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Capstone Companies, Inc. Reports Record Third Quarter 2017 Revenue

Capstone Companies, Inc. (OTC: CAPC) (“Capstone” or the “Company”), a designer of innovative LED lighting solutions including power failure lighting, yesterday reported its financial results for the third quarter 2017.

Stewart Wallach, Capstone’s Chairman and CEO, commented, “As evidenced by our third quarter results, the Companies’ branding and product strategies continue to deliver. Our product placement earlier in the year was strong resulting in five additional products finding retail shelves. We have broken our quarterly revenue record for Q3 and have surpassed our record 2016 revenues by over $2 million. Our product development efforts remain laser focused on continuing to deliver new and innovative products for 2018.”

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

     

Q3 2017

   

Q3 2016

   

Change

   

% Change

Revenue $ 13,818 $ 11,692 2,126 18.1%
Gross Profit 3,110 2,851 259 9.1%
Gross Margin (%) 22.5% 24.4% - -
Operating Income 1,450 1,604 (154) (9.6%)
Operating Margin (%) 10.5% 13.7% - -
Net Income Before Tax 1,381 1,514 (133) (8.8%)
Net Income Before Tax (%) 10.0% 12.9% - -
Earnings Per Diluted Share $ 0.02 $ 0.03 - -
 

2017 First Nine Months Financial Summary
($ in thousands, except per share data)

     

Q3 2017
YTD

   

Q3 2016
YTD

   

Change

   

% Change

Revenue $ 30,790 $ 22,673 8,117 35.8%
Gross Profit 7,333 5,593 1,740 31.1%
Gross Margin (%) 23.8% 24.7% - -
Operating Income 3,176 2,724 452 16.6%
Operating Margin (%) 10.3% 12.01% - -
Net Income Before Tax 3,063 2,510 553 22.0%
Net Income Before Tax (%) 9.9% 11.1% - -
Earnings Per Diluted Share $ .045 $ .051 - -
 

Record revenue growth in the third quarter of 2017 resulted from strong demand for the Company’s battery powered accent lighting products and the placement of 5 new lighting products. Products sold under Capstone Lighting®, Hoover® Home LED and Duracell® brands experienced significantly higher revenue levels.

Record gross profit was driven by the record revenue volume. Gross margin as a percent to revenue declined slightly, when compared against the prior year quarter, however that is after the Company invested an additional $677 thousand in market promotional spending to support the launch of the new products.

Selling and marketing expense increased to $928 thousand from $488 thousand in the prior year quarter. During the quarter we expensed $514 thousand of Royalty payments for the branded licenses, resulting from the higher revenue levels.

Net Operating Income for the quarter 2017 and 2016 was $1.450 million and $1.604 million, respectively. With a $390 thousand tax provision for the quarter 2017 Net Income was $991 thousand compared to $1.490 million in 2016.

Record revenue for the 9 months 2017 of $30.8 million was $8.1 million or 35.8% higher than in 2016. Record gross profit for the 9 months 2017 of $7.3 million was $1.7 million or 31.1% higher than in 2016 and that is after investing $1.8 million in product promotional allowances.

Record Operating Income for the 9 months 2017 of $3.2 million was $452 thousand higher than in 2016.

Net Income for the 9 months 2017 was $2.1 million or $331 thousand lower than 2016, however that is after the Company provided for a tax provision of $920 thousand or $883 thousand higher than 2016.

Webcast and Teleconference to Review Results and Outlook

The Company will host a live webcast and conference call on Thursday, November 16, 2017 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 23, 2017. To listen to the replay of the call, dial (844) 512-2921 and enter replay pin number 13671616. 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 INCOME
(Unaudited)
       
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
 
Revenues, net $ 13,817,909 $ 11,692,146 $ 30,789,653 $ 22,672,551
Cost of sales   (10,707,657 )   (8,841,148 )   (23,457,070 )   (17,079,271 )
Gross Profit   3,110,252     2,850,998     7,332,583     5,593,280  
 
Operating Expenses:
Sales and marketing 928,321 488,057 1,869,596 903,888
Compensation 351,915 325,283 1,065,621 949,753
Professional fees 109,257 111,339 429,440 286,681
Product development 80,991 127,367 219,464 227,552
Other general and administrative   189,780     195,046     572,461     501,458  
Total Operating Expenses   1,660,264     1,247,092     4,156,582     2,869,332  
 
Net Operating Income   1,449,988     1,603,906     3,176,001     2,723,948  
 
Other Income (Expense):
Interest Income (12,945 ) 13,664 - 13,664
Interest expense   (56,514 )   (103,363 )   (113,431 )   (227,522 )
Total Other Income (Expense)   (69,459 )   (89,699 )   (113,431 )   (213,858 )
 
Income Before Tax Provision 1,380,529 1,514,207 3,062,570 2,510,090
 
Provision for Income Tax   (390,000 )   (24,412 )   (920,000 )   (37,012 )
 
Net Income $ 990,529   $ 1,489,795   $ 2,142,570   $ 2,473,078  
 
Net Income per Common Share
Basic $ 0.021   $ 0.031   $ 0.046   $ 0.051  
Diluted $ 0.021   $ 0.031   $ 0.045   $ 0.051  
 
Weighted Average Common Shares Outstanding
Basic   46,660,456     48,132,664     46,989,940     48,132,664  
Diluted   47,152,574     48,371,158     47,462,664     48,320,017  
 
The accompanying notes are an integral part of these financial statements.
 
CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
September 30, December 31,
2017 2016
(Unaudited)
Assets:
Current Assets:
Cash $ 3,240,721 $ 1,646,128
Accounts receivable, net 4,660,203 4,449,179
Inventory 142,065 366,330
Prepaid expenses   349,410     330,020  
Total Current Assets   8,392,399     6,791,657  
 
Property and Equipment:
Computer equipment and software 19,767 19,767
Machinery and equipment 371,323 325,750
Furniture and fixtures 5,665 5,665
Less: Accumulated depreciation   (304,176 )   (250,465 )
Total Property & Equipment   92,579     100,717  
 
Other Non-current Assets:
Deposit 13,616 12,193
Note receivable - 526,887
Goodwill   1,936,020     1,936,020  
Total Other Non-current Assets   1,949,636     2,475,100  
Total Assets $ 10,434,614   $ 9,367,474  
 
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable and accrued liabilities $ 2,122,220 $ 2,678,210
Income tax payable 404,088 1,588
Notes and loans payable to related parties   688,384     1,321,721  
Total Current Liabilities   3,214,692     4,001,519  
 
Long Term Liabilities:
Deferred tax liabilities   362,000     216,000  
Total Long Term Liabilities   362,000     216,000  
Total Liabilities   3,576,692     4,217,519  
 
Commitments and Contingencies (Note 6)
 
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 47,046,364 shares and 48,132,664 shares 4,704 4,813
Additional paid-in capital 6,976,678 7,411,172
Accumulated deficit   (123,460 )   (2,266,030 )
Total Stockholders' Equity   6,857,922     5,149,955  
Total Liabilities and Stockholders’ Equity $ 10,434,614   $ 9,367,474  
 
The accompanying notes are an integral part of these financial statements.
   
CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
For the Nine Months Ended
September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
Net income $ 2,142,570 $ 2,473,078
Adjustments necessary to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 55,725 44,400
Accrued interest on note receivable 26,887 (13,654 )
Stock based compensation expense 66,594 46,581
Provision for deferred income tax 146,000 -
Accrued sales allowance (831,731 ) (94,203 )
(Increase) decrease in accounts receivable 731,532 (6,755,174 )
(Increase) decrease in inventory 224,265 (275,049 )
(Increase) decrease in prepaid expenses (20,813 ) 43,764
Increase (decrease) in accounts payable and accrued liabilities (263,912 ) 958,580
(Decrease) in accrued interest on notes payable   (135,337 )   (168,492 )
Net cash provided by (used in) operating activities   2,141,780     (3,740,169 )
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment   (47,587 )   (15,501 )
Net cash (used in) investing activities   (47,587 )   (15,501 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 30,559,312 19,393,834
Repayments of notes payable (30,559,312 ) (15,049,345 )
Repurchase of shares from Involve, LLC (250,000 ) -
Warrant issued 7,500 -
Proceeds from notes and loans payable to related parties - 860,000
Repayments of notes and loans payable to related parties   (257,100 )   (1,453,946 )
Net cash provided by (used in) financing activities   (499,600 )   3,750,543  
 
Net Increase (decrease) in Cash and Cash Equivalents 1,594,593 (5,127 )
Cash and Cash Equivalents at Beginning of Period   1,646,128     364,714  
Cash and Cash Equivalents at End of Period $ 3,240,721   $ 359,587  
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest   221,881   $ 396,014  
Income taxes $ 371,500   $ 31,912  
 
Non-cash financing and investing activities:
Sale of Investment for Note receivable $ -   $ 500,000  
 
Shares issued in satisfaction of loan payable to related party $ 240,900   $ -  
 
The accompanying notes are an integral part of these financial statements.

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