Florida
|
84-1047159
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441
|
(Address of principal executive offices)
|
(954) 252-3440
|
(Issuer's Telephone Number)
|
Large accelerated filer [_]
|
Accelerated filer [_]
|
Non-accelerated filer [_]
|
Smaller reporting company [x]
|
Emerging Growth company [ ]
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
None
|
N/A
|
N/A
|
PART 1
|
FINANCIAL INFORMATION
|
3
|
Item 1.
|
Condensed Consolidated Financial Statements (Unaudited)
|
3
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operation
|
25
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
45
|
Item 4.
|
Controls and Procedures
|
45
|
PART II
|
Other Information
|
47
|
Item 1.
|
Legal Proceedings
|
47
|
Item 1A.
|
Risk Factors
|
47
|
Item 2.
|
Unregistered Sale of Equity Securities and Use of Proceeds
|
52
|
Item 3.
|
Defaults of Senior Securities
|
52
|
Item 4.
|
Mine Safety Disclosures
|
52
|
Item 5.
|
Other Information
|
52
|
Item 6.
|
Exhibits
|
53
|
CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
March 31,
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Assets:
|
(Unaudited)
|
|||||||
Current Assets:
|
||||||||
Cash
|
$
|
2,452,652
|
$
|
3,131,249
|
||||
Accounts receivable, net
|
69,973
|
13,459
|
||||||
Inventories
|
13,426
|
24,818
|
||||||
Prepaid expenses
|
140,583
|
182,782
|
||||||
Income tax refundable
|
966,179
|
220,207
|
||||||
Total Current Assets
|
3,642,813
|
3,572,515
|
||||||
Property and equipment, net
|
75,314
|
65,649
|
||||||
Operating lease – right of use asset
|
200,619
|
214,202
|
||||||
Deposit
|
11,147
|
46,021
|
||||||
Goodwill
|
1,645,961
|
1,936,020
|
||||||
Total Assets
|
$
|
5,575,854
|
$
|
5,834,407
|
||||
Liabilities and Stockholders’ Equity:
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable and accrued liabilities
|
$
|
837,344
|
$
|
635,593
|
||||
Operating lease – current portion
|
58,514
|
51,174
|
||||||
Total Current Liabilities
|
895,858
|
686,767
|
||||||
Long-Term Liabilities:
|
||||||||
Operating lease – long-term portion
|
155,851
|
170,998
|
||||||
Deferred tax liabilities
|
172,287
|
-
|
||||||
Total Long-Term Liabilities
|
328,138
|
170,998
|
||||||
Total Liabilities
|
1,223,996
|
857,765
|
||||||
Commitments and Contingencies
|
||||||||
Stockholders' Equity:
|
||||||||
Preferred Stock, Series A, par value $.001 per share, authorized 6,666,667 shares, issued -0- shares
|
-
|
-
|
||||||
Preferred Stock, Series B-1, par value $.0001 per share, authorized 3,333,333 shares, issued -0- shares
|
-
|
-
|
||||||
Preferred Stock, Series C, par value $1.00 per share, authorized 67 shares, issued -0- shares
|
-
|
-
|
||||||
Common Stock, par value $.0001 per share, authorized 56,666,667 shares, outstanding 46,296,364 shares at March 31, 2020 and 46,579,747 shares at December 31, 2019
|
4,630
|
4,658
|
||||||
Additional paid-in capital
|
7,034,185
|
7,061,565
|
||||||
Accumulated deficit
|
(2,686,957
|
)
|
(2,089,581
|
)
|
||||
Total Stockholders' Equity
|
4,351,858
|
4,976,642
|
||||||
Total Liabilities and Stockholders’ Equity
|
$
|
5,575,854
|
$
|
5,834,407
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||
(Unaudited)
|
||||||||
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2020
|
2019
|
|||||||
Revenues, net
|
$
|
148,977
|
$
|
2,978,802
|
||||
Cost of sales
|
(114,821
|
)
|
(2,352,215
|
)
|
||||
Gross Profit
|
34,156
|
626,587
|
||||||
Operating Expenses:
|
||||||||
Sales and marketing
|
211,973
|
191,875
|
||||||
Compensation
|
376,675
|
374,848
|
||||||
Professional fees
|
130,530
|
157,803
|
||||||
Product development
|
51,614
|
85,229
|
||||||
Other general and administrative
|
144,366
|
163,711
|
||||||
Goodwill impairment charge
|
290,059
|
-
|
||||||
Total Operating Expenses
|
1,205,217
|
973,466
|
||||||
Operating Loss
|
(1,171,061
|
)
|
(346,879
|
)
|
||||
Other Expenses, net
|
-
|
(10,461
|
)
|
|||||
Loss Before Tax Benefit
|
(1,171,061
|
)
|
(357,340
|
)
|
||||
Benefit for Income Tax
|
(573,685
|
)
|
(12,000
|
)
|
||||
Net Loss
|
$
|
(597,376
|
)
|
$
|
(345,340
|
)
|
||
Net Loss per Common Share
|
||||||||
Basic and Diluted
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
||
Weighted Average Shares Outstanding
|
||||||||
Basic and Diluted
|
46,463,365
|
47,033,670
|
||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND MARCH 31, 2019
|
||||||||||||||||||||||||||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock
|
Preferred Stock
|
Preferred Stock
|
Additional
|
|||||||||||||||||||||||||||||||||||||||||
Series A
|
Series B
|
Series C
|
Common Stock
|
Paid-In
|
Accumulated
|
Total
|
||||||||||||||||||||||||||||||||||||||
Shares
|
Par Value |
Shares
|
Par Value
|
Shares
|
Par Value
|
Shares
|
Par Value
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||||||||||||||||||||
Balance at December 31, 2019
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
46,579,747
|
$
|
4,658
|
$
|
7,061,565
|
$
|
(2,089,581
|
)
|
$
|
4,967,642
|
|||||||||||||||||||||||||
Stock options for compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
8,925
|
-
|
8,925
|
|||||||||||||||||||||||||||||||||
Repurchase of shares
|
-
|
-
|
-
|
-
|
-
|
-
|
(283,383
|
)
|
(28
|
)
|
(36,305
|
)
|
-
|
(36,333
|
)
|
|||||||||||||||||||||||||||||
Net Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(597,376
|
)
|
(597,376
|
)
|
|||||||||||||||||||||||||||||||
Balance at March 31, 2020
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
46,296,364
|
$
|
4,630
|
$
|
7,034,185
|
$
|
(2,686,957
|
)
|
$
|
4,351,858
|
|||||||||||||||||||||||||
Balance at December 31, 2018
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
47,046,364
|
$
|
4,704
|
$
|
7,092,219
|
$
|
(1,197,912
|
)
|
$
|
5,899,011
|
|||||||||||||||||||||||||
Stock options for compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
11,025
|
-
|
11,025
|
|||||||||||||||||||||||||||||||||
Repurchase of shares
|
-
|
-
|
-
|
-
|
-
|
-
|
(45,470
|
)
|
(3
|
)
|
(8,612
|
)
|
-
|
(8,615
|
)
|
|||||||||||||||||||||||||||||
Net Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(345,340
|
)
|
(345,340
|
)
|
|||||||||||||||||||||||||||||||
Balance at March 31, 2019
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
47,000,894
|
$
|
4,701
|
$
|
7,094,632
|
$
|
(1,543,252
|
)
|
$
|
5,556,081
|
|||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(Unaudited)
|
||||||||
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2020
|
2019
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$
|
(597,376
|
)
|
$
|
(345,340
|
)
|
||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
6,074
|
10,830
|
||||||
Stock based compensation expense
|
8,925
|
11,025
|
||||||
Noncash lease expense
|
13,583
|
-
|
||||||
Goodwill impairment charge
|
290,059
|
-
|
||||||
Provision (Benefit) for deferred income tax
|
172,287
|
(12,000
|
)
|
|||||
(Increase) in accounts receivable, net
|
(56,515
|
)
|
(2,284,747
|
)
|
||||
Decrease in inventories
|
11,392
|
10,196
|
||||||
Decrease in prepaid expenses
|
42,199
|
167,152
|
||||||
(Increase) decrease in deposits
|
34,874
|
(388
|
)
|
|||||
Increase in accounts payable and accrued liabilities
|
201,752
|
277,389
|
||||||
(Increase) in income tax refundable
|
(745,972
|
)
|
-
|
|||||
(Decrease) in deferred rent incentive
|
-
|
(25,017
|
)
|
|||||
(Decrease) in operating lease liabilities
|
(7,807
|
)
|
-
|
|||||
Net cash used in operating activities
|
(626,525
|
)
|
(2,190,900
|
)
|
||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase of property and equipment
|
(15,739
|
)
|
-
|
|||||
Net cash used in investing activities
|
(15,739
|
)
|
-
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repurchase of Shares
|
(36,333
|
)
|
(8,615
|
)
|
||||
Net cash used in financing activities
|
(36,333
|
)
|
(8,615
|
)
|
||||
Net Decrease in Cash
|
(678,597
|
)
|
(2,199,515
|
)
|
||||
Cash at Beginning of Period
|
3,131,249
|
3,822,359
|
||||||
Cash at End of Period
|
$
|
2,452,652
|
$
|
1,622,844
|
||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
-
|
$
|
-
|
||||
Income taxes
|
$
|
-
|
$
|
-
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
March 31,
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Trade Accounts Receivables at period end
|
$
|
69,973
|
$
|
276,551
|
||||
Reserve for estimated marketing allowances, cash discounts and other incentives
|
-
|
(263,092
|
)
|
|||||
Total Accounts Receivable, net
|
$
|
69,973
|
$
|
13,459
|
Balance at December 31, 2019
|
$
|
1,936,020
|
||
Impairment charge
|
(290,059
|
)
|
||
Balance at March 31, 2020
|
$
|
1,645,961
|
•
|
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
|
•
|
Level 3: Significant unobservable inputs.
|
Three months ended
|
Three months ended
|
|||||||
March 31, 2020
|
March 31, 2019
|
|||||||
Basic weighted average shares outstanding
|
46,463,365
|
47,033,670
|
||||||
Dilutive options
|
-
|
-
|
||||||
Diluted weighted average shares outstanding
|
46,463,365
|
47,033,670
|
For the Three Months Ended March 31, 2020
|
For the Three Months Ended March 31, 2019
|
|||||||||||||||||||||||
Capstone Brand
|
License Brands
|
Total Consolidated
|
Capstone Brand
|
License Brands
|
Total Consolidated
|
|||||||||||||||||||
Lighting Products- U.S.
|
$
|
48,303
|
$
|
-
|
$
|
48,303
|
$
|
2,677,627
|
$
|
-
|
$
|
2,677,627
|
||||||||||||
Lighting Products-International
|
100,674
|
-
|
100,674
|
301,175
|
-
|
301,175
|
||||||||||||||||||
Total Revenue
|
$
|
148,977
|
$
|
-
|
$
|
148,977
|
$
|
2,978,802
|
$
|
-
|
$
|
2,978,802
|
March 31,
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Balance at the beginning of the period
|
$
|
247,850
|
$
|
212,495
|
||||
Amount accrued
|
-
|
180,797
|
||||||
Expenditures
|
(115,919
|
)
|
(145,442
|
)
|
||||
Balance at period-end
|
$
|
131,931
|
$
|
247,850
|
March 31,
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Accounts payable
|
$
|
189,008
|
$
|
273,606
|
||||
Accrued warranty reserve
|
131,931
|
247,850
|
||||||
Accrued compensation, benefits, marketing allowances and other liabilities
|
516,405
|
114,137
|
||||||
Total accrued liabilities
|
648,336
|
361,987
|
||||||
Total
|
$
|
837,344
|
$
|
635,593
|
Assets
|
||||
Operating lease - right-of-use asset
|
$
|
200,619
|
||
Liabilities
|
||||
Current
|
||||
Current portion of operating lease
|
$
|
58,514
|
||
Noncurrent
|
||||
Operating lease liability, net of current portion
|
$
|
155,851
|
Operating lease expense as a component of other general and administrative
|
$
|
17,460
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||
Operating cash flow paid for operating lease
|
$
|
11,684
|
||
Lease term and Discount Rate
|
||||
Weighted average remaining lease term (months)
|
39
|
|||
Operating lease
|
||||
Weighted average Discount Rate
|
||||
Operating lease
|
7
|
%
|
Year
|
Operating Lease
|
|||
2020, remaining nine months
|
$
|
53,628
|
||
2021
|
73,290
|
|||
2022
|
75,492
|
|||
2023
|
38,304
|
|||
Total Minimum Future Payments
|
240,714
|
|||
Less: Imputed Interest
|
26,349
|
|||
Present Value of Lease Liabilities
|
$
|
214,365
|
2020
|
2019
|
|||||||
Current:
|
||||||||
Federal
|
$
|
(745,972
|
)
|
$
|
-
|
|||
State
|
-
|
-
|
||||||
Deferred:
|
||||||||
Federal
|
167,538
|
(11,340
|
)
|
|||||
State
|
4,749
|
(660
|
)
|
|||||
Income Tax (Benefit)
|
$
|
(573,685
|
)
|
$
|
(12,000
|
)
|
•
|
COVID-19 on our financial condition and operations, which could adversely affect our ability to obtain acceptable financing in an amount equal to
the resulting reduction in cash from operations, and the current, and uncertain future, other impacts of the COVID-19 outbreak, including its effect on the retail market place and the closure of retail stores and its effect on consumer
confidence and on the ability or desire of consumers to purchase nonessential goods, which are expected to continue to adversely impact our results, operations, outlook, plans, goals, growth, cash flows, liquidity, demand for consumer
products and share price.
|
•
|
our success in reducing operating expenses and the impact of any such reductions.
|
•
|
our ability to work with Sterling National Bank to renew our existing credit facility and maintain sufficient collateral.
|
•
|
adverse general economic and related factors, such as fluctuating or increasing levels of unemployment, declines in the securities and real estate
markets, and perceptions of these conditions that decrease the level of disposable income of consumers or consumer confidence.
|
•
|
the spread of epidemics, pandemics, and viral outbreaks.
|
•
|
our anticipated need for additional financing, which may not be available on favorable terms, or at all, and may be dilutive to existing
shareholders.
|
•
|
our ability to raise sufficient capital and/or take other actions to improve our liquidity position or otherwise meet our liquidity requirements
that are sufficient to eliminate the substantial doubt about our ability to continue as a going concern.
|
•
|
an impairment of our goodwill, including in connection with the preparation of our financial statements as of March 31, 2020 and in future
reporting periods.
|
•
|
the risks and increased costs associated with operating internationally.
|
•
|
fluctuations in foreign currency exchange rates.
|
•
|
our expansion into and investments in new categories.
|
•
|
our inability to obtain adequate insurance coverage.
|
•
|
volatility and disruptions in the credit and financial markets, which may adversely affect our ability to borrow.
|
•
|
our inability to recruit or retain qualified personnel or the loss of key personnel.
|
•
|
our inability to keep pace with developments in technology.
|
•
|
other factors are set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.
|
(1) |
"Capstone Lighting Technologies, L.L.C." or "CLTL" is a wholly owned subsidiary of Capstone Companies, Inc.
|
(2) |
"Capstone International Hong Kong Ltd" or "CIHK" is a wholly owned subsidiary of Capstone Companies, Inc. and a Hong Kong registered Company.
|
(3) |
"Capstone Industries, Inc., a Florida corporation and a wholly owned subsidiary of CAPC, may also be referred to as "CAPI" or "Capstone".
|
(4) |
"Capstone Companies, Inc.," a Florida corporation, may also be referred to as "we," "us" "our," "Company," or "CAPC". Unless the context indicates otherwise, "Company" includes in its meaning all of Capstone Companies, Inc.
Subsidiaries.
|
(5) |
"China" means People’s Republic of China.
|
(6) |
"W" means watts.
|
(7) |
References to "33 Act" or "Securities Act" means the Securities Act of 1933, as amended.
|
(8) |
References to "34 Act" or "Exchange Act" means the Securities Exchange Act of 1934, as amended.
|
(9) |
"SEC" or "Commission" means the U.S. Securities and Exchange Commission.
|
(10) |
"Subsidiaries" means Capstone Industries, Inc. ("CAPI"), Capstone International H.K Ltd., ("CIHK"), and Capstone Lighting Technologies, Inc. ("CLTL").
|
(11) |
Any reference to fiscal year in this Annual Report on Form 10-K means our fiscal year, ending December 31st, 2019.
|
(12) |
"LED" or "LED's" means a light-emitting diode component(s) which can be assembled into light bulbs or can be used in lighting fixtures.
|
(13) |
"OEM" means "original equipment manufacturer."
|
(14) |
“Connected Surfaces” or “Connected Products” means smart home devices with embedded sensors that provide communication and data transfer between the Connected Surface and internet-enabled systems of the Company or associated third
parties. Connected Surfaces may permit internet access for defined functions.
|
•
|
To make everyday tasks or usage simpler and more enjoyable for consumers.
|
•
|
While continuing to focus on increased profit margins, the products must be affordable to win at the point of sale and deliver increased revenues for retail partners.
|
•
|
The products must represent significant value when compared with items produced or marketed by competitive consumer product companies; and
|
•
|
Wherever feasible, the products must be unique to the market whether this be accomplished though design techniques, added functionality or some proprietary
innovation.
|
•
|
develop product with increasing technology and functionality with enhanced quality and performance, and at a very competitive cost.
|
•
|
solidify new manufacturing relationships with contract manufacturers in Thailand.
|
•
|
Raw Materials – Components and supplies are subject to sample inspections upon arrival at the contract manufacturer, to ensure the correct specified components are being used in
production.
|
•
|
Work in Process – Our quality control team conducts quality control tests at different points during the product stages of our manufacturing process to ensure that quality integrity is
maintained.
|
•
|
Finished Goods – Our team performs tests on finished and packaged products to assess product safety, integrity and package compliance.
|
•
|
hurricanes, fire, flood and other natural disasters
|
•
|
power outage
|
•
|
internet, telecommunications or data network failure.
|
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
|
||||||||||||||||
(In Thousands)
|
||||||||||||||||
March 31, 2020
|
March 31, 2019
|
|||||||||||||||
Dollars
|
% of Revenue
|
Dollars
|
% of Revenue
|
|||||||||||||
Revenues, net
|
$
|
149
|
100.0
|
%
|
$
|
2,979
|
100.0
|
%
|
||||||||
Cost of sales
|
(115
|
)
|
(77.2
|
)%
|
(2,352
|
)
|
(79.0
|
)%
|
||||||||
Gross Profit
|
34
|
22.8
|
%
|
627
|
21.0
|
%
|
||||||||||
Operating Expenses:
|
||||||||||||||||
Sales and marketing
|
212
|
142.3
|
%
|
192
|
6.4
|
%
|
||||||||||
Compensation
|
377
|
253.0
|
%
|
375
|
12.6
|
%
|
||||||||||
Professional fees
|
130
|
87.3
|
%
|
158
|
5.3
|
%
|
||||||||||
Product development
|
52
|
34.9
|
%
|
85
|
2.8
|
%
|
||||||||||
Other general and administrative
|
144
|
96.6
|
%
|
164
|
5.5
|
%
|
||||||||||
Goodwill impairment charge
|
290
|
194.6
|
%
|
-
|
-
|
%
|
||||||||||
Total Operating Expenses
|
1,205
|
808.7
|
%
|
974
|
32.6
|
%
|
||||||||||
Operating Loss
|
(1,171
|
)
|
(785.9
|
)%
|
(347
|
)
|
(11.6
|
)%
|
||||||||
Other expense, net
|
-
|
-
|
%
|
(10
|
)
|
(0.4
|
)%
|
|||||||||
Loss Before Tax Benefit
|
(1,171
|
)
|
(785.9
|
)%
|
(357
|
)
|
(12.0
|
)%
|
||||||||
Benefit for Income Tax
|
(574
|
)
|
385.3
|
%
|
(12
|
)
|
0.4
|
%
|
||||||||
Net Loss
|
$
|
(597
|
)
|
(400.6
|
)%
|
$
|
(345
|
)
|
(11.6
|
)%
|
The following table disaggregates revenue by brand and geographic area:
|
||||||||||||||||||||||||
For the Three Months Ended March 31, 2020
|
For the Three Months Ended March 31, 2019
|
|||||||||||||||||||||||
Capstone Brand
|
Licensed Brands
|
Total Consolidated
|
Capstone Brand
|
Licensed Brands
|
Total Consolidated
|
|||||||||||||||||||
LED Consumer Products- US
|
$
|
48,303
|
$
|
-
|
$
|
48,303
|
$
|
2,677,627
|
$
|
-
|
$
|
2,677,627
|
||||||||||||
LED Consumer Products-International
|
100,674
|
-
|
100,674
|
301,175
|
-
|
301,175
|
||||||||||||||||||
Total Revenue
|
$
|
148,977
|
-
|
148,977
|
$
|
2,978,802
|
$
|
-
|
$
|
2,978,802
|
||||||||||||||
% of Total Revenue
|
100
|
%
|
-
|
%
|
100
|
%
|
100
|
%
|
-
|
%
|
100
|
%
|
•
|
$146.7 thousand for the CES show and the launch of the Smart Mirror project.
|
•
|
$31.3 thousand in continued development of the Connected surfaces software.
|
•
|
$18.2 thousand in website development for Connected Surfaces online sales and social media marketing
|
Summary of Cash Flows
|
For the Three Months ended March 31,
|
|||||||
2020
|
2019
|
|||||||
(In thousands)
|
||||||||
Net cash used in :
|
||||||||
Operating Activities
|
$
|
(627
|
)
|
$
|
(2,191
|
)
|
||
Investing Activities
|
(16
|
)
|
-
|
|||||
Financing Activities
|
(36
|
)
|
(9
|
)
|
||||
Net decrease in cash and cash equivalents
|
$
|
(679
|
)
|
$
|
(2,200
|
)
|
•
|
Accounts payable of approximately $189 thousand due vendors and service providers.
|
•
|
Accrued expenses of approximately $516 thousand for various services and allowances.
|
•
|
Warranty provision for estimated defective returns in the amount of approximately $132 thousand.
|
•
|
Operating lease-current portion of approximately $59 thousand.
|
•
|
The possibility of expropriation, confiscatory taxation or price controls.
|
•
|
Adverse changes in local investment or exchange control regulations.
|
•
|
Political or economic instability, government nationalization of business or industries, government corruption, and civil unrest.
|
•
|
Legal and regulatory constraints.
|
•
|
Tariffs and other trade barriers, including trade disputes between the U.S. and China.
|
•
|
Political or military conflict between the U.S. and China, or between U.S. and North Korea, resulting in adverse or restricted access by U.S.-based companies to Chinese manufacturing and
markets.
|
•
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company.
|
•
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
|
•
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the
financial statements.
|
•
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
|
•
|
an increase or decrease in consumer demand for our products.
|
•
|
our failure to accurately forecast consumer acceptance for our new products.
|
•
|
product introductions by competitors.
|
•
|
unanticipated changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction or increase in the rate of reorders or at-once
orders placed by retailers.
|
•
|
weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as our products; and
|
•
|
terrorism or acts of war, or the threat thereof, political or labor instability or unrest or public health concerns and disease epidemics, such as the current COVID-19 pandemic, which
could adversely affect consumer confidence and spending or interrupt production and distribution of product and raw materials.
|
•
|
political or labor unrest, terrorism, public health crises, disease epidemics and economic instability resulting in the disruption of trade from foreign countries in which our products
are manufactured.
|
•
|
currency exchange fluctuations or requirements to transact in specific currencies.
|
•
|
the imposition of new laws and regulations or government-imposed protective or preventative measures, including those relating to labor conditions, quality and safety standards and
disease epidemics or other public health concerns, as well as rules and regulations regarding climate change.
|
•
|
actions of foreign or U.S. governmental authorities impacting trade and foreign investment, particularly during periods of heightened tension between U.S. and foreign governments,
including the imposition of new import limitations, duties, anti-dumping penalties, trade restrictions or restrictions on the transfer of funds.
|
•
|
reduced protection for intellectual property rights in some countries.
|
•
|
disruptions or delays in shipments; and
|
•
|
changes in local economic conditions in countries where our customers, manufacturers and suppliers are located.
|
EXHIBIT #
|
EXHIBIT TITLE
|
31.1
|
Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
31.2
|
Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
32.1
|
Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350,
|
32.2
|
Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350,
|
/s/ Stewart Wallach
|
|
Stewart Wallach
|
Chief Executive Officer
|
Principal Executive Officer
|
|
/s/James G. McClinton
|
|
James G. McClinton
|
Chief Financial Officer and Chief Operating Officer
|
Principal Financial
Executive and Accounting Officer
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c) |
Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d) |
Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most
recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over
financial reporting; and
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over
financial reporting.
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c) |
Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d) |
Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most
recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over
financial reporting; and
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over
financial reporting.
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Common stock, par value per share | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 56,666,667 | 56,666,667 |
Common stock, shares outstanding | 46,296,364 | 46,579,747 |
Preferred Stock, Series A [Member] | ||
Preferred stock, par value per share | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 6,666,667 | 6,666,667 |
Preferred stock, shares issued | 0 | 0 |
Preferred Stock, Series B-1 [Member] | ||
Preferred stock, par value per share | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 3,333,333 | 3,333,333 |
Preferred stock, shares issued | 0 | 0 |
Preferred Stock, Series C [Member] | ||
Preferred stock, par value per share | $ 1.00 | $ 1.00 |
Preferred stock, shares authorized | 67 | 67 |
Preferred stock, shares issued | 0 | 0 |
Condensed Consolidated Statements Of Operations (Unaudited) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Income Statement [Abstract] | ||
Revenues, net | $ 148,977 | $ 2,978,802 |
Cost of sales | 114,821 | 2,352,215 |
Gross Profit | 34,156 | 626,587 |
Operating Expenses: | ||
Sales and marketing | 211,973 | 191,875 |
Compensation | 376,675 | 374,848 |
Professional fees | 130,530 | 157,803 |
Product development | 51,614 | 85,229 |
Other general and administrative | 144,366 | 163,711 |
Goodwill impairment charge | 290,059 | |
Total Operating Expenses | 1,205,217 | 973,466 |
Operating Loss | (1,171,061) | (346,879) |
Other Expenses, net | (10,461) | |
Loss Before Tax Benefit | (1,171,061) | (357,340) |
Benefit for Income Tax | (573,685) | (12,000) |
Net Loss | $ (597,376) | $ (345,340) |
Net Loss per Common Share Basic and Diluted | $ (0.01) | $ (0.01) |
Weighted Average Shares Outstanding Basic and Diluted | 46,463,365 | 47,033,670 |
Condensed Consolidated Statements Of Stockholders' Equity (Unaudited) - USD ($) |
Preferred Stock, Series A [Member] |
Preferred Stock, Series B-1 [Member] |
Preferred Stock, Series C [Member] |
Common Stock [Member] |
Additional Paid-In Capital [Member] |
Accumulated Deficit [Member] |
Total |
---|---|---|---|---|---|---|---|
Balance, shares at Dec. 31, 2018 | 47,046,364 | ||||||
Balance, value at Dec. 31, 2018 | $ 4,704 | $ 7,092,219 | $ (1,197,912) | $ 5,899,011 | |||
Stock options for compensation | 11,025 | 11,025 | |||||
Repurchase of shares, shares | (45,470) | ||||||
Repurchase of shares, value | $ (3) | (8,612) | 8,615 | ||||
Net Loss | (345,340) | (345,340) | |||||
Balance, shares at Mar. 31, 2019 | 47,000,894 | ||||||
Balance, value at Mar. 31, 2019 | $ 4,701 | 7,094,632 | (1,543,252) | 5,556,081 | |||
Balance, shares at Dec. 31, 2019 | 46,579,747 | ||||||
Balance, value at Dec. 31, 2019 | $ 4,658 | 7,061,565 | (2,089,581) | 4,976,642 | |||
Stock options for compensation | 8,925 | 8,925 | |||||
Repurchase of shares, shares | (283,383) | ||||||
Repurchase of shares, value | $ (28) | (36,305) | 36,333 | ||||
Net Loss | (597,376) | (597,376) | |||||
Balance, shares at Mar. 31, 2020 | 46,296,364 | ||||||
Balance, value at Mar. 31, 2020 | $ 4,630 | $ 7,034,185 | $ (2,686,957) | $ 4,351,858 |
Organization And Summary Of Significant Accounting Policies |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Summary of Significant Accounting Policies | NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for Capstone Companies, Inc. ("CAPC", "Capstone" or the "Company"), a Florida corporation (formerly,"CHDT Corporation") and its wholly-owned subsidiaries is presented to assist in understanding the Company's consolidated financial statements. The accounting policies conform to accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently applied in the preparation of the consolidated financial statements. Organization and Basis of Presentation The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position as of March 31, 2020 and results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2020 and 2019. All material intercompany accounts and transactions are eliminated in consolidation. These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with U.S. GAAP. Certain information and note disclosures have been condensed or omitted in the condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”). The operating results for any interim period are not necessarily indicative of the operating results to be expected for any other interim period or the full fiscal year. Effects of COVID-19 During the quarter ended March 31, 2020, the Company was negatively impacted by the effects of the worldwide COVID-19 pandemic. During the months of February and March 2020, the Company’s Hong Kong office and Chinese suppliers were impacted by the closedown of facilities by local and regional authorities in their efforts to combat the spread of COVID-19. The CIHK staff worked remotely from home, however the factory closures delayed certain orders from the first quarter of 2020 until the second and third quarter 2020. These factories are now functioning, and orders are being produced both in China and in Thailand. On March 9, 2020, the State of Florida declared a state of emergency in order to combat the spread of the COVID-19 pandemic. The Company in 2019 had expanded its IT systems to allow for remote operations and as of March 20, 2020, the Company’s U.S. staff have been working remotely from their homes. Our business operations and financial performance for the three months ended March 31, 2020 were adversely impacted by the developments discussed above, including a significant decrease in net revenue resulting in an approximate 73% increase in the net loss for the three months ended March 31, 2020 as compared to the prior year. The decrease in net sales was driven by the overseas governments mandated factory closures related to COVID-19 resulting in the unavailability of components and the shipment of finished orders. Our business may continue to be adversely impacted by the resurgence of COVID-19. This disruption could have a continued negative impact on the retail business and consumers’ willingness to visit retail stores, causing reduced consumer foot traffic and consumer spending which could negatively impact the demand for our products. The Company reported a net loss of approximately $597 thousand for the three months ended March 31, 2020 compared to a net loss of approximately $345 thousand for the period ended March 31, 2019. The cash generated from operations was negatively impacted and the Company utilized $679 thousand of cash. With orders now shipping to customers in the second quarter 2020, we expect that the cash generated from operations will gradually improve in the second and future quarters in 2020. At March 31, 2020, the Company remained debt free, had a cash balance of $2.5 million and an available credit facility of $7.5 million at Sterling National Bank, subject to eligible collateral. This credit facility is up for renewal and is currently being negotiated, which Management expects to be finalized in the next couple of weeks. As a result of the economic uncertainties caused by the COVID-19 pandemic, Management determined sufficient indicators existed to trigger the performance of an interim goodwill impairment analysis as of March 31, 2020. The analysis concluded that the Company’s carrying value of its single reporting unit exceeded the fair value and the Company recognized $290,059 goodwill impairment charge in the quarter ended March 31, 2020. With the continuing economic uncertainties caused by the COVID-19 pandemic, the capital markets may continue to have a downturn and adversely affect the Company’s stock price which will require the Company to test its goodwill for impairment in future reporting periods. On March 27, 2020, the current administration signed into law the Coronavirus Aid, Relief and Economic Security Act, which we refer to as the “CARES Act.” The CARES Act, among other things, includes provisions related to net operating loss carryback periods. We were able to carryback the NOL to 2017 tax years and generate an estimated net refund of previously paid income taxes at an approximate 34% federal tax rate. This resulted in a net tax benefit of $573,685 which has been recorded in the first quarter 2020. We identified and had certified a factory in Thailand that started producing orders for the Company in 2020. This additional manufacturing capacity will provide the Company with more flexibility in determining which factory location should produce goods for future orders, particularly if COVID-19 impacts Chinese manufacturing in a second wave pandemic. With the United States now being impacted by a resurgence of COVID-19 pandemic, we believe the economic impact of the virus in the U.S. will continue through the third quarter and view this as a major disruption but should not impact our long-term strategy and initiatives. As the COVID 19 pandemic subsides and markets reopen, we intend to execute our organic growth strategy, which is designed to enhance our market presence and expand our customer base. The continuing spread of COVID-19 could result in a further expansion of the public health crisis that could adversely affect the U.S. economy and financial markets, consumer spending and confidence levels, resulting in a further economic downturn that could affect customer and consumer demand for our products. The overall impact of the COVID-19 pandemic to our business, financial condition, cash flow and results of operations, therefore, remains uncertain. For example, if any of our major wholesale customers fail to return to normal operations, our revenue could decline, which could have a material adverse effect on our business, financial condition and results of operations. Liquidity and Going Concern The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. During the quarter ended March 31, 2020, the Company was negatively impacted by the effects of the worldwide COVID-19 pandemic. Our business operations and financial performance for the three months ended March 31, 2020 were adversely impacted which resulted in a $2.8 million or 95% decrease in net revenue. The Company reported a net loss of approximately $597 thousand for the three months ended March 31, 2020 compared to a net loss of approximately $345 thousand for the three months ended March 31, 2019, a net loss increase of approximately 73%. The Company’s factory suppliers in Thailand and China are now fully
functioning and shipping orders. However with the resurgence of the COVID-19 pandemic in the United States, the future impact
on the retail market place remains uncertain, which places doubt on the timing of the Company’s new retail programs that
are planned to be introduced later in the year, which could result in further reduced revenue and continued losses. As the Company relies on cash generated from operations to support its ongoing business, based on the Company’s expected rate of consumption, if the new programs are delayed or postponed the Company will need additional working capital in the fourth quarter, 2020 and its prospects of obtaining that capital are uncertain at this time. The Company may be able to raise the required additional capital through debt or equity financing. However, the Company can make no assurances that it will be able to raise the required capital, on acceptable terms or at all. Unless the Company succeeds in raising additional capital or successfully increases cash generated from operations, Management believes there is substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the filing date of this report. Management is closely monitoring its operations, liquidity, and capital resources and is actively working to minimize the current and future impact of this unprecedented situation. The Company has taken some immediate steps to reduce operating costs in the second quarter, 2020 and to conserve cash including reductions in rent, travel expenses and staff reductions and plans to make further cost reductions to further conserve liquidity. At March 31, 2020, the Company continued to remain debt free, had a cash balance of $2.5 million and an available credit facility of $7.5 million at Sterling National Bank. This credit facility, which is subject to eligible collateral, is up for renewal and is currently being negotiated. Nature of Business Since the beginning of fiscal year 2007, the Company has been primarily engaged in the business of developing, marketing and selling home LED products through national and regional retailers in North America and in certain overseas markets. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities to meet consumer’s needs. The Company has developed a smart interactive mirror for residential use as a variant line for its lighting products, which was launched for market at the Consumer Electronics Show in early 2020. The development of the smart interactive mirror is part of the Company’s strategic effort to find new product lines to replace or supplement existing products that are nearing or at the end of their product life cycle. These products are offered either under the Capstone brand or licensed brands. The Company’s products are typically manufactured in China and Thailand by contract manufacturing companies. The Company’s operations consist of one reportable segment for financial reporting purposes: Lighting Products. Accounts Receivable For product revenue, the Company invoices its customers at the time of shipment for the sales value of the product shipped. Accounts receivable are recognized at the amount expected to be collected and are not subject to any interest or finance charges. The Company does not have any off-balance sheet credit exposure related to any of its customers. As of March 31, 2020 and December 31, 2019, accounts receivable serves as collateral when the Company borrows against its credit facilities. Allowance for Doubtful Accounts The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and the Company’s historical payment experience. An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available. As of March 31, 2020 and December 31, 2019, management has determined that
accounts receivable are fully collectible. As such, management has not recorded an allowance for doubtful accounts. The following table summarizes the components of Accounts Receivable, net:
Inventories The Company's inventory, recorded at lower of cost (first-in, first-out) or net realizable value, consists of finished goods for resale by Capstone. Prepaid Expenses The Company’s prepaid expenses consist primarily of deposits on inventory purchases for future orders as well as prepaid insurance, trade show and subscription expense. As of March 31, 2020 and December 31, 2019, prepaid expenses were $140,583 and $182,782, respectively. Goodwill On September 13, 2006, the Company entered into a Stock Purchase Agreement with Capstone Industries, Inc., a Florida corporation (“Capstone”). Capstone was incorporated in Florida on May 15, 1996 and is engaged primarily in the business of wholesaling technology inspired consumer products to distributors and retailers in the United States. Under the Stock Purchase Agreement, the Company acquired 100% of the issued and outstanding shares of Capstone’s Common Stock, and recorded goodwill of $1,936,020. Goodwill acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value of the net assets acquired. Goodwill is tested for impairment on December 31 of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the carrying amount exceeds its fair value, an impairment loss is recognized. Goodwill is not amortized. The Company estimates the fair value of its single reporting unit relative to the Company's market capitalization. Goodwill is subject to ongoing periodic impairments tests based on fair value of the reporting unit compared to its carrying amount, including goodwill. Impairment exists when a reporting unit’s carrying amount exceeds its fair value. At December 31, 2019, the required annual impairment test of goodwill was performed, and no impairment existed as of the valuation date. As a result of the economic uncertainties caused by the COVID-19 pandemic, we determined sufficient indicators existed to trigger the performance of an interim goodwill impairment analysis as of March 31, 2020. The analysis concluded that the Company’s carrying value of its single reporting unit exceeded the fair value and the Company recognized $290,059 goodwill impairment charge in the quarter ended March 31, 2020 as shown in the following table.
With the continuing economic uncertainties caused by the COVID-19 pandemic, the capital markets may continue to have a downturn and adversely affect the Company’s stock price which will require the Company to test its goodwill for impairment in future reporting periods. Fair Value Measurement The accounting guidance under Accounting Standards Codification 820-10, “Fair
Value Measurements and Disclosures” (“ASC 820-10”) requires the Company to make disclosures about the fair value
of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information
used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The three levels of the hierarchy are as follows:
The input used in the goodwill fair value calculation falls within level 1 hierarchy. Earnings Per Common Share Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the reporting periods. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For calculation of the diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants using the treasury stock method. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of March 31, 2020 and 2019, the total number of potentially dilutive common stock equivalents excluded from the diluted earnings per share calculation was 900,000 and 870,001, respectively. During the period ended March 31, 2020 a total of 100,000 stock options expired. Basic weighted average shares outstanding is reconciled to diluted weighted shares outstanding
as follows:
The Company generates revenue from developing, marketing and selling consumer lighting products through national and regional retailers. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities Capstone currently operates in the consumer lighting products category in the United States and in certain overseas markets. These products may be offered either under the Capstone brand or licensed brands. A sales contract occurs when the customer-retailer submits a purchase order to buy a specific product, a specific quantity, at an agreed-fixed price, within a ship window, from a specific location and on agreed payment terms. The selling price in all of our customers’ orders has been previously negotiated and agreed to including any applicable discount prior to receiving the customer’s purchase order. The stated unit price in the customer’s order has already been determined and is fixed at the time of invoicing. The Company recognizes product revenue when the Company’s performance obligations as per the terms in the customers purchase order have been fully satisfied, specifically, when the specified product and quantity ordered has been manufactured and shipped pursuant to the customers requested ship window, when the sales price as detailed in the purchase order is fixed, when the product title and risk of loss for that order has passed to the customer, and collection of the invoice is reasonably assured. This means that the product ordered and to be shipped has gone through quality assurance inspection, customs and commercial documentation preparation, the goods have been delivered, title transferred to the customer and confirmed by a signed cargo receipt or bill of lading. Only at the time of shipment when all performance obligations have been satisfied will the judgement be made to invoice the customer and complete the sales contract. The Company may enter into a licensing agreement with globally recognized companies, that allows the Company to market products under a licensed brand to retailers for a designated period of time, and whereby the Company will pay a royalty fee, typically a percentage of licensed product revenue to the licensor in order to market the licensed product. The Company expenses license royalty fees and sales commissions when incurred
and these expenses are recognized during the period the related sale is recorded. These costs are recorded within sales and marketing
expense. The following table disaggregates net revenue by brand and geographical area:
Customer orders received are not long-term orders and are typically shipped within six months of the order receipt, but certainly within a one-year period. Our payment terms may vary by the type of customer, the customer's credit
standing, the location where the product will be picked up from and for international customers, which country their corporate
office is located. The term between invoicing date and when payment is due may vary between 30 days and 90 days depending on the
customer type. In order to ensure there are no payment issues, overseas customers or new customers may be required to provide
a deposit or full payment before the order is delivered to the customer. The Company selectively supports retailer's initiatives to maximize sales of the Company's products on the retail floor or to assist in developing consumer awareness of new products launches, by providing marketing fund allowances to the customer. The Company recognizes these incentives at the time they are offered to the customers and records a credit to their account with an offsetting charge as either a reduction to revenue, increase to cost of sales, or marketing expenses depending on the type of sales incentives. Sales reductions for anticipated discounts, allowances and other deductions are recognized during the period the related revenue is recorded. Warranties The Company provides the end user with limited rights of return as a consumer assurance warranty on all products sold, stipulating that the product will function properly for the warranty period. The warranty period for all products is one year from the date of consumer purchase. Certain retail customers may receive an off-invoice based discount such as a defective/warranty allowance, that will automatically reduce the unit selling price at the time the order is invoiced. This allowance will be used by the retail customer to defray the cost of any returned units from consumers and therefore negate the need to ship defective units back to the Company. Such allowances are charged to cost of sales at the time the order is invoiced. For those customers that do not receive a discount off-invoice, the Company recognizes a charge to cost of sales for anticipated non-conforming returns based upon an analysis of historical product warranty claims and other relevant data. We evaluate our warranty reserves based on various factors including historical warranty claims assumptions about frequency of warranty claims, and assumptions about the frequency of product failures derived from our reliability estimates. Actual product failure rates that materially differ from our estimates could have a significant impact on our operating results. Product warranty reserves are reviewed each quarter and recognized at the time we recognize revenue. The following table summarizes the changes in the Company's product warranty
liabilities which are included in accounts payable and accrued liabilities in the accompanying March 31, 2020 and December 31,
2019 balance sheets:
Advertising and Promotion Advertising and promotion costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in sales and marketing expenses. Advertising and promotion expense was $188,808 and $171,457 for the three months ended March 31, 2020 and 2019, respectively. Product Development Our research and development team located in Hong Kong working with our designated factories, are responsible for the design, development, testing, and certification of new product releases. Our engineering efforts support product development across all products, as well as product testing for specific overseas markets. All research and development costs are charged to results of operations as incurred. For the three months ended March 31, 2020 and 2019, research and development expenses were $51,614 and $85,229, respectively. Shipping and Handling The Company's shipping and handling costs are included in sales and marketing expenses and are recognized as an expense during the period in which they are incurred and amounted to $13,782 and $7,866 for the three months ended March 31, 2020 and 2019, respectively. Accounts Payable and Accrued Liabilities The following table summarizes the components of accounts payable and accrued
liabilities as of March 31, 2020 and December 31, 2019, respectively:
Income Taxes The Company is subject to income taxes in the U.S. federal jurisdiction, various state jurisdictions and certain other jurisdictions. The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 740 Income Taxes. ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company and its U.S. subsidiaries file consolidated income tax returns. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Tax regulations within each jurisdiction are subject to the interpretation of the relaxed tax laws and regulations and require significant judgement to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities generally for a period of 3 years from the later of each return due date or date filed. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be recorded as a component of income tax expense. Stock-Based Compensation The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation- Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values. ASC 718 requires companies to estimate the fair value of share-based payment
awards on the date of the grant using an option-pricing model. The value of the portion of the award that is ultimately expected
to vest is recognized as expenses over the requisite service periods in the Company's condensed consolidated statements of operations. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized during the periods ended March 31, 2020 and 2019 was $8,925 and $11,025, respectively. In conjunction with the adoption of ASC 718, the Company adopted the straight-line single option method of attributing the value of stock-based compensation expense. The Company accounts for forfeitures as they occur. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, product warranty obligations, valuation of inventories, tax related contingencies, valuation of stock-based compensation, other contingencies and litigation, among others. The Company generally bases its estimates on historical experience, agreed obligations, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Historically, past changes to these estimates have not had a material impact on the Company’s financial statements. However, circumstances could change, and actual results could differ materially from those estimates. Recent Accounting Standards To be Adopted in a Future Period In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”). The amendments in ASU 2019-12 seek to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplify GAAP in other areas of Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2019-12 may have on the Company’s Consolidated Financial Statements. Adoption of New Accounting Standards In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which requires an entity to perform a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 did not have a material effect on the Company’s consolidated financial statements. In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This new guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2018-03 did not have a material effect on the Company’s consolidated financial statements. The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. |
Concentrations Of Credit Risk And Economic Dependence |
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Risks and Uncertainties [Abstract] | |
Concentration of Credit Risk and Economic Dependence | NOTE 2 - CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Cash The Company at times has cash with its financial institution in excess of Federal Deposit Insurance Corporation ("FIDC") insurance limits. The Company places its cash with high credit quality financial institutions which minimize these risks. Accounts Receivable The Company grants credit to its customers, substantially all of whom are retail establishments located throughout the United States and their international locations. The Company typically does not require collateral from customers. Credit risk is limited due to the financial strength of the customers comprising the Company's customer base and their dispersion across different geographical regions. The Company monitors exposure of credit losses and maintains allowances for anticipated losses considered necessary under the circumstances.
Major Customers The Company had two customers who comprised 82% and 18%, respectively, of net revenue during the three months ended March 31, 2020 and one customer who comprised 100% of net revenue during the three months ended March 31, 2019. The loss of these customers would adversely impact the business of the Company. For the three months ended March 31, 2020 and 2019, approximately 68% and 10%, respectively, of the Company's net revenue resulted from international sales. As of March 31, 2020, approximately $43.6 thousand or 62% of accounts receivable was from one customer and approximately $26.4 thousand or 38% came from a second customer. As of December 31, 2019, approximately $13.5 thousand or 100% of accounts receivable was from one customer. Major Vendors The Company had two vendors from which it purchased 66% and 18%, respectively, of merchandise during the three months ended March 31, 2020, and one vendor from which it purchased 100% of merchandise during the three months ended March 31, 2019. The loss of these suppliers could adversely impact the business of the Company. As of March 31, 2020, approximately $23.9 thousand or 100% of accounts payable was due to one vendor. As of December 31, 2019, approximately $100.7 thousand or 100% of accounts payable were due to one vendor. |
Notes Payable |
3 Months Ended |
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Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Notes Payable | NOTE 3 – NOTES PAYABLE Sterling National Bank On September 8, 2010, in order to fund increasing accounts receivables and support working capital needs, Capstone secured a Financing Agreement from Sterling Capital Funding (now called Sterling National Bank), located in New York, whereby Capstone receives funds for assigned retailer shipments. The assignments provide funding for an amount up to 85% of net invoices submitted. There is a base management fee equal to .30% of the gross invoice amount. The interest rate of the loan advance is .25% above Sterling National Bank's Base Rate which at time of closing was 7%. As of March 31, 2020, and December 31, 2019, the interest rate on the loan was 5.25% and 6.75%, respectively. The amounts borrowed under this agreement are due on demand and collateralized by substantially all the assets of Capstone. For the periods ended March 31, 2020 and 2019, the processing fees associated with the agreement were $333 and $10,494 respectively. On July 18, 2019, Sterling National Bank renewed the credit line up to $7,500,000 to June 30, 2020. Additional expansion of the line will be reviewed as the need arises. This credit facility is up for renewal and is currently being negotiated. In the unlikely event that the Company is unable to renew the credit agreement we will need to seek a new credit facility to fund our operations and future growth. The borrowing costs associated with such financing, are dependent upon market conditions and our credit rating. We cannot assure that we will be able to negotiate competitive rates, which could increase our cost of borrowing in the future. As of March 31, 2020, and December 31, 2019, there was no balance due to Sterling National Bank. The Company, through Sterling National Bank, applied under the Paycheck Protection Program (“PPP”). The PPP was enacted on March 27, 2020 as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and provides for loans for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. On May 11, 2020, the Company received loan proceeds in the amount of approximately $89,600. The unforgiven portion of the PPP loan is payable over two years at an interest
rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent
with the PPP. The Company believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we
cannot be certain that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan. Under
Small Business Administration and Treasury Department guidelines issued in May 2020, a borrower must apply for the forgiveness
of the loans by filing SBA Form 3508, Paycheck Protection Program Loan Forgiveness Application. |
Commitments And Contingencies |
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Commitments and Contingencies | NOTE 4 – COMMITMENTS AND CONTINGENCIES Operating Leases The Company has operating lease agreements for offices and showroom facilities in Fort Lauderdale, Florida and in Hong Kong, expiring at varying dates. The Company’s principal executive office is located at 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. Effective February 1, 2017, the Company renewed the lease for 3 years ending January 31, 2020, with a base annual rent of $92,256 and with a total rent expense of $281,711 through the term of the agreement. Under the lease agreement, Capstone was responsible for a portion of common area maintenance charges and any other utility consumed in the leased premises. On May 15, 2018, the Company entered into a lease agreement with the previous landlord to provide for a premise’s relocation, lease termination and new sublease agreement. Under the agreement the Company relocated its principal executive offices located at 350 Jim Moran Blvd, Suite 120, Deerfield Beach, Florida 33442 to 4,694 square feet of office space on the second floor of 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. The original lease terminated on the relocation date, being July 1, 2018, and the parties proceeded under the terms of the sublease which expired on January 31, 2020. The base annual rent in the sublease remained at the same rate as the previous agreement until January 31, 2020. At the expiration of the sublease, the Company had the option to accept the prime lease with another 3 years renewal and with an option to renew for an additional 5-year period. If the Company decided to further extend the sublease after January 31, 2020, the Company would be subject to the terms and conditions of the prime lease. The base monthly rent was $7,312 to January 31, 2019 and then base rent would be $7,514 until January 31, 2020 which includes an estimate for portion of the common area maintenance. As consideration for the lease amendment, the Company received a rate abatement
from the landlord, effective May 1, 2018 and for four months to September 1, 2018. The landlord delivered the relocation premises
in a “turnkey” condition with requested renovations made at no expense to the Company. As further consideration, the
existing landlord agreed to pay the Company a $150,000 incentive to vacate the existing premises on completion of the relocation,
which was fully paid as of December 31, 2018 and was being amortized over the life of the lease amendment and resulted in the
recognition of lease incentive income of $870 per month. On May 9, 2019, per the terms of the lease agreement, the current landlord was notified of the Company’s intent to take over the prime lease. Effective November 1, 2019, the Company entered into a new prime operating lease with the landlord “431 Fairway Associates, LLC” ending June 30, 2023, for the Company’s executive offices located on the second floor of 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441 with an annualized base rent of $70,104 and with a base rental adjustment of 3% commencing July 1, 2020 and on July 1st of each subsequent year during the term. Under the lease agreement, Capstone is also responsible for a portion of common area maintenance charges in the leased premises which has been estimated at $12.00 per square foot on an annualized basis of which the premises is approximately 4,694 square feet. The Company's rent expense is recorded on a straight-line basis over the term of the lease. The rent expense for the periods ended March 31, 2020 and 2019 amounted to $47,447 and $21,264, respectively. The rent increase in the quarter ended March 31, 2020 resulted from the expiry of a $8,383 monthly rent incentive that ended January 31, 2020. At the commencement date of the new office lease, the Company recorded a right-of-use asset and lease liability under ASU 2016-02, Topic 842. Supplemental balance sheet information related to leases
as of March 31, 2020 is as follows:
Supplemental statement of operations information related to leases for the three months ended March 31, 2020 is as follows:
Supplemental cash flow information related to leases for
the three months ended March 31, 2020 is as follows:
Scheduled maturities of operating lease liabilities outstanding as of March 31, 2020 are as follows:
The Company has one short term lease with a duration of less than twelve months. Capstone International Hong Kong Ltd, (CIHK), entered into a lease agreement for office space at 303 Hennessy Road, Wanchai, Hong Kong. The original agreement which was effective from February 17, 2014 has been extended various times. On August 17, 2019, the lease was further extended with a base monthly rate of $5,100 for six months until February 16, 2020. As the premises was no longer required as the employees were working remotely, the Company decided not to renew and allowed this lease to expire. CIHK entered into a six-month rental agreement effective from December 1, 2016 for a showroom space at 3F, Wing Kin Industrial Building, 4-6 Wing Kin Road, Kwai Chung, NT, Hong Kong. This agreement has been extended various times. The lease with a base monthly rent of $1,290 expired August 16, 2019 and was further renewed for six-months expiring on February 16, 2020. Effective February 17, 2020, the Company entered into a new six-month lease expiring on September 30, 2020, with a base rate of $1,285 per month and the space is available to renew as required. Consulting Agreements On July 1, 2015, the Company entered into a consulting agreement with George Wolf, whereby Mr. Wolf was paid $10,500 per month through December 31, 2015 increasing to $12,500 per month from January 1, 2016 through December 31, 2017. On January 1, 2017, the agreement was amended, whereby Mr. Wolf was paid $13,750 per month from January 1, 2017 through December 31, 2017. On January 1, 2018, the agreement was further amended, whereby Mr. Wolf was paid $13,750 per month from January 1, 2018 through December 31, 2018. On January 1, 2019, the agreement was further amended, whereby Mr. Wolf was paid $13,750 per month from January 1, 2019 through December 31, 2020. The agreement can be terminated upon 30 days' notice by either party. The Company may, in its sole discretion at any time convert Mr. Wolf to a full-time Executive status. The annual salary and term of employment would be equal to that outlined in the consulting agreement. Employment Agreements On February 5, 2016, the Company entered into an Employment Agreement with
Stewart Wallach, whereby Mr. Wallach was paid $301,521 per annum. As part of the agreement, the base salary would be reviewed
annually by the Compensation Committee for a potential increase, to at least reflect increases in the cost of living, but only
if the Company shows a net profit for the year. The initial term of this agreement began February 5, 2016 and ended February 5,
2018. On February 5, 2018, the Company entered into an Employment Agreement with Stewart Wallach, whereby Mr. Wallach was paid $301,521 per annum. The initial term of this agreement began February 5, 2018 and ended February 5, 2020. The parties may extend the employment period of this agreement by mutual consent with approval of the Company's Board of Directors, but the extension may not exceed two years in length. On February 5, 2020, the Company entered into a new Employment Agreement with Stewart Wallach, whereby Mr. Wallach will be paid $301,521 per annum. The initial term of this new agreement began February 5, 2020 and ends February 5, 2023. The parties may extend the employment period of this agreement by mutual consent with approval of the Company's Board of Directors, but the extension may not exceed two years in length. On February 5, 2016, the Company entered into an Employment Agreement with James McClinton, whereby Mr. McClinton was paid $191,442 per annum. The term of this agreement began February 5, 2016 and ended February 5, 2018. On February 5, 2018, the Company renewed the Employment Agreement with James McClinton, whereby Mr. McClinton was paid $191,442 per annum. The term of this new agreement began February 5, 2018 and ended February 5, 2020. On February 5, 2020, the Company entered into a new Employment Agreement with James McClinton, whereby Mr. McClinton will be paid $191,442 per annum. The term of this new agreement began February 5, 2020 and ends February 5, 2022. There is a common provision in both Mr. Wallach and Mr. McClinton's employment agreements: If the officer's employment is terminated by death or disability or without cause, the Company is obligated to pay to the officer's estate or the officer, as the case may be an amount equal to accrued and unpaid base salary as well as all accrued but unused vacation days through the date of termination. The Company will also pay sum payments equal to (a) the sum of twelve (12) months base salary at the rate the Executive was earning as of the date of termination and (b) the sum of "merit" based bonuses earned by the Executive during the prior calendar year of his termination. Any payments owed by the Company shall be paid from a normal payroll account on a bi-weekly basis in accordance with the normal payroll policies of the Company. The amount owed by the Company to the Executive, from the effective Termination date, will be payout bi-weekly over the course of the year but at no time will be no more than twenty (26) installments. The Company will also continue to pay the Executive's health and dental insurance benefits for 6 months starting at the Executives date of termination. If the Executive had family health coverage at the time of termination, the additional family premium obligation would remain theirs and will be reduced against the Executive's severance package. The employment agreements have an anti-competition provision for 18 months after the end of employment.
Directors Compensation On May 31, 2019 the Company approved that effective on June 1, 2019, each independent director, namely Jeffrey Guzy and Jeffrey Postal, would each receive $750 per calendar month, as a Form 1099 compensation, for their continued services as directors of the Company. This compensation would be additional to the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee. On May 31, 2019, the Company also approved that the independent directors would be offered effective from June 1, 2019, the opportunity to participate as a non-employee in the Company’s Health Benefit Plan, subject to compliance with all plan participation requirements and on acceptance into the plan the director will be responsible to pay 100% of their plans participation cost. On June 10, 2020 the Company approved that effective on August 1, 2020 until
August 1, 2021, each independent director, namely Jeffrey Guzy and Jeffrey Postal, would each receive $750 per calendar month,
as a Form 1099 compensation, for their continued services as directors of the Company. This compensation would be additional to
the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee. Licensing Agreements Under a February 4, 2015 Licensing Agreement with a floorcare company, Company markets home lighting products under the licensed brand of the floorcare company, to discount retailers, warehouse clubs, home centers, on-line retailers and other retail distribution channels in the U.S., Canada and Mexico. The initial term of the agreement was for 3 years. The Licensing Agreement did not have a guaranteed royalty stipulation. On December 29, 2016, the Company finalized the first amendment to the February 4, 2015 Licensing Agreement with the floorcare company in which the initial term was extended through February 3, 2020 and additional renewal terms and periods were also finalized. During this initial extended period through February 3, 2020, if the Company achieves net sales of $5,000,000, then the Licensing Agreement would automatically be extended 2 years until February 3, 2022 and if during this second extended period the Company achieves net sales of $5,000,000, then the Licensing Agreement would automatically be further extended 2 years until February 3, 2024. This license amendment also added an additional product category. On April 12, 2018, the Company finalized the second amendment to the February 4, 2015 Licensing Agreement in which the license was further expanded to add an additional product category. As the Company did not achieve the stated net sales volume for the renewal period, the License expired on February 3, 2020. Public Relations Agreement On September 27, 2018, the Company executed a public relations services agreement with Max Borges Agency, (“MBA”), a full – service public relations and communications agency with offices in Miami and San Francisco. The Company entered into the Agreement to obtain assistance from a nationally recognized firm, specializing in the development of product branding, marketing and launching of technology products. The agreement was effective on October 1, 2018 with an initial 180-day term, which either party can cancel with 60 days advanced notice in writing on or after the 120th day of the effective date. MBA will receive a monthly fee of $11,250 and $476 subscription fee due on the first of each month. During 2019 both Companies agreed to temporarily pause the MBA agreement for specific months and restarted the engagement with the same statement of work and terms as originally agreed. On January 21, 2020, the Company provided MBA with 60 days cancellation notice and the agreement ended March 31, 2020. During the three months ended March 31, 2020, the Company incurred $33,750
of services fees and $952 of subscription fees. |
Stock Transactions |
3 Months Ended |
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Mar. 31, 2020 | |
Equity [Abstract] | |
Stock Transactions | NOTE 5 - STOCK TRANSACTIONS Options In 2005, the Company authorized the 2005 Equity Plan that made available shares of common stock for issuance through awards of options, restricted stock, stock bonuses, stock appreciation rights and restricted stock units. On May 2, 2017, the Company’s Board of Directors amended the Company’s 2005 Equity Incentive Plan to extend the Plan’s expiration date from December 31, 2016 to December 31, 2021. On August 29, 2018, the Company granted 100,000 stock options each to two
directors of the Company for their participation as members of the Audit Committee and Nominating and Compensation Committee,
and 10,000 stock options to the Company Secretary. The Director options have an exercise price of $.435 with an effective date
of August 6, 2018 and vested on August 5, 2019 and have a term of 5 years. The Company Secretary options have an exercise price
of $.435 with an effective date of August 6, 2018 and vested on August 5, 2019 and have a term of 10 years. On May 31, 2019, the Company granted 100,000 stock options each to two directors of the Company for their participation as members of the Audit Committee and Nominating and Compensation Committee, and 10,000 stock options to the Company Secretary. The Director options have a strike price of $.435 with an effective date of August 6, 2019 and will vest on August 5, 2020 and have a term of 5 years. The Company Secretary options have a strike price of $.435 with an effective date of August 6, 2019 and will vest on August 5, 2020 and have a term of 10 years. On June 10, 2020, the Company granted 100,000 stock options each to two directors of the Company for their participation as members of the Audit Committee and Nominating and Compensation Committee, and 10,000 stock options to the Company Secretary. The Director options have a strike price of $.435 with an effective date of August 6, 2020 and will vest on August 5, 2021 and have a term of 5 years. The Company Secretary options have a strike price of $.435 with an effective date of August 6, 2020 and will vest on August 5, 2021 and have a term of 10 years. As of March 31, 2020, there were 900,000 stock options outstanding and 690,000 stock options vested. The stock options have a weighted average expense price of $0.435. Stock options were issued under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act of 1933. For the three-month period ended March 31, 2020 and 2019, the Company recognized stock-based compensation expense of $8,925 and $11,025, respectively. Such amounts are included in compensation expense in the accompanying consolidated statements of operations. A further compensation expense expected to be $12,358 will be recognized for these options in 2020. Adoption of Stock Repurchase Plan On August 23, 2016, the Company's Board of Directors authorized the Company to implement a stock repurchase plan for up to $750,000 worth of shares of the Company's outstanding common stock. The stock purchases can be made in the open market, structured repurchase programs, or in privately negotiated transactions. The Company has no obligation to repurchase shares under the authorization, and the timing, actual number and value of the shares which are repurchased will be at the discretion of management and will depend on a number of factors including the price of the Company's common stock, market conditions, corporate developments and the Company's financial condition. The repurchase plan may be discontinued at any time at the Company's discretion. On December 21, 2016, the Company's Board of Directors approved an extension of the Company's stock repurchase plan through December 31, 2017, subject to an earlier termination at the discretion of the Company's Board of Directors. On February 13, 2017, as authorized under the Company's stock repurchase plan, the Company repurchased 1,000,000 shares of Company common stock from Involve, LLC., under the Option Agreement dated June 27, 2016, at an exercise price of $.15 per share. On May 1, 2017, as authorized under the Company's stock repurchase plan, the Company repurchased 666,667 shares of Company common stock from Involve, LLC., under the Option Agreement dated June 27, 2016, at an exercise price of $.15 per share. On May 2, 2017, the Company's Board of Directors authorized at the Company's discretion to either retain repurchased shares in the treasury or to retire the repurchased shares and these shares were retired on June 1, 2017. On December 15, 2017, the Company's Board of Directors approved an extension of the Company's stock repurchase plan for up to $750,000 through June 30, 2018. On August 29, 2018, the Company’s Board of Directors approved a further
extension of the Company’s stock repurchase plan through August 31, 2019. The Board of Directors also approved an increase
of the maximum amount of aggregate funding available for possible stock repurchases under the stock repurchase program from $750,000
to $1,000,000 during the renewal period. On August 29, 2018, the Company’s Board of Directors authorized and directed the Company’s management to establish a trading account at a brokerage firm for the Company to conduct open market purchases of the Company’s Common Stock in accordance with the terms and conditions of the Company’s current stock repurchase program and to fund said account from available cash of the Company but not to exceed such amount that would cause the Company to be unable to pay its bona fide debts. On December 19, 2018, Company entered into a Purchase Plan pursuant to Rule 10b5-1 under the Exchange Act, with Wilson Davis & Co., Inc., a registered broker-dealer. Under the Purchase Plan, Wilson Davis & Co., Inc will make periodic purchases of up to an aggregate of 750,000 shares at prevailing market prices, subject to the terms of the Purchase Plan. On May 31, 2019, the Company’s Board of Directors approved a further extension of the Company’s stock repurchase plan through August 31, 2020. The Board of Directors also approved that the maximum amount of aggregate funding available for possible stock repurchases under the stock repurchase program remained at $1,000,000 during the renewal period. On September 23, 2019 the Company signed a revised stock Purchase Plan to reflect an extension of the plan to repurchase up to an aggregate of 750,000 shares at prevailing market prices, subject to the terms of the Purchase Plan. On March 30, 2020, Wilson Davis & CO., Inc., advised the Company that 750,000 of the Company’s Common Stock had been repurchased to complete the authorized Purchase Plan. On June 10, 2020, the Company’s Board of Directors approved a further extension of the Company’s stock repurchase plan through August 31, 2021. During the quarter ended March 31, 2020 a total of 283,383 of the Company’s Common Stock has been repurchased at a total cost of $36,333. As of March 31, 2020, since the start of the program, a total of 750,000 of the Company’s Common Stock has been repurchased at a total cost of $107,740. |
Income Taxes |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | NOTE 6 - INCOME TAXES As of December 31, 2019, the Company had net operating loss carry forwards of approximately $1,654,000, available to the Company indefinitely and up to 80% of the operating loss can be used against future taxable income. As of March 31, 2020, the Company had $0 net operating loss carry forward
available to the Company. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. The Company was able to carryback the NOL to 2017 tax years and generate an estimated refund of previously paid income taxes at an approximate 34% federal tax rate. This resulted in a net benefit of $573,685 which has been recorded in the first quarter 2020. The effective tax rate as of March 31, 2020 was 49.0% and 3.4% as of March
31, 2019 and the statutory tax rate was 25.2% in 2020 and 24.4% in 2019. The income tax (benefit) for the three months ended March 31, 2020 and 2019 consists of:
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Organization And Summary Of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Basis of Presentation | Organization and Basis of Presentation The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position as of March 31, 2020 and results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2020 and 2019. All material intercompany accounts and transactions are eliminated in consolidation. These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with U.S. GAAP. Certain information and note disclosures have been condensed or omitted in the condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”). The operating results for any interim period are not necessarily indicative of the operating results to be expected for any other interim period or the full fiscal year. |
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Effects of COVID-19 | Effects of COVID-19 During the quarter ended March 31, 2020, the Company was negatively impacted by the effects of the worldwide COVID-19 pandemic. During the months of February and March 2020, the Company’s Hong Kong office and Chinese suppliers were impacted by the closedown of facilities by local and regional authorities in their efforts to combat the spread of COVID-19. The CIHK staff worked remotely from home, however the factory closures delayed certain orders from the first quarter of 2020 until the second and third quarter 2020. These factories are now functioning, and orders are being produced both in China and in Thailand. On March 9, 2020, the State of Florida declared a state of emergency in order to combat the spread of the COVID-19 pandemic. The Company in 2019 had expanded its IT systems to allow for remote operations and as of March 20, 2020, the Company’s U.S. staff have been working remotely from their homes. Our business operations and financial performance for the three months ended March 31, 2020 were adversely impacted by the developments discussed above, including a significant decrease in net revenue resulting in an approximate 73% increase in the net loss for the three months ended March 31, 2020 as compared to the prior year. The decrease in net sales was driven by the overseas governments mandated factory closures related to COVID-19 resulting in the unavailability of components and the shipment of finished orders. Our business may continue to be adversely impacted by the resurgence of COVID-19. This disruption could have a continued negative impact on the retail business and consumers’ willingness to visit retail stores, causing reduced consumer foot traffic and consumer spending which could negatively impact the demand for our products. The Company reported a net loss of approximately $597 thousand for the three months ended March 31, 2020 compared to a net loss of approximately $345 thousand for the period ended March 31, 2019. The cash generated from operations was negatively impacted and the Company utilized $679 thousand of cash. With orders now shipping to customers in the second quarter 2020, we expect
that the cash generated from operations will gradually improve in the second and future quarters in 2020. At March 31, 2020, the Company remained debt free, had a cash balance of $2.5 million and an available credit facility of $7.5 million at Sterling National Bank, subject to eligible collateral. This credit facility is up for renewal and is currently being negotiated, which Management expects to be finalized in the next couple of weeks. As a result of the economic uncertainties caused by the COVID-19 pandemic, Management determined sufficient indicators existed to trigger the performance of an interim goodwill impairment analysis as of March 31, 2020. The analysis concluded that the Company’s carrying value of its single reporting unit exceeded the fair value and the Company recognized $290,059 goodwill impairment charge in the quarter ended March 31, 2020. With the continuing economic uncertainties caused by the COVID-19 pandemic, the capital markets may continue to have a downturn and adversely affect the Company’s stock price which will require the Company to test its goodwill for impairment in future reporting periods. On March 27, 2020, the current administration signed into law the Coronavirus Aid, Relief and Economic Security Act, which we refer to as the “CARES Act.” The CARES Act, among other things, includes provisions related to net operating loss carryback periods. We were able to carryback the NOL to 2017 tax years and generate an estimated net refund of previously paid income taxes at an approximate 34% federal tax rate. This resulted in a net tax benefit of $573,685 which has been recorded in the first quarter 2020. We identified and had certified a factory in Thailand that started producing orders for the Company in 2020. This additional manufacturing capacity will provide the Company with more flexibility in determining which factory location should produce goods for future orders, particularly if COVID-19 impacts Chinese manufacturing in a second wave pandemic. With the United States now being impacted by a resurgence of COVID-19 pandemic, we believe the economic impact of the virus in the U.S. will continue through the third quarter and view this as a major disruption but should not impact our long-term strategy and initiatives. As the COVID 19 pandemic subsides and markets reopen, we intend to execute our organic growth strategy, which is designed to enhance our market presence and expand our customer base. The continuing spread of COVID-19 could result in a further expansion of the public health crisis that could adversely affect the U.S. economy and financial markets, consumer spending and confidence levels, resulting in a further economic downturn that could affect customer and consumer demand for our products. The overall impact of the COVID-19 pandemic to our business, financial condition, cash flow and results of operations, therefore, remains uncertain. For example, if any of our major wholesale customers fail to return to normal operations, our revenue could decline, which could have a material adverse effect on our business, financial condition and results of operations. |
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Liquidity and Going Concern | Liquidity and Going Concern The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. During the quarter ended March 31, 2020, the Company was negatively impacted by the effects of the worldwide COVID-19 pandemic. Our business operations and financial performance for the three months ended March 31, 2020 were adversely impacted which resulted in a $2.8 million or 95% decrease in net revenue. The Company reported a net loss of approximately $597 thousand for the three months ended March 31, 2020 compared to a net loss of approximately $345 thousand for the three months ended March 31, 2019, a net loss increase of approximately 73%. The Company’s factory suppliers in Thailand and China are now fully
functioning and shipping orders. However with the resurgence of the COVID-19 pandemic in the United States, the future impact
on the retail market place remains uncertain, which places doubt on the timing of the Company’s new retail programs that
are planned to be introduced later in the year, which could result in further reduced revenue and continued losses. As the Company relies on cash generated from operations to support its ongoing business, based on the Company’s expected rate of consumption, if the new programs are delayed or postponed the Company will need additional working capital in the fourth quarter, 2020 and its prospects of obtaining that capital are uncertain at this time. The Company may be able to raise the required additional capital through debt or equity financing. However, the Company can make no assurances that it will be able to raise the required capital, on acceptable terms or at all. Unless the Company succeeds in raising additional capital or successfully increases cash generated from operations, Management believes there is substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the filing date of this report. Management is closely monitoring its operations, liquidity, and capital resources and is actively working to minimize the current and future impact of this unprecedented situation. The Company has taken some immediate steps to reduce operating costs in the second quarter, 2020 and to conserve cash including reductions in rent, travel expenses and staff reductions and plans to make further cost reductions to further conserve liquidity. At March 31, 2020, the Company continued to remain debt free, had a cash balance of $2.5 million and an available credit facility of $7.5 million at Sterling National Bank. This credit facility, which is subject to eligible collateral, is up for renewal and is currently being negotiated. |
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Nature of Business | Nature of Business Since the beginning of fiscal year 2007, the Company has been primarily engaged in the business of developing, marketing and selling home LED products through national and regional retailers in North America and in certain overseas markets. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities to meet consumer’s needs. The Company has developed a smart interactive mirror for residential use as a variant line for its lighting products, which was launched for market at the Consumer Electronics Show in early 2020. The development of the smart interactive mirror is part of the Company’s strategic effort to find new product lines to replace or supplement existing products that are nearing or at the end of their product life cycle. These products are offered either under the Capstone brand or licensed brands. The Company’s products are typically manufactured in China and Thailand by contract manufacturing companies. The Company’s operations consist of one reportable segment for financial
reporting purposes: Lighting Products. |
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Accounts Receivable | Accounts Receivable For product revenue, the Company invoices its customers at the time of shipment for the sales value of the product shipped. Accounts receivable are recognized at the amount expected to be collected and are not subject to any interest or finance charges. The Company does not have any off-balance sheet credit exposure related to any of its customers. As of March 31, 2020 and December 31, 2019, accounts receivable serves as collateral when the Company borrows against its credit facilities. |
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Allowance for Doubtful Accounts | Allowance for Doubtful Accounts The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and the Company’s historical payment experience. An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available. As of March 31, 2020 and December 31, 2019, management has determined that
accounts receivable are fully collectible. As such, management has not recorded an allowance for doubtful accounts. The following table summarizes the components of Accounts Receivable, net:
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Inventories | Inventories The Company's inventory, recorded at lower of cost (first-in, first-out) or net realizable value, consists of finished goods for resale by Capstone. |
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Prepaid Expenses | Prepaid Expenses The Company’s prepaid expenses consist primarily of deposits on inventory purchases for future orders as well as prepaid insurance, trade show and subscription expense. As of March 31, 2020 and December 31, 2019, prepaid expenses were $140,583 and $182,782, respectively. |
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Goodwill | Goodwill On September 13, 2006, the Company entered into a Stock Purchase Agreement with Capstone Industries, Inc., a Florida corporation (“Capstone”). Capstone was incorporated in Florida on May 15, 1996 and is engaged primarily in the business of wholesaling technology inspired consumer products to distributors and retailers in the United States. Under the Stock Purchase Agreement, the Company acquired 100% of the issued and outstanding shares of Capstone’s Common Stock, and recorded goodwill of $1,936,020. Goodwill acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value of the net assets acquired. Goodwill is tested for impairment on December 31 of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the carrying amount exceeds its fair value, an impairment loss is recognized. Goodwill is not amortized. The Company estimates the fair value of its single reporting unit relative to the Company's market capitalization. Goodwill is subject to ongoing periodic impairments tests based on fair value
of the reporting unit compared to its carrying amount, including goodwill. Impairment exists when a reporting unit’s carrying
amount exceeds its fair value. At December 31, 2019, the required annual impairment test of goodwill was performed, and no impairment
existed as of the valuation date. As a result of the economic uncertainties caused by the COVID-19 pandemic, we determined sufficient indicators existed to trigger the performance of an interim goodwill impairment analysis as of March 31, 2020. The analysis concluded that the Company’s carrying value of its single reporting unit exceeded the fair value and the Company recognized $290,059 goodwill impairment charge in the quarter ended March 31, 2020 as shown in the following table.
With the continuing economic uncertainties caused by the COVID-19 pandemic, the capital markets may continue to have a downturn and adversely affect the Company’s stock price which will require the Company to test its goodwill for impairment in future reporting periods. |
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Fair Value Measurement | Fair Value Measurement The accounting guidance under Accounting Standards Codification 820-10, “Fair
Value Measurements and Disclosures” (“ASC 820-10”) requires the Company to make disclosures about the fair value
of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information
used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The three levels of the hierarchy are as follows:
The input used in the goodwill fair value calculation falls within level 1 hierarchy. |
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Earnings Per Common Share | Earnings Per Common Share Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the reporting periods. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For calculation of the diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants using the treasury stock method. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of March 31, 2020 and 2019, the total number of potentially dilutive common stock equivalents excluded from the diluted earnings per share calculation was 900,000 and 870,001, respectively. During the period ended March 31, 2020 a total of 100,000 stock options expired. Basic weighted average shares outstanding is reconciled to diluted weighted shares outstanding as follows:
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Revenue Recognition | Revenue Recognition The Company generates revenue from developing, marketing and selling consumer lighting products through national and regional retailers. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities Capstone currently operates in the consumer lighting products category in the United States and in certain overseas markets. These products may be offered either under the Capstone brand or licensed brands. A sales contract occurs when the customer-retailer submits a purchase order to buy a specific product, a specific quantity, at an agreed-fixed price, within a ship window, from a specific location and on agreed payment terms. The selling price in all of our customers’ orders has been previously negotiated and agreed to including any applicable discount prior to receiving the customer’s purchase order. The stated unit price in the customer’s order has already been determined and is fixed at the time of invoicing. The Company recognizes product revenue when the Company’s performance obligations as per the terms in the customers purchase order have been fully satisfied, specifically, when the specified product and quantity ordered has been manufactured and shipped pursuant to the customers requested ship window, when the sales price as detailed in the purchase order is fixed, when the product title and risk of loss for that order has passed to the customer, and collection of the invoice is reasonably assured. This means that the product ordered and to be shipped has gone through quality assurance inspection, customs and commercial documentation preparation, the goods have been delivered, title transferred to the customer and confirmed by a signed cargo receipt or bill of lading. Only at the time of shipment when all performance obligations have been satisfied will the judgement be made to invoice the customer and complete the sales contract. The Company may enter into a licensing agreement with globally recognized companies, that allows the Company to market products under a licensed brand to retailers for a designated period of time, and whereby the Company will pay a royalty fee, typically a percentage of licensed product revenue to the licensor in order to market the licensed product. The Company expenses license royalty fees and sales commissions when incurred
and these expenses are recognized during the period the related sale is recorded. These costs are recorded within sales and marketing
expense. The following table disaggregates net revenue by brand and geographical area:
We provide our customers with limited rights of return for non-conforming product warranty claims. As a policy, the Company does not accept product returns from customers, however occasionally as part of a customer's in store test for new product, we may receive back residual inventory. Customer orders received are not long-term orders and are typically shipped within six months of the order receipt, but certainly within a one-year period. Our payment terms may vary by the type of customer, the customer's credit
standing, the location where the product will be picked up from and for international customers, which country their corporate
office is located. The term between invoicing date and when payment is due may vary between 30 days and 90 days depending on the
customer type. In order to ensure there are no payment issues, overseas customers or new customers may be required to provide
a deposit or full payment before the order is delivered to the customer. The Company selectively supports retailer's initiatives to maximize sales of the Company's products on the retail floor or to assist in developing consumer awareness of new products launches, by providing marketing fund allowances to the customer. The Company recognizes these incentives at the time they are offered to the customers and records a credit to their account with an offsetting charge as either a reduction to revenue, increase to cost of sales, or marketing expenses depending on the type of sales incentives. Sales reductions for anticipated discounts, allowances and other deductions are recognized during the period the related revenue is recorded. |
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Warranties | Warranties The Company provides the end user with limited rights of return as a consumer assurance warranty on all products sold, stipulating that the product will function properly for the warranty period. The warranty period for all products is one year from the date of consumer purchase. Certain retail customers may receive an off-invoice based discount such as a defective/warranty allowance, that will automatically reduce the unit selling price at the time the order is invoiced. This allowance will be used by the retail customer to defray the cost of any returned units from consumers and therefore negate the need to ship defective units back to the Company. Such allowances are charged to cost of sales at the time the order is invoiced. For those customers that do not receive a discount off-invoice, the Company recognizes a charge to cost of sales for anticipated non-conforming returns based upon an analysis of historical product warranty claims and other relevant data. We evaluate our warranty reserves based on various factors including historical warranty claims assumptions about frequency of warranty claims, and assumptions about the frequency of product failures derived from our reliability estimates. Actual product failure rates that materially differ from our estimates could have a significant impact on our operating results. Product warranty reserves are reviewed each quarter and recognized at the time we recognize revenue. The following table summarizes the changes in the Company's product warranty liabilities which are included in accounts payable and accrued liabilities in the accompanying March 31, 2020 and December 31, 2019 balance sheets:
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Advertising and Promotion | Advertising and Promotion Advertising and promotion costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in sales and marketing expenses. Advertising and promotion expense was $188,808 and $171,457 for the three months ended March 31, 2020 and 2019, respectively. |
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Product Development | Product Development Our research and development team located in Hong Kong working with our designated factories, are responsible for the design, development, testing, and certification of new product releases. Our engineering efforts support product development across all products, as well as product testing for specific overseas markets. All research and development costs are charged to results of operations as incurred. For the three months ended March 31, 2020 and 2019, research and development expenses were $51,614 and $85,229, respectively. |
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Shipping and Handling | Shipping and Handling The Company's shipping and handling costs are included in sales and marketing
expenses and are recognized as an expense during the period in which they are incurred and amounted to $13,782 and $7,866 for
the three months ended March 31, 2020 and 2019, respectively. |
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Accounts Payable and Accrued Liabilities | Accounts Payable and Accrued Liabilities The following table summarizes the components of accounts payable and accrued
liabilities as of March 31, 2020 and December 31, 2019, respectively:
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Income Taxes | Income Taxes The Company is subject to income taxes in the U.S. federal jurisdiction, various state jurisdictions and certain other jurisdictions. The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 740 Income Taxes. ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company and its U.S. subsidiaries file consolidated income tax returns. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Tax regulations within each jurisdiction are subject to the interpretation of the relaxed tax laws and regulations and require significant judgement to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities generally for a period of 3 years from the later of each return due date or date filed. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be recorded as a component of income tax expense. |
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Stock-Based Compensation | Stock-Based Compensation The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation- Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expenses over the requisite service periods in the Company's condensed consolidated statements of operations.
Stock-based compensation expense recognized during the periods ended March 31, 2020 and 2019 was $8,925 and $11,025, respectively. In conjunction with the adoption of ASC 718, the Company adopted the straight-line single option method of attributing the value of stock-based compensation expense. The Company accounts for forfeitures as they occur. |
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Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, product warranty obligations, valuation of inventories, tax related contingencies, valuation of stock-based compensation, other contingencies and litigation, among others. The Company generally bases its estimates on historical experience, agreed obligations, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Historically, past changes to these estimates have not had a material impact on the Company’s financial statements. However, circumstances could change, and actual results could differ materially from those estimates. |
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Recent Accounting Standards | Recent Accounting Standards To be Adopted in a Future Period In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”). The amendments in ASU 2019-12 seek to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplify GAAP in other areas of Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2019-12 may have on the Company’s Consolidated Financial Statements. |
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Adoption of New Accounting Standards | Adoption of New Accounting Standards In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which requires an entity to perform a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 did not have a material effect on the Company’s consolidated financial statements. In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This new guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2018-03 did not have a material effect on the Company’s consolidated financial statements. The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. |
Organization And Summary Of Significant Accounting Policies (Tables) |
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization And Summary Of Significant Accounting Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Accounts Receivable, net | The following table summarizes the components of Accounts Receivable, net:
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Schedule of Goodwill Impairment Charges | The goodwill impairment charge in the quarter ended March 31, 2020 as shown in the following table.
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Schedule of Basic Weighted Average Shares Outstanding is Reconciled to Diluted | Basic weighted average shares outstanding is reconciled to diluted weighted shares outstanding as follows:
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Schedule of Net Revenue by Major Source | The following table disaggregates net revenue by brand and geographical area:
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Schedule of Changes in Product Warranty Liabilities Included in Accounts Payable and Accrued Liabilities | The following table summarizes the changes in the Company's product warranty liabilities which are included in accounts payable and accrued liabilities in the accompanying March 31, 2020 and December 31, 2019 balance sheets:
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Schedule of Components of Accounts Payable and Accrued Liabilities | The following table summarizes the components of accounts payable and accrued liabilities as of March 31, 2020 and December 31, 2019, respectively:
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Commitments And Contingencies And Subsequent Events (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments And Contingencies And Subsequent Events | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Right Of Use Asset and Lease Liability | Supplemental balance sheet information related to leases
as of March 31, 2020 is as follows:
Supplemental statement of operations information related to leases for the three
months ended March 31, 2020 is as follows:
Supplemental cash flow information related to leases for
the three months ended March 31, 2020 is as follows:
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Scheduled Maturities of Operating Lease Liabilities Outstanding | Scheduled maturities of operating lease liabilities outstanding as of March 31, 2020 are as follows:
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Income Taxes (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Income Tax (Benefit) | The income tax (benefit) for the three months ended March 31, 2020 and 2019
consists of:
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Organization And Summary Of Significant Accounting Policies (Components Of Accounts Receivable, Net) (Details) - USD ($) |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Organization And Summary Of Significant Accounting Policies Components Of Accounts Receivable Net | ||
Trade Accounts Receivables at period end | $ 69,973 | $ 276,551 |
Reserve for estimated marketing allowances, cash discounts and other incentives | 263,092 | |
Total Accounts Receivable, net | $ 69,973 | $ 13,459 |
Organization And Summary Of Significant Accounting Policies (Schedule Of Goodwill Impairment Charges) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Organization And Summary Of Significant Accounting Policies Schedule Of Goodwill Impairment Charges | ||
Balance at December 31, 2019 | $ 1,936,020 | |
Impairment charge | 290,059 | |
Balance at March 31, 2020 | $ 1,645,961 |
Organization And Summary Of Significant Accounting Policies (Schedule Of Basic Weighted Average Shares) (Details) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Organization And Summary Of Significant Accounting Policies Schedule Of Basic Weighted Average Shares | ||
Basic weighted average shares outstanding | 46,463,365 | 47,033,670 |
Dilutive options | ||
Diluted weighted average shares outstanding | 46,463,365 | 47,033,670 |
Organization And Summary Of Significant Accounting Policies (Schedule Of Net Revenue By Major Source) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Total Revenue | $ 148,977 | $ 2,978,802 |
Capstone Brand [Member] | ||
Total Revenue | 148,977 | 2,978,802 |
License Brands [Member] | ||
Total Revenue | ||
Total Consolidated [Member] | ||
Total Revenue | 148,977 | 2,978,802 |
Lighting Products - U.S. [Member] | Capstone Brand [Member] | ||
Total Revenue | 48,303 | 2,677,627 |
Lighting Products - U.S. [Member] | License Brands [Member] | ||
Total Revenue | ||
Lighting Products - U.S. [Member] | Total Consolidated [Member] | ||
Total Revenue | 48,303 | 2,677,627 |
Lighting Products-International [Member] | Capstone Brand [Member] | ||
Total Revenue | 100,674 | 301,175 |
Lighting Products-International [Member] | License Brands [Member] | ||
Total Revenue | ||
Lighting Products-International [Member] | Total Consolidated [Member] | ||
Total Revenue | $ 100,674 | $ 301,175 |
Organization And Summary Of Significant Accounting Policies (Schedule Of Product Warranty Liabilities) (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
|
Organization And Summary Of Significant Accounting Policies Schedule Of Product Warranty Liabilities | ||
Balance at the beginning of the period | $ 247,850 | $ 212,495 |
Amount accrued | 180,797 | |
Expenditures | 115,919 | 145,442 |
Balance at period-end | $ 131,931 | $ 247,850 |
Organization And Summary Of Significant Accounting Policies (Components Of Accounts Payable) (Details) - USD ($) |
Mar. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2018 |
---|---|---|---|
Organization And Summary Of Significant Accounting Policies Components Of Accounts Payable | |||
Accounts payable | $ 189,008 | $ 273,606 | |
Accrued warranty reserve | 131,931 | 247,850 | $ 212,495 |
Accrued compensation, benefits, marketing allowances and other liabilities | 516,405 | 114,137 | |
Total accrued liabilities | 648,336 | 361,987 | |
Total | $ 837,344 | $ 635,593 |
Commitments And Contingencies (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
|
Assets | ||
Operating lease - right-of-use asset | $ 200,619 | $ 214,202 |
Liabilities Current | ||
Current portion of operating lease | 58,514 | 51,174 |
Noncurrent | ||
Operating lease liability, net of current portion | 155,851 | $ 170,998 |
Commitments [Member] | ||
Assets | ||
Operating lease - right-of-use asset | 200,619 | |
Liabilities Current | ||
Current portion of operating lease | 58,514 | |
Noncurrent | ||
Operating lease liability, net of current portion | 155,851 | |
Supplemental statement of operations information related to leases for the three months ended March 31, 2020 is as follows: | ||
Operating lease expense as a component of other general and administrative | 17,460 | |
Cash paid for amounts included in the measurement of lease liabilities: | ||
Operating cash flow paid for operating lease | $ 11,684 | |
Lease term and Discount Rate | ||
Weighted average remaining lease term (months) operating lease | 39 months | |
Weighted average Discount Rate | ||
Operating lease | 7.00% |
Commitments And Contingencies (Details1) (Details) |
Mar. 31, 2020
USD ($)
|
---|---|
Year | |
2020, remaining nine months | $ 53,628 |
2021 | 73,290 |
2022 | 75,492 |
2023 | 38,304 |
Total Minimum Future Payments | 240,714 |
Less: Imputed Interest | 26,349 |
Present Value of Lease Liabilities | $ 214,365 |
Income Taxes (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Current: | ||
Federal | $ (745,972) | |
State | ||
Deferred: | ||
Federal | 167,538 | (11,340) |
State | 4,749 | (660) |
Income Tax (Benefit) | $ (573,685) | $ (12,000) |
Organization And Summary Of Significant Accounting Policies (Narrative) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Credit facility description | An available credit facility of $7.5 million at Sterling National Bank, subject to eligible collateral. This credit facility is up for renewal and is currently being negotiated, which Management expects to be finalized in the next couple of weeks. | |
Credit facility at Sterling National Bank | $ 7,500,000 | |
Federal tax rate | 34.00% | 25.40% |
Business operations and financial performance by the effects of the worldwide COVID-19 | The Company was negatively impacted by the effects of the worldwide COVID-19 pandemic. Our business operations and financial performance for the three months ended March 31, 2020 were adversely impacted which resulted in a $2.8 million or 95% decrease in net revenue. The Company reported a net loss of approximately $597 thousand for the three months ended March 31, 2020 compared to a net loss of approximately $345 thousand for the three months ended March 31, 2019, a net loss increase of approximately 73%. | |
Potentially dilutive common stock equivalents excluded from diluted earnings per share | 900,000 | 870,001 |
Sales and Marketing Expenses [Member] | ||
Advertising and promotion expense | $ 188,808 | $ 171,457 |
Shipping and handling costs | $ 13,782 | $ 7,866 |
Options [Member] | ||
Stock option expired | 100,000 |
Notes Payable (Narrative) (Details) - Financing Agreement With Sterling National Bank [Member] - Line Of Credit [Member] - USD ($) |
3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
May 11, 2020 |
Jul. 18, 2019 |
Sep. 08, 2010 |
Mar. 31, 2020 |
Dec. 31, 2019 |
|
Line of Credit Facility [Line Items] | |||||
Line of credit funding description | On July 18, 2019, Sterling National Bank renewed the credit line up to $7,500,000 to June 30, 2020. | The assignments provide funding for an amount up to 85% of net invoices submitted. | |||
Percentage of base management fee of the gross invoice amount | 30.00% | ||||
Line of credit interest rate description | The interest rate of the loan advance is .25% above Sterling National Bank's Base Rate which at time of closing was 7%. | ||||
Line of credit interest rate | 5.25% | 6.75% | |||
Line of credit collateral description | The amounts borrowed under this agreement are due on demand and collateralized by substantially all the assets of Capstone. | ||||
Line of credit processing fees | $ 333 | $ 10,494 | |||
Line of credit current maximum borrowing capacity | $ 7,500,000 | ||||
Subsequent Event [Member] | |||||
Line of Credit Facility [Line Items] | |||||
Line of credit interest rate description | The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. | ||||
Proceeds from loan | $ 89,600 |
Commitments And Contingencies (Operating Leases) (Narrative) (Details) - USD ($) |
3 Months Ended | 8 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Feb. 17, 2020 |
Nov. 01, 2019 |
Aug. 17, 2019 |
May 15, 2018 |
Feb. 01, 2017 |
Dec. 01, 2016 |
Feb. 17, 2014 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2018 |
|
Operating Leased Assets [Line Items] | ||||||||||
Base annual / monthly rent payable | $ 240,714 | |||||||||
Increase in base rent payable per month | 8,383 | |||||||||
Rent expenses | $ 47,447 | $ 21,264 | ||||||||
Operating Lease Agreement - Office Space [Member] | ||||||||||
Operating Leased Assets [Line Items] | ||||||||||
Base annual / monthly rent payable | $ 92,256 | |||||||||
Operating lease description | Effective November 1, 2019, the Company entered into a new prime operating lease with the landlord “431 Fairway Associates, LLC” ending June 30, 2023, for the Company’s executive offices located on the second floor of 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441 with an annualized base rent of $70,104 and with a base rental adjustment of 3% commencing July 1, 2020 and on July 1st of each subsequent year during the term. Under the lease agreement, Capstone is also responsible for a portion of common area maintenance charges in the leased premises which has been estimated at $12.00 per square foot on an annualized basis of which the premises is approximately 4,694 square feet. | On May 15, 2018, the Company entered into a lease agreement with the previous landlord to provide for a premise’s relocation, lease termination and new sublease agreement. Under the agreement the Company relocated its principal executive offices located at 350 Jim Moran Blvd, Suite 120, Deerfield Beach, Florida 33442 to 4,694 square feet of office space on the second floor of 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. The original lease terminated on the relocation date, being July 1, 2018, and the parties proceeded under the terms of the sublease which expired on January 31, 2020. The base annual rent in the sublease remained at the same rate as the previous agreement until January 31, 2020. At the expiration of the sublease, the Company had the option to accept the prime lease with another 3 years renewal and with an option to renew for an additional 5-year period. If the Company decided to further extend the sublease after January 31, 2020, the Company would be subject to the terms and conditions of the prime lease. The base monthly rent was $7,312 to January 31, 2019 and then base rent would be $7,514 until January 31, 2020 which includes an estimate for portion of the common area maintenance. | Effective February 1, 2017, the Company renewed the lease for 3 years ending January 31, 2020. | |||||||
Operating lease renewal term | 3 years | |||||||||
Total rental expenses | $ 281,711 | |||||||||
Amount agreed to pay by Landlord on completion of relocation | $ 150,000 | |||||||||
Lease incentive income per month | $ 870 | |||||||||
Operating Lease Agreement - Office Space [Member] | Capstone International Hong Kong Ltd (CIHK) [Member] | ||||||||||
Operating Leased Assets [Line Items] | ||||||||||
Base annual / monthly rent payable | $ 5,100 | $ 1,290 | ||||||||
Operating lease description | The lease was further extended with a base monthly rate of $5,100 for six months until February 16, 2020. As the premises was no longer required as the employees were working remotely, the Company decided not to renew and allowed this lease to expire. | CIHK entered into a six month rental agreement effective from December 1, 2016 for a showroom space at 3F, Wing Kin Industrial Building, 4-6 Wing Kin Road, Kwai Chung, NT, Hong Kong. This agreement has been extended various times. The current lease expires August 16, 2019 and was further renewed for six-months expiring on February 16, 2020 | The original agreement which was effective from February 17, 2014 has been extended various times. | |||||||
Operating Lease Agreement - Showroom Space [Member] | Capstone International Hong Kong Ltd (CIHK) [Member] | ||||||||||
Operating Leased Assets [Line Items] | ||||||||||
Base annual / monthly rent payable | $ 1,285 | |||||||||
Operating lease description | Effective February 17, 2020, the Company entered into a new six-month lease expiring on September 30, 2020, with a base rate of $1,285 per month and the space is available to renew as required. |
Commitments And Contingencies (Consulting Agreements) (Narrative) (Details) - Consulting Agreement With George Wolf [Member] - USD ($) |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Jan. 02, 2019 |
Jan. 02, 2018 |
Jan. 02, 2017 |
Jan. 02, 2016 |
Jul. 01, 2015 |
Mar. 31, 2020 |
|
Other Commitments [Line Items] | ||||||
Amount payable per month under the agreement | $ 13,750 | $ 13,750 | $ 13,750 | $ 12,500 | $ 10,500 | |
Agreement description | On January 1, 2019, the agreement was further amended, whereby Mr. Wolf will be paid $13,750 per month from January 1, 2019 through December 31, 2020. | On January 1, 2018, the agreement was further amended, whereby Mr. Wolf will be paid $13,750 per month from January 1, 2018 through December 31, 2018. | On January 1, 2017, the agreement was amended, whereby Mr. Wolf will be paid $13,750 per month from January 1, 2017 through December 31, 2017. | Increasing to $12,500 per month from January 1, 2016 through December 31, 2017. | Mr. Wolf will be paid $10,500 per month through December 31, 2015. | The agreement can be terminated upon 30 days' notice by either party. The Company may, in its sole discretion at any time convert Mr. Wolf to a full-time Executive status. The annual salary and term of employment would be equal to that outlined in the consulting agreement. Mr. Wolf is an independent contractor of the Company. |
Commitments And Contingencies (Employment Agreements) (Narrative) (Details) - USD ($) |
3 Months Ended | ||||
---|---|---|---|---|---|
Feb. 05, 2020 |
Feb. 05, 2018 |
Feb. 06, 2016 |
Feb. 05, 2016 |
Mar. 31, 2020 |
|
Employment Agreement With Stewart Wallach [Member] | |||||
Other Commitments [Line Items] | |||||
Amount payable per annum under the agreement | $ 301,521 | $ 301,521 | $ 301,521 | ||
Agreement description | The initial term of this new agreement began February 5, 2020 and ends February 5, 2023. | The initial term of this new agreement began February 5, 2018 and ends February 5, 2020. The parties may extend the employment period of this agreement by mutual consent with approval of the Company's Board of Directors, but the extension may not exceed two years in length. | The initial term of this agreement began February 5, 2016 and ended February 5, 2018. | ||
Employment Agreement With James McClinton [Member] | |||||
Other Commitments [Line Items] | |||||
Amount payable per annum under the agreement | $ 191,442 | $ 191,442 | $ 191,442 | ||
Agreement description | The term of this new agreement began February 5, 2020 and ends February 5, 2022. | The term of this new agreement began February 5, 2018 and ended February 5, 2020. | The term of this agreement began February 5, 2016 and ended February 5, 2018. | ||
Employment Agreements [Member] | |||||
Other Commitments [Line Items] | |||||
Agreement description | There is a common provision in both Mr. Wallach and Mr. McClinton's employment agreements: If the officer's employment is terminated by death or disability or without cause, the Company is obligated to pay to the officer's estate or the officer, as the case may be an amount equal to accrued and unpaid base salary as well as all accrued but unused vacation days through the date of termination. The Company will also pay sum payments equal to (a) the sum of twelve (12) months base salary at the rate the Executive was earning as of the date of termination and (b) the sum of "merit" based bonuses earned by the Executive during the prior calendar year of his termination. Any payments owed by the Company shall be paid from a normal payroll account on a bi-weekly basis in accordance with the normal payroll policies of the Company. The amount owed by the Company to the Executive, from the effective Termination date, will be payout bi-weekly over the course of the year but at no time will be no more than twenty (26) installments. The Company will also continue to pay the Executive's health and dental insurance benefits for 6 months starting at the Executives date of termination. If the Executive had family health coverage at the time of termination, the additional family premium obligation would remain theirs and will be reduced against the Executive's severance package. The employment agreements have an anti-competition provision for 18 months after the end of employment. |
Commitments And Contingencies (Directors Compensation) (Narrative) (Details) - Directors Compensation [Member] - USD ($) |
Jun. 10, 2020 |
Jun. 10, 2020 |
May 31, 2019 |
---|---|---|---|
Jeffrey Guzy - Director [Member] | |||
Other Commitments [Line Items] | |||
Director compensation payable per calendar month | $ 750 | ||
Agreement description | On May 31, 2019 the Company approved that effective on June 1, 2019, each independent director, namely Jeffrey Guzy and Jeffrey Postal, would each receive $750 per calendar month, as a Form 1099 compensation, for their continued services as directors of the Company. This compensation would be additional to the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee. | ||
Jeffrey Guzy - Director [Member] | Subsequent Event [Member] | |||
Other Commitments [Line Items] | |||
Director compensation payable per calendar month | $ 750 | $ 750 | |
Agreement description | On June 10, 2020 the Company approved that effective on August 1, 2020 until August 1, 2021, each independent director, namely Jeffrey Guzy and Jeffrey Postal, would each receive $750 per calendar month, as a Form 1099 compensation, for their continued services as directors of the Company. This compensation would be additional to the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee. | ||
Jeffrey Postal - Director [Member] | |||
Other Commitments [Line Items] | |||
Director compensation payable per calendar month | $ 750 | ||
Agreement description | On May 31, 2019, the Company also approved that the independent directors would be offered effective from June 1, 2019, the opportunity to participate as a non-employee in the Company’s Health Benefit Plan, subject to compliance with all plan participation requirements and on acceptance into the plan the director will be responsible to pay 100% of their plans participation cost. | ||
Jeffrey Postal - Director [Member] | Subsequent Event [Member] | |||
Other Commitments [Line Items] | |||
Director compensation payable per calendar month | $ 750 | $ 750 | |
Agreement description | On June 10, 2020 the Company approved that effective on August 1, 2020 until August 1, 2021, each independent director, namely Jeffrey Guzy and Jeffrey Postal, would each receive $750 per calendar month, as a Form 1099 compensation, for their continued services as directors of the Company. This compensation would be additional to the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee. |
Commitments And Contingencies(Licensing Agreements) (Narrative) (Details) |
Feb. 03, 2020 |
Apr. 12, 2018 |
Dec. 29, 2016 |
Feb. 04, 2015 |
---|---|---|---|---|
Licensing Agreement With Floorcare Company | ||||
Other Commitments [Line Items] | ||||
Agreement description | The Company did not achieve the stated net sales volume for the renewal period, the License expired on February 3, 2020. | On April 12, 2018, the Company finalized the second amendment to the February 4, 2015 Licensing Agreement in which the license was further expanded to add an additional product category. | On December 29, 2016, the Company finalized the first amendment to the February 4, 2015 Licensing Agreement with the floorcare company in which the initial term was extended through February 3, 2020 and additional renewal terms and periods were also finalized. During this initial extended period through February 3, 2020, if the Company achieves net sales of $5,000,000, then the Licensing Agreement would automatically be extended 2 years until February 3, 2022 and if during this second extended period the Company achieves net sales of $5,000,000, then the Licensing Agreement would automatically be further extended 2 years until February 3, 2024. This license amendment also added an additional product category. | Under a February 4, 2015 Licensing Agreement with a floorcare company, Company markets home lighting products under the licensed brand of the floorcare company, to discount retailers, warehouse clubs, home centers, on-line retailers and other retail distribution channels in the U.S., Canada and Mexico. The initial term of the agreement is for 3 years. The Licensing Agreement did not have a guaranteed royalty stipulation. |
Commitments And Contingencies (Public Relations Agreement) (Narrative) (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Sep. 27, 2018 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Other Commitments [Line Items] | |||
Service charges | $ 130,530 | $ 157,803 | |
Public Relations Services Agreement With Max Borges Agency (MBA) [Member] | |||
Other Commitments [Line Items] | |||
Agreement description | On September 27, 2018, the Company executed a public relations services agreement with Max Borges Agency, (“MBA”), a full – service public relations and communications agency with offices in Miami and San Francisco. The Company entered into the Agreement to obtain assistance from a nationally recognized firm, specializing in the development of product branding, marketing and launching of technology products. The agreement was effective on October 1, 2018 with an initial 180 day term, which either party can cancel with 60 days advanced notice in writing on or after the 120th day of the effective date. | ||
Amount payable per month under the agreement | $ 11,250 | ||
Subscription fee due on the first of each month | $ 476 | ||
Service charges | 33,750 | ||
Subscription fees | $ 952 |
Stock Transactions (Options) (Narrative) (Details) - 2005 Equity Plan [Member] - Stock Options [Member] - USD ($) |
3 Months Ended | ||||
---|---|---|---|---|---|
Jun. 10, 2020 |
May 31, 2019 |
Aug. 29, 2018 |
May 02, 2017 |
Mar. 31, 2020 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Stock options amendment terms | 2005 Equity Incentive Plan to extend the Plan’s expiration date from December 31, 2016 to December 31, 2021. | ||||
Stock options outstanding | 900,000 | ||||
Stock options vested | 690,000 | ||||
Unrecognized stock based compensation expense to be recognized in 2020 | $ 12,358 | ||||
Director One [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
No of options granted | 100,000 | 100,000 | |||
Options description | The Director options have a strike price of $.435 with an effective date of August 6, 2019 | The Director options have an exercise price of $.435 with an effective date of August 6, 2018 | |||
Strike price of options | $ 0.435 | $ 0.435 | |||
Vesting date of options | Will vest on August 5, 2020 | Vested on August 5, 2019 | |||
Term of options | 5 years | 5 years | |||
Director Two [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
No of options granted | 100,000 | 100,000 | |||
Options description | The Director options have a strike price of $.435 with an effective date of August 6, 2019 | The Director options have an exercise price of $.435 with an effective date of August 6, 2018 | |||
Strike price of options | $ 0.435 | $ 0.435 | |||
Vesting date of options | Will vest on August 5, 2020 | Vested on August 5, 2019 | |||
Term of options | 5 years | 5 years | |||
Company Secretary [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
No of options granted | 10,000 | 10,000 | |||
Options description | The Company Secretary options have an exercise price of $.435 with an effective date of August 6, 2019 | The Company Secretary options have an exercise price of $.435 with an effective date of August 6, 2018 | |||
Strike price of options | $ 0.435 | $ 0.435 | |||
Vesting date of options | Will vest on August 5, 2020 | Vested on August 5, 2019 | |||
Term of options | 10 years | 10 years | |||
Company Secretary [Member] | Subsequent Event [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
No of options granted | 100,000 | ||||
Options description | The Company Secretary options have a strike price of $.435 with an effective date of August 6, 2020. | ||||
Strike price of options | $ 0.435 | ||||
Vesting date of options | Will vest on August 5, 2021 and have a term of 5 years. | ||||
Term of options | 10 years |
Stock Transactions (Adoption Of Stock Repurchase Plan) (Narrative) (Details) - USD ($) |
3 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 30, 2020 |
Sep. 23, 2019 |
May 31, 2019 |
Dec. 19, 2018 |
Aug. 29, 2018 |
Dec. 15, 2017 |
May 01, 2017 |
Feb. 13, 2017 |
Aug. 23, 2016 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Repurchase of shares, value | $ 36,333 | $ 8,615 | |||||||||
Common Stock [Member] | |||||||||||
Repurchase of shares, shares | (283,383) | (45,470) | |||||||||
Repurchase of shares, value | $ (28) | $ (3) | |||||||||
Stock Repurchase Plan [Member] | Common Stock [Member] | |||||||||||
Value of shares authorized to be repurchased | $ 750,000 | $ 750,000 | $ 1,000,000 | $ 750,000 | $ 1,000,000 | $ 750,000 | $ 750,000 | ||||
Repurchase of shares, shares | 666,667 | 1,000,000 | 283,383 | ||||||||
Exercise price of shares repurchased | $ 0.15 | $ 0.15 | |||||||||
Repurchase of shares, value | $ 36,333 | ||||||||||
Stock Repurchase Plan [Member] | Common Stock-Total [Member] | |||||||||||
Repurchase of shares, shares | 750,000 | ||||||||||
Repurchase of shares, value | $ 107,740 |
Income Taxes (Narrative) (Details) - USD ($) |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 27, 2020 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
Income Taxes Narrative | ||||
Operating loss carryforward | $ 1,654,000 | |||
Operating loss carryforward limitations on use | Offset against future taxable income through 2034. | |||
Changes in income tax rate description | On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. The Company was able to carryback the NOL to 2017 tax years and generate an estimated refund of previously paid income taxes at an approximate 34% federal tax rate. This resulted in a net benefit of $573,685 which has been recorded in the first quarter 2020. | |||
Effective income tax rate | 49.00% | 3.40% | ||
Statutory income tax rate | 25.20% | 24.40% |
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