential business information. Such attacks could result in unauthorized parties gaining access to at least certain confidential business information. However, to date, we have not experienced any financial impact, changes in the competitive environment or business operations that we attribute to such attacks. Although management does not believe that we have experienced any security breaches or cybersecurity incidents, there can be no assurance that we will not suffer such attacks in the future. We actively manage the risks within our control that could lead to business disruptions and security breaches and have expended significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, as these threats continue to evolve, particularly around cybersecurity, such events could adversely affect our business, financial condition or results of operations.

In the HFS business, privacy data will be collected from customers and the operation will be exposed to potential liability if it fails to adequately protect that data from unauthorized access or use, or misappropriation. The cost of protecting privacy data could be significant if we operate several facilities or have a large customer base.

We expect our results of operations to fluctuate on a quarterly and annual basis.

Company’s revenue and results of operations could vary significantly from period to period and may fail to match expectations because of a variety of factors, some of which are outside of our control. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect our stock price. Since the Connected Chef is a new product, we lack the operational experience to determine if Connected Chef has seasonal sales cycles.