CAPC Capstone Companies Inc (QB)

Capstone Companies, Inc. (OTC:CAPC) (“Capstone” or the “Company”), a designer of innovative LED lighting solutions including power failure lighting, today reported its financial results for the third quarter 2016.

Stewart Wallach, Capstone’s Chairman and CEO, commented, “We believe our performance this year has clearly substantiated that we have the right strategy, have successfully established a distinct niche in the home LED lighting space and have the talent and experience to execute well.  We have once again broken our quarterly revenue record on the back of our successful introduction of accent lighting products through the warehouse club channels.  Our product innovation, responsive and reliable customer service and strong brands have gained traction resulting in substantial revenue and earnings growth in the first nine months of 2016.

“We will continue to drive growth by developing new lighting products that incorporate previously unmet functionality while utilizing the efficiency of LED lighting.  We are starting to see a preliminary picture of what the first part of 2017 may look like for Capstone, and all indications at this point are for a first half of 2017 that outperforms our strong performance in the first half of 2016.”  

Third Quarter Financial Summary ($ in thousands, except per share data)

	Q3 2016				Q3 2015				Change				% Change
U.S. revenue	$	11,396			$	7,425				3,971				53	%
International revenue		297				323				(26	)			-8	%
Total revenue		11,692				7,747				3,945				51	%
Gross profit		2,851				1,980				871				44	%
Gross margin		24.4	%			25.6	%
Operating income		1,604				1,359				245				18	%
Operating margin		13.7	%			17.5	%
Net income	$	1,490			$	1,247				242				19	%
Earnings per diluted share	$	0.03			$	0.03				-				NM

Revenue growth in the third quarter of 2016 was primarily the result of strong demand for the Company’s battery powered portable lighting products and wireless remote control products.  Products sold under both the Capstone Lighting and Hoover® Home LED brands experienced significantly improved revenue.    

Increased gross profit was driven by strong revenue growth.  Gross margin as a percent of revenue declined due to significantly higher levels of promotional spending in the 2016 quarter, to support the introduction of new products, which reduced gross margin by approximately 5 percentage points when compared with the prior-year period.

Selling, general and administrative expenses (SG&A) increased to $1.2 million, from $0.6 million in the prior-year period on higher revenue.  SG&A as a percent of revenue increased to 10.7%, primarily due to higher sales and marketing expenses reflecting $221 thousand of royalty payments related to the Company’s licensing of the Hoover® brand name that did not occur in the third quarter of 2015.  As a result of these factors, operating income increased by 18% over the prior-year period to a record $1.6 million.

Net income increased to a record $1.5 million, or $0.03 per diluted share, in the third quarter of 2016. 

2016 First Nine Months Financial Summary ($ in thousands, except per share data)

	Q3 2016 YTD				Q3 2015 YTD				Change		% Change
U.S. revenue	$	20,826			$	7,962			12,864			162	%
International revenue		1,847				789			1,058			134	%
Total revenue		22,673				8,751			13,922			159	%
Gross profit		5,594				2,341			3,253			139	%
Gross margin		24.7	%			26.7	%
Operating income (loss)		2,724				357			2,367			663	%
Operating margin		12.0	%			4.1	%
Net income (loss)	$	2,473			$	151			2,322			1538	%
Earnings (loss) per diluted share	$	0.05			$	-			-			NM

Financial results for the first nine months 2016 improved significantly over the prior-year period, reflecting the successful introduction of new Capstone lighting products and the Hoover Home LED® brand.  Improved operating and net margins are reflected in the operating leverage that the Company realized on higher sales levels.

Webcast and Teleconference to Review Results and Outlook

The Company will host a live webcast and conference call on Tuesday, November 15, 2016 at 10:30 a.m. Eastern Time.  During the call, management will review the financial and operating results and discuss the Company’s corporate strategy and outlook, followed by a question-and-answer session.  The conference call can be accessed by dialing (201) 689-8562.  The listen-only audio webcast can be monitored at www.capstonecompaniesinc.com.

A telephonic replay will be available from 1:30 p.m. Eastern Time the day of the teleconference until Tuesday, November 22, 2016.  To listen to the replay of the call, dial (858) 384-5517 and enter replay pin number 13645717.  Alternatively, the archive of the webcast will be available on the Company’s website at www.capstonecompaniesinc.com.  A transcript will also be posted to the website, once available.

About Capstone Companies, Inc. Capstone Companies, Inc. is a public holding company that engages, through its wholly-owned subsidiaries, Capstone Industries, Inc., Capstone Lighting Technologies, LLC, and Capstone International HK, Ltd., in the development, manufacturing, logistics, and distribution of consumer and institutional products, including the Hoover® HOME LED lighting product line, to accounts throughout North America and in international markets.  See www.capstonecompaniesinc.com for more information about the Company and www.capstoneindustries.com for information on our current product offerings.

FORWARD-LOOKING STATEMENTS:This news release contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995, as amended.  Such statements consist of words like “anticipate,” “expect,” “project,” “continue” and similar words.  These statements are based on the Company’s and its subsidiaries’ current expectations and involve risks and uncertainties, which may cause results to differ materially from those set forth in the forward-looking statements.  Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, include consumer acceptance of the Company’s products, its ability to deliver new products, the success of its strategy to broaden market channels and the relationships it has with retailers and distributors.  Prior success in operations does not necessarily mean success in future operations.  The ability of the Company to adequately and affordably fund operations and any growth will be critical to achieving and sustaining any expansion of markets and revenue.  The introduction of new products or the expanded availability of products does not mean that the Company will enjoy better financial or business performance. The risks associated with any investment in Capstone Companies, Inc., which is a small business concern and a "penny-stock Company” and, as such, a highly risky investment suitable for only those who can afford to lose such investment, should be evaluated together with the risks and uncertainties more fully described in the Company’s Annual and Quarterly Reports filed with the Securities and Exchange Commission.  Capstone Companies, Inc. undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.  Contents of referenced URLs are not incorporated into this press release.

FINANCIAL TABLES FOLLOW.  THE FOLLOWING SUMMARY FINANCIAL STATEMENT SHOULD BE READ ALONG WITH THE FORM 10-K FINANCIAL STATEMENT FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

	CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
	CONSOLIDATED STATEMENTS OF OPERATIONS
	(Unaudited)
				For the Three Months Ended								For the Nine Months Ended
				September 30,								September 30,
					2016				2015				2016				2015
	Revenues, net			$	11,692,146			$	7,747,450			$	22,672,551			$	8,750,951
	Cost of sales				(8,841,148	)			(5,767,306	)			(17,079,271	)			(6,410,197	)
	Gross Profit				2,850,998				1,980,144				5,593,280				2,340,754
	Gross margin				24.4	%			25.6	%			24.7	%			26.7	%
	Operating Expenses:
	Sales and marketing				488,057				16,716				903,888				185,229
	Compensation				325,283				313,953				949,753				1,007,341
	Professional fees				111,339				56,947				286,681				202,511
	Product development				127,367				74,747				227,552				181,157
	Other general and administrative				195,046				158,796				501,458				407,114
	Total Operating Expenses				1,247,092				621,159				2,869,332				1,983,352
	Net Operating Income				1,603,906				1,358,985				2,723,948				357,402
	Operating margin				13.7	%			17.5	%			12.0	%			4.1	%
	Other Income (Expense):
	Interest income				13,664				-				13,664				-
	Interest expense				(103,363	)			(111,654	)			(227,522	)			(205,933	)
	Total Other Income (Expense)				(89,699	)			(111,654	)			(213,858	)			(205,933	)
	Income Before Tax Provision				1,514,207				1,247,331				2,510,090				151,469
	Provision for Income Tax				(24,412	)			-				(37,012	)			-
	Net Income			$	1,489,795			$	1,247,331			$	2,473,078			$	151,469
	Net Income per Common Share
	Basic			$	0.031			$	0.026			$	0.051			$	0.003
	Diluted			$	0.031			$	0.026			$	0.051			$	0.003
	Weighted Average Common Shares Outstanding
	Basic				48,132,664				48,132,664				48,132,664				46,057,590
	Diluted				48,371,158				48,132,664				48,320,017				46,057,590

 

	CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
	CONSOLIDATED BALANCE SHEETS
		September 30,				December 31,
			2016				2015
		(Unaudited)
	Assets:
	Current Assets:
	Cash	$	359,587			$	364,714
	Accounts receivable, net		11,832,358				5,077,182
	Inventory		480,758				205,708
	Prepaid expenses		522,694				566,459
	Total Current Assets		13,195,397				6,214,063
	Fixed Assets:
	Computer equipment and software		19,767				19,767
	Machinery and equipment		396,133				380,633
	Furniture and fixtures		5,665				5,665
	Less: Accumulated depreciation		(339,579	)			(295,180	)
	Total Fixed Assets		81,986				110,885
	Other Non-current Assets:
	Deposit		12,193				12,193
	Investment (AC Kinetics)		-				500,000
	Note receivable		513,654				-
	Goodwill		1,936,020				1,936,020
	Total Other Non-current Assets		2,461,867				2,448,213
	Total Assets	$	15,739,250			$	8,773,161
	Liabilities and Stockholders’ Equity:
	Current Liabilities:
	Accounts payable and accrued liabilities	$	3,023,561			$	2,164,283
	Income tax payable		12,600				7,500
	Note payable - Sterling National Bank		6,620,023				2,275,534
	Notes and loans payable to related parties		1,301,596				2,064,034
	Total Current Liabilities		10,957,780				6,511,351
	Commitments and Contingent Liabilities (Note 5):
	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, issued 48,132,664 shares		4,813				4,813
	Additional paid-in capital		7,390,697				7,344,115
	Accumulated deficit		(2,614,040	)			(5,087,118	)
	Total Stockholders' Equity		4,781,470				2,261,810
	Total Liabilities and Stockholders’ Equity	$	15,739,250			$	8,773,161

 

	CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited)
			For the Nine Months Ended
			September 30,
				2016				2015
	CASH FLOWS FROM OPERATING ACTIVITIES:
	Net Income		$	2,473,078			$	151,469
	Adjustments necessary to reconcile net income to net cash (used in)  operating activities:
	Depreciation and amortization			44,400				49,311
	Accrued interest on note receivable			(13,654	)			-
	Stock based compensation expense			46,581				81,219
	Accrued sales allowance			(94,203	)			(196,978	)
	(Increase) decrease in accounts receivable			(6,755,174	)			(6,376,672	)
	(Increase) decrease in inventory			(275,049	)			38,337
	(Increase) decrease in prepaid expenses			43,764				(371,317	)
	(Increase) decrease in other assets			-				14,456
	Increase (decrease) in accounts payable and accrued liabilities			958,580				1,167,729
	Increase (decrease) in accrued interest on notes payable			(168,492	)			148,385
	Net cash (used in) operating activities			(3,740,169	)			(5,294,061	)
	CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of property and equipment			(15,501	)			(58,194	)
	Net cash (used in) investing activities			(15,501	)			(58,194	)
	CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from notes payable			19,393,834				5,791,914
	Repayments of notes payable			(15,049,345	)			(1,895,194	)
	Proceeds from notes and loans payable to related parties			860,000				2,500,000
	Repayments of notes and loans payable to related parties			(1,453,946	)			(1,100,000	)
	Net cash provided by financing activities			3,750,543				5,296,720
	Net (Decrease) in Cash and Cash Equivalents			(5,127	)			(55,535	)
	Cash and Cash Equivalents at Beginning of Period			364,714				313,856
	Cash and Cash Equivalents at End of Period		$	359,587			$	258,321
	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid during the period for:
	Interest		$	396,014			$	57,549
	Income taxes		$	31,912			$	-
			$	427,926			$	57,549
	Non-cash financing and investing activities:
	Conversion of Series C Preferred Stock to Common Stock		$	-			$	1,000
	Sale of Investment for Note receivable		$	500,000			$	-

For more information, contact
Company:  
Aimee Gaudet
Corporate Secretary
(954) 252-3440, ext. 313

Investor Relations: 
Kei Advisors LLC 
Deborah K. Pawlowski / Garett K. Gough 
(716) 843-3908 / (716) 846-1352 
dpawlowski@keiadvisors.com / ggough@keiadvisors.com